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Expanding the Financial Toolbox Introduction to alternative financial providers
This document provides information about a number of providers in the UK of loans and quasi-equity (revenue sharing) who offer advantages over commercial lenders/investors. Introduction Loans are still the most common form of financing for arts and cultural organisations after grants and donations. Certain commercial banks and specialist finance providers (see list below) such as Triodos and Charity Bank actively lend to arts and cultural organisations, while Venturesome not only lends but also underwrites loans. Some grant making foundations, including Esmée Fairbairn and Northern Rock, have also run loan programmes. Loans are not a universal solution to the capital needs of creative practitioners and organisations, however. Research shows that many are reluctant to explore this type of financing, especially in today’s turbulent financial climate. Yet, in a sector where many don’t have adequate reserves to cushion financial blows or permit strategic investment, loan financing can help in a number of ways: • • • • Providing financial capital to develop large-scale fixed assets, such as buying, building or regenerating a performance space. Evening out bumps in cashflow caused, for example, by late payment of grants or delayed payment on completion of projects. Enabling organisations to take advantage of opportunities before fundraising is complete, for example buying a particular plot of land when it comes up for sale. Providing capital for developing new sources of revenue, for example recruiting a staff member with expertise in membership or business development.
Expanding the Financial Toolbox
As our case stories show, there’s more than one kind of lending and more than one way to put borrowed money to use. One notable new player on the finance scene is the specialist finance provider. Sometimes called “social lenders” or “social banks”, their mission is to provide capital on terms that are favorable to third sector organisations. A specialist finance provider’s loans may incorporate features such as low interest rates, flexible terms of repayment and long repayment schedules that mean the lender is effectively sharing the financial risk with the organisation. Their strategies can include any of the following mechanisms or a combination of several of them: unsecured loans, patient capital (loans provided over a long period say 5 to 10 years) repayment holidays, below-market interest rates, underwriting Specialist finance providers are giving a new, more honorable meaning to the term “creative financing”. They figure prominently in many of the examples in this report, demonstrating an ability to tailor lending to suit the precise needs of creative practitioners and organisations. Yet the specialist providers we contacted told us that few in the sector contact them than do other kinds of third sector groups. This suggests that the sector may not yet be taking full advantage of the services specialist finance providers have to offer. Specialist Providers Triodos is an ethical bank that offers a range of banking services and lends money to organisations and businesses pursuing positive social, environmental and cultural goals. Established in 1980, it lends widely to creative organisations: in 2004, arts and cultural organisations received 42% of the value of its loan portfolio of £548 million. Its current focus is on projects that integrate arts into the community. Recent projects include loans to the Age Exchange Theatre in London, the Voicebox Centre in Darby, WASPS artists studios, and Komedia, an arts venue in Brighton. www.triodos.co.uk Charity Bank offers financial support and services to charities, voluntary organisations and social enterprises including many in the creative sector. It lends up to £1 million or short term bridging loans, working capital loans and loans for new developments and 2
Expanding the Financial Toolbox
income generation strategies, among many other types of loans. It can also provide underwriting facilities, help arrange loans from other lenders and put together mixed funding packages. It provides leasing and asset finance and is establishing a programme of Shariah-compliant loans and leasing for the benefit of those who prefer not to use an interest-based banking model. Charity Bank is currently working with the Arts Council to encourage more arts and culture organisations to consider loan finance. www.charitybank.org Venturesome, an initiative of Charities Aid Foundation (CAF), provides capital to charities using donations and loans from individuals, companies and foundations. Its loan portfolio is now valued at £10 million. Arts and cultural organisations make up less than 5% of its clients, but it has financed a number of initiatives with creative organisations, including Out of the Blue, Circus Arts and Youth Music Theatre UK and it would like to work with more. Venturesome offers expertise and support as well as pure finance. Underwriting is a major part of its work. www.cafonline.org. Follow the links to Venturesome. Community Development Finance Institutions (CDFIs) are independent organisations that provide financial services to generate both social and financial returns. There are many different CDFIs operating in diverse regions of the UK. Some of them help creative organisations to find finance, especially for community projects. Their Find Finance web tool can help locate the CDFI in your area. www.cdfa.org.uk The Futurebuilders England Fund offers loan financing, grants and professional support to third sector organisations in England to help them secure or deliver public service contracts. It has lent money to many creative organisations for a variety of purposes including providing working capital, financing the purchase of equipment and capacity building. Stone Soup, StreetVibes Youth and Westminster Arts are among its clients. www.futurebuilders-england.org.uk (NB as at March 2010 this fund is currently closed to new applications)
Expanding the Financial Toolbox
The Modernisation Fund is a collaboration between Futurebuilders and Capacitybuilders in response to the recession. It provides interest-free loans to third sector organisations that are planning to merge or collaborate, or are taking other steps to adapt to the recession. Organisations must be delivering services that benefit people or communities affected by the recession. They can apply online for interest-free loans from £30,000 to £500,000. The Fund can tailor repayments to suit your needs. www.modernisationfund.org.uk (NB as at March 2010 this fund is currently closed to new applications)