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What loan funders look for in considering applications from potential CAT organisations
- 1. Securing a loanfor your Community Asset Transfer
- 2. Introductions Jon Field Unity TrustBank Matthew Brown WCVA, Communities Investment Fund
- 3. Presentation Outline - Whyuse loan finance and what for? - What are lenders looking for? - How can loans help you? - What’s good about loans and what’s not so good? - What do you need to consider? - What happens once you take a loan?
- 4. Loan Finance Why botherwith loan finance? • Changing funding environment • Sustainability encouraged through social enterprise • Desire for self-determination • Flexibility • Need to demonstrate risk-sharing approaches • Emphasis on asset development
- 5. Loan Finance What canloans be used for? • Asset development – purchase/renovate property • Purchase equipment and other capital assets • Finance cash flow (i.e. “revenue costs” or “working capital”) • Finance public sector or similar contracting • Set up new projects or ventures • Invest in growth opportunities
- 6. Applying for finance… There'sa huge difference between spending money on expenses and spending money to build an asset. Ice at a picnic is an expense… Once it melts, it's gone. Your electric bill, rent….these are costs of doing business, and you should rarely, if ever, borrow money to pay them
- 7. Applying for finance… Assets,on the other hand, are things that sustain or grow in value, that you can use again and again, and that are ultimately worth more than they cost. Unity Trust will look to lend only when secured against assets but WCVA will consider unsecured lending. Typical Loan to Value 75% and WCVA can consider lending you your 25% Deposit.
- 8. Applying for finance… Aswith all icebergs, the bulk, and the interesting stuff lies below the water, and that’s what we’re interested in ... because that’s what anchors the iceberg and gives it its shape. There are many things that we want to know when you come to us with your proposal, and your business plan and cash flow forecasts are just the tip of the iceberg.
- 9. Loan Finance What dolenders want?
- 10. Loan Finance What dolenders want? LENDERS WANT TO GET REPAID!!
- 11. Loan Finance What dolenders want? Enough information to make a balanced judgement of the risks: (1) good track record (2) good people (3) properly researched proposals (4) financial forecasts supported by hard evidence and/or sound arguments (5) clear exit routes (i.e. where repayment comes from)
- 12. Loan Finance What dolenders want? One method of assessing the risks is by using this acronym: “CAMPARI”
- 13. Loan Finance C =Customer/Character A = Ability to repay M = Margin P = Purpose A = Amount R = Repayment source I = “Insurance” (i.e. Security)
- 14. Loan Finance What is“security”? Assets which can be sold as an alternative source of repayment if the loan goes wrong Main types of security: (1) charges (i.e. mortgages) over land and buildings (2) all asset debenture charges
- 15. Loan Finance How cana loan help you? Consider the following: • will it allow you to achieve your mission, aims and objectives? • will the project generate enough income to meet repayments? • will the loan help to improve service provision or reaching more beneficiaries? • will the loan contribute to the future sustainability of the organisation by providing opportunities for further income generation? You need to be clear about the business case before contemplating loan finance
- 16. Loan Finance What’s goodand what’s not so good? PROS CONS Flexibility Repayable! Independence Costs (interest, fees etc) Quicker decision processes Legally binding agreements Usually less driven by criteria Balance sheet liability Usually less output monitoring Regular financial monitoring Loans usually paid up front Credit checks Improved business planning Lender may require security
- 17. Loan Finance What shouldyou think about? (1) Incorporation - limits the liability of trustees and members (2) Need to look at finances across the whole organisation - lender interested in the full picture, not just the project (3) Financial management systems - ability to report performance (4) Management and directors/trustees - business/financial skills? - quality of governance? (5) Repayment term – sensibly matched to loan purpose?
- 18. Loan Finance The loan’sapproved – now what happens? (1) Loan offer and/or agreements issued (2) If security is involved, solicitors instructed (3) Preconditions need to be satisfied before funds drawn (4) Once drawn, maintain repayments and provide management information
- 19. Loan Finance The loan’sapproved – now what happens? (5) If you hit problems, or you see them coming TALK TO YOUR INVESTORS!!
- 20. Case Study • NoFitState Circus • Acquired 4 Elms, Roath, Cardiff via Asset Transfer from Cardiff Council • Unity provided a mortgage of £250k alongside grant funding from Big Lottery Wales to support the redevelopment of 4 Elms.
- 21.