Lending to charities

Invest to Give Fund Business Plan

Caroline Fiennes, Gregor Hoefter, and Laura Thomas

February 2006, 88 pages

There is increasing interest in financing charities through loans and other types of investments beyond grants. NPC has conducted two types of work in this area for specific clients; on a fund to support innovative fundraising approaches, and on a fund to grow charities delivering public services.

 

 

A fund to support innovative fundraising approaches

It can be difficult for charities to be innovative in fundraising because, even though the financial benefits might be attractive, they cannot afford failure.

NPC was asked to investigate whether charities would innovate more in fundraising if there were a fund providing loans and other types of finance to ‘underwrite’ the risks.

Key findings included:

• Such a fund could support charities in acquiring new donors. It could do this fairly cheaply: NPC estimated that the fund could unlock new donors for as little as around £38 each
• Lack of funds is indeed the main constraint to charities’ fundraising, cited by 38% of respondents in the survey, and felt particularly keenly felt by mid-size charities (with annual income £100k -£1m)
• Larger charities are more familiar with financial products: larger charities are more likely to use both loans and insurance against failed fundraising events

The fund would form part of the strategy of the Volunteering and Charitable Giving Unit (formerly in the Home Office, now in the Office of the Third Sector in the Cabinet Office), and has been committed to the Office of the Third Sector. NPC conducted the study in partnership with the Institute of Fundraising.

A fund to grow charities delivering public services

Charities are increasingly delivering public services under contract to government agencies. However, they sometimes struggle to grow, as they cannot borrow money, despite the income stream which more contracts would bring. Futurebuilders England was set up by HM Treasury to solve this problem, by lending to voluntary and community organisations delivering public services in England. NPC conducted a review of its first set of applications – those in its first ‘application window’ – which formed the basis for Futurebuilders’ first Learning Report.

The findings included that:

• More than 75% of Futurebuilders’ investees had previously not borrowed
• There is a demand amongst charities for Futurebuilders’ investment, that is, combinations of loans and grants to enable more delivery of public services
• Many investees took some time, and support from Futurebuilders to become ‘investment ready’
• Futurebuilders’ type of investment is relevant to a wide range of charities

Click on the links below to download the Futurebuilders' first learning report

• Summary version (6 pages)
• Full report (142 pages)