Funding a charity is not simple. It usually involves a complex mix of funds from multiple sources, and indeed, well-diversified income streams is what many strive for.
Diversification spreads the risk of overdependence on any one source and helps ease the drawbacks of certain sources of funding: the uncertainty and slow pace of fundraising or the cost and conditions of grant or contract finance. Mixing your sources enables you to avoid putting your eggs in one basket, strengthening your financial resilience.
When a major project appears on your charity’s horizon, whether that be setting up a social enterprise, purchasing capital equipment, renovating or purchasing a property or even building a new one, the principles remain the same. Using a mix of sources is just as prudent for funding a single impact-growing project as it is for your running costs.
So, where do you start when planning for a major project?
Considerations for each potential funding source
When planning your funding sources, there are four key things to consider:
- Ease of deployment. How quickly can you access the funding and do you even have certainty of the timeline beforehand?
- Restrictions on its use. Is the funding free to use as you wish or are there restrictions? Will the project appeal to your donors’ or funders’ interests, values or criteria to secure it in the first place?
- Short-term and long-term costs. What resources are required to secure the funding? Does it come with high interest rates? How else might it impact your organisation’s financial health?
- Level of confidence. Can you influence the process of securing the funding or are you reliant on external decision making as with grant funding? Can you use feedback to tailor your message or enhance your application, as with fundraising or applying for repayable finance?
Sources of funding that work well together
Your initial solution may be to use your existing cash reserves or savings, but how much will that leave for unexpected challenges? Could you fundraise for the entire project? Consider the time this could take, you may not even know how long the process will take before you start. Do you need funds in place to book contractors or suppliers? Could prices rise or situations change by the time you’ve reached your funding target?
A common way to fund charity projects is by combining existing reserves with fundraising campaigns. Other potential options include mixing fundraising or grants with repayable finance such as social investment, a secured loan, standby facility or a blended finance social investment package (part unsecured loan, part grant). Equally, different types of repayable finance, such as social investment and a secured loan, can work well together.
Choosing the right combination for your project
These five key steps will help you identify the right mix for your project:
- Put your case of support together. Why are you doing this project and what is the benefit? Asking yourself this question will not only help define your priorities, but will support your application and messaging when approaching lenders, funders or donors.
- Define your priorities for your funding. Is it keeping costs down, sticking to tight timeframes, or ensuring certainty? This will help identify the most relevant sources for you.
- Source non-repayable funds where possible. This could be through grants or fundraising, but make sure it’s fit for purpose for your organisation’s goals and needs.
- Consider your whole charity, not just the project. If you’re thinking of using your reserves, ensure you adhere to your reserves policy and have a sufficient surplus to deal with any unforeseen costs, both for the project and your day-to-day operations.
- Know your long-term affordability. Budget for the long-term; can you afford the debt and additional costs or bills the project will produce in the long-run?
As with any significant undertaking, it’s rare to fund a project with just one source of money. Making a proactive set of choices based on your aims and circumstances will not only help keep your project plans on track, it can strengthen your organisation’s underlying financial health.
Richard Hunt is Head of Customer and Lending at CAF Bank
This article is intended to provide an overview of areas to be considered, but does not replace independent financial advice.
CAF Venturesome is a non-regulated product which provides financial support to charities through social investment.
CAF Bank loans are non-regulated products.
Loan applications subject to credit assessment. Security will be required.
Charity assets may be at risk if you do not keep up with the repayments for a mortgage, loan or any other debt secured on them.
If you're thinking of consolidating existing borrowing, you should be aware that you may be extending the term of the debt and increasing the total amount you pay.
CAF Bank Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register number: 204451). CAF Bank Limited Registered office is 25 Kings Hill Avenue, Kings Hill, West Malling, Kent ME19 4JQ. Registered in England and Wales under number 1837656.
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