Expert view: A wealth of funding options as well as grants

Charities often argue they could do so much more if only the funds were available, writes Venturesome's investment manager.

Jobs pages are bursting with adverts for fundraisers tasked with securing grants, which are essential to charities and the sector as a whole. But are grants always the best way to fund growth? And if not, what are the alternatives?

Some lucky charities can invest in growth ahead of income by using their reserves, but not many have sufficient reserves to cover cash flow, weather difficult periods and invest in growth.

Charities also struggle to access external funding for growth. In the past week alone, I've spoken to a charity struggling to find funding to employ a fundraiser, a community interest company that needs investment in communications to help it win more local authority contracts and an industrial and provident society that wants to free up management time to help it develop a new fundraising tool. These needs have proved unattractive to donors because they seem far from the 'front line' of service delivery. Likewise, banks have been less than enthusiastic because the financial returns seem uncertain.

In each case, however, there are sound plans and management and the chance of both financial and social returns. There is an element of risk, but experience suggests they could safely receive backing.

Grants will always be needed, but there's a finite pot for which there is intense competition. Today, a wider range of investment products exists to help charities finance growth. These charities are increasingly taking out long-term loans to buy equipment essential to the delivery of their services, as well as overdrafts from banks to cover cash-flow troughs.

Specialist social investors are willing to take on greater financial risk and are helping charities to achieve their social aims while recycling investment funds. For example, charities may be able to draw on underwriting facilities, which act as a safety net for a charity's reserves and additional fundraising when it wishes to embark on a new venture. The money is often not drawn so no interest charges are incurred, making the facility eminently affordable. Underwriting allows the charity to proceed where otherwise it would not have.

If you're thinking of growing, it's worth reflecting on what the right financial tool is, what level of risk you are prepared to take on and who might share in it.

Emilie Goodall is investment manager of Venturesome

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