Many voluntary organisations say they are finding it harder to get funding these days. But is this true or are they simply unaware of how to get money beyond their usual tried and tested funding streams?
In reality, it's probably a bit of both. In our experience, many organisations are blinkered in their view of the funding marketplace, often lurching from one project-based grant to the next, relying on the tireless efforts of small fundraisers, or looking for gifts from wealthy and not-so-wealthy individuals.
At the same time, however, access to many existing sources of funding is getting harder and what is available is becoming more thinly spread. One of the biggest concerns for charities is the decline in European funding, which has been caused largely by the expansion of the EU, which means there is less money to go round. Local authority grants are also declining, which means more charities are jostling for money from trusts and foundations as well as corporate donations.
The central thrust of funding programmes in the future will be to improve the infrastructure of third sector organisations and to support the growth of social enterprise; they will not simply be hand-outs for service delivery. All of which means it's time for managers, senior executives and trustees to develop a more holistic view of funding, thinking strategically about where their income will be coming from, and planning for a sustainable, independent future.
There must be a clear understanding among charities and other third sector organisations that the move from funding to finance is a permanent shift in emphasis. Unless many of these groups and well-meaning projects can begin to generate income streams in their own right, they could be cutting themselves off from a variety of sources of further financial support.
Planning to obtain finance rather than applying for funding is a relatively new concept for many small and medium-sized voluntary groups, although it has a firmer footing with the larger third sector institutions and many social enterprises.
There are two main types of finance in the marketplace, often referred to as investment: loans and equity. Loan or debt finance requires repayment, most often with interest. Equity investment provides an injection of cash in return for shares in an organisation, even if the return required by the investor is more social than financial. There are also options in between where 'patient capital' combines a mix of grant and loan or equity, offering some return and flexible repayment terms.
Specialist finance providers
In addition to the mainstream banks, a number of specialist finance providers have entered the field, including Charity Bank, offering loans, stand-by facilities and guarantees to third sector organisations and small enterprises. Their advantage is that they can consider more unusual or commercially risky projects, looking at the social benefits of the investment, not only the financial return.
Before an organisation can be considered for an investment of either debt or equity, however, the lender or investor is likely to require two characteristics to either exist or be planned. First, the recipient should have the ability to generate a stream of income that can service the loan; second, it must have sufficient assets to provide security for a loan or be able to generate its own income.
So a charity or voluntary group that exists only on the goodwill and financial support of donors and volunteers might need to generate its own income stream. Consider your local high street: there may seem to be a lot of charity shops out there selling new and second-hand goods. But they don't exist to provide a cost-effective recycling operation, however worthwhile that may be. They exist primarily to further their objectives.
Organisations do have a potentially huge opportunity to start trading and generating streams of unrestricted revenue, developing sustainable social enterprises in the process. However, it's recognised that this step from funding to finance is too great for some without suitable help and guidance. Much still needs to be done to help managers and trustees become aware of the wide range of support services currently available in the arena, but there is a lot out there.
Research on third sector access to finance by consultancy SQW on behalf of the Office of the Third Sector in May found that support could be divided broadly into two types: that offered by the funder or finance provider; and that available from sources unrelated to the provider, such as the NCVO's Sustainable Funding Project or the Community Development Finance Association.
If part of the solution includes the sector becoming more educated about the available options, we as providers have a responsibility to share information more widely if we're going to be effective in helping third sector organisations towards sustainability.
The key message is that those third sector organisations wanting to finance their missions and build a sustainable future need to consider all the possible funding options, including loan financing and equity investment. Combined with suitable support and advice, a holistic approach can enable many more worthy entities to thrive in the challenging years ahead.
- Jim Gilbourne is deputy chief executive of Charity Bank.