Why it's a good time to take calculated risks

Social lenders are offering charities the chance to borrow intelligently in an uncertain climate, says Sue Cooper, deputy head of business banking at Triodos Bank

Sue Cooper, deputy head of business banking, Triodos Bank
Sue Cooper, deputy head of business banking, Triodos Bank

Risk is a word that everyone seems to be using at the moment - particularly in the financial sector. The commentary on the credit crunch is generally negative and people running charities might feel that now is not the time to try new ventures. However, the current market may also represent an opportunity for some, provided they have thoroughly assessed the risks involved.

A risk is any uncertainty that has the potential to prevent you reaching your goal, but which might also lead to a positive outcome. Charities are naturally cautious when it comes to financial risk, and even more so in the current economic climate. However, where other high-street banks are pulling out of lending, there are good opportunities out there for charities - whether it be borrowing to invest in property that has become affordable, investing in working capital to finance government contracts or using existing assets to build capacity in an organisation by investing in people.

Because social lenders specialise in charity finance, they take a different view of lending to charities. Whereas high-street banks use computer-generated systems to make risk decisions, social lenders make human decisions based on their understanding and knowledge of the marketplace. These are more informed decisions because they are based on meetings with managers and trustees.

Careful planning will go a long way towards helping charities to finance new projects. As a lender, there are a few key elements of charities we look at when making risk decisions.

These include a charity's management: does a charity have an able management team with the ability, skills and determination to complete a new project successfully?

We also check whether the charity's finances are up to date and whether there is a good level of historic, current and projected financial information to back the decision to take on a new project. And we look at whether other resources or income streams are available if the project does not go according to plan.

We also examine whether the charity has conducted a thorough risk assessment. This is a vital element of the process of obtaining finance. It is not just down to lenders to measure risk, and it is not advisable for charities to try to borrow for something they have not researched properly.

Risks can also be opportunities and, even during a credit crunch, money can and should be lent to charities to enable them to take advantage of opportunities that open up to them.

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