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The voice of Scotland’s vibrant voluntary sector

Published by Scottish Council for Voluntary Organisations

TFN is published by the Scottish Council for Voluntary Organisations, Mansfield Traquair Centre, 15 Mansfield Place, Edinburgh, EH3 6BB. The Scottish Council for Voluntary Organisations (SCVO) is a Scottish Charitable Incorporated Organisation. Registration number SC003558.

Charities could use support of emergency donors

 

Research by IVAR has highlighted the financial pressures facing charities.

A new report has claimed charities could have a network of emergency donors to help support them financially through difficult times. 

The research, published by social research body IVAR, said that relying on potential long-term donors in this way already allowed some voluntary organisations to operate with smaller reserves.

As reported by Third Sector, pre-arranged loans could also be included in other “substitute reserves”, the IVAR said, to only be accessed in an emergency. 

The report is based on the analysis of 40 Scottish charities’ accounts, as well as discussions with sector representatives from Scotland - specifically those with funders and policy-makers. 

The report states: “A couple of interviewees described how their charity had established donor networks and that they could call upon these in difficult times.

“They included long-term major donors and grant-making charitable foundations with whom the charity had strong and enduring relationships.

“Due to prior experience, the charities were sufficiently certain that these supporters would provide emergency donations if it ran into difficulties.

“Knowing that donors will step in if needed means charities feel more comfortable operating with lower levels of reserves.”

Charities told those carrying out the research that loans were already being relied upon. 

They said: “Lines of credit included pre-arranged bank overdrafts and secured debt that could be drawn down. 

“These arrangements provided access to unrestricted cash if needed, enabling charities to operate with lower levels of reserves, with the proviso that their lenders were flexible and that they had appropriate unrestricted income streams capable of repaying the debt in the long term.”

The paper recommended charities take a more strategic approach to reserves where possible, with a focus less on the minimum savings a charity required and more on forecasting how reserves might meet future requirements.

They quoted a representative from one organisation who said: “There are two schools of thought in the charity at the moment. One feels the Covid pandemic underlines the importance of maintaining solid reserves. The other feels now is the time to use reserves and support as many young people as possible. 

“This is quite difficult to manage in terms of bridging these two conflicting positions.” 

 

Comments

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Gareth Morgan
5 months ago

There are some very valid points in this article, but it does not distinguish very clearly between a charity seeking emergency DONATIONS as opposed to relying in LOANS to get them through a crisis.

The crucial thing to remember with loans is that they have to be repaid in the future. So whilst a loan can be useful to get through a time of cash flow difficulties, it is no help at all unless the charity is confident that at some point in the future it will have EXCESS income - more than it needs for its day to day work - in order to repay the loan.

This was the problem with the Government's coronavirus bounce-back loans to businesses - in many cases they went to businesses which had no real chance of generating enough extra revenue after the pandemic to repay them. As a result, the Exchequer has lost £billions (a significant amount lost to fraud, but much of it to legitimate businesses with no realistic hope of repayment).

But contrast, the idea of having a pool of EMERGENCY DONORS who will respond rapidly with one-off gifts that do not have to be repaid is a very effective approach. As the article says, such gifts could potential come from individual donors and/or from grant-making charities with funds in hand if they have an existing relationship. Moreover, where individual donors make such contributions they can be gift aided.

The Disasters Emergency Committee is of course the most well known charity seeking funding this way - generally seeking donations ONLY when emergencies arise.

But most charities with a regular pool of individual donors can get a good response if a crisis arises which they can communicate clearly and rapidly to supporters with a simple means to respond.

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Stuart McCallum
5 months ago

Really?

The report does raise some really interesting thoughts in terms of how charities decided on their level of reserves and the balance between need/demand and being risk averse.

However the idea that charities have a wee pool of supporters that in difficult times can magic up some extra support seems a bit far fetched. For those organisations fortunate enough to even have regular givers, I'm sure I've seen stories/reports (in TFN News and elsewhere) of individual giving dropping, fundraising events being cancelled so the suggestions that organisations can have this type of support as a backup, seems as realistic as my kids believing we have a magic money tree in our shed :-)

In fact in the current financial crisis which is hitting all levels of society I'd even question the morality of individual giving, at least for a while