This website uses cookies for anonymised analytics and for account authentication. See our privacy and cookies policies for more information.

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.

Why should your organisation borrow money?

This opinion piece is about 8 years old

Stuart Niven explains why third sector organisations can benefit from taking out a loan with a social finance provider

My work at Charities Aid Foundation (CAF), a non-profit organisation that helps charities to build financial resilience, gives me the opportunity to meet charity leaders from all over Scotland. We discuss their current situation, aspirations for the future and explore options to help them achieve their goals.

Each organisation faces its own unique set of challenges, but a widely felt pressure is the reduction in or lack of funding. What’s noticeable though is how resourceful the charitable sector has become. Charities are adept at finding operational efficiencies and seeking out alternative routes to funding and income generation.

So should more charities consider repayable finance as part of their funding mix?

Dunbritton Housing Association

Dunbritton Housing Association (DHA) owns nearly 800 properties, providing much-needed homes for more than 2,000 tenants. The association’s mission is to deliver social housing at affordable rents and expansion is a continual part of its programme. A recent loan of £2.2 million from CAF Bank – a bank run for purely charitable purposes by Charities Aid Foundation will enable Dunbritton to build 50 new high-quality affordable properties in areas of acute housing need. The viability and impact of new housing schemes rest upon the price and availability of loan finance. As director Morven Short explains: “Being able to borrow funds at affordable interest rates enables us to deliver more homes at affordable rents… This provides a significant number of social, economic, environmental and health benefits to the communities that we serve.”

Borrowing money may not be suitable for every charity, but it could be an option for those with capacity to repay a loan from future income. Therefore, it should be among the funding routes considered by the board.

The simplest reason for taking on repayable finance is to allow your charity to move from its current position to a future goal more quickly. Funding a big project from donations alone could take several years. Repayable finance can allow you to get a project off the ground within weeks of the initial loan application decision.

Our In Demand report found that the reasons charities consider borrowing money are many and varied. In a nutshell, though, there are three main uses for repayable finance. The first and most common reason for borrowing is capital expenditure. You may wish to purchase land or property, such as a building that you currently rent, or land on which you want to construct a new building.

Secondly, if your cash flow ebbs and flows, you might need working capital to cover the payroll, pay your bills or while you wait for other income such as grant payments.

Thirdly you may want to borrow development or growth capital. If you have a great idea that you think will generate an income, but don’t have the resources to make it happen, development funding can provide the capital to realise your ambitions.

Is borrowing money right for your organisation?

It’s important to remember that borrowing isn’t for every charity, yet it should not be considered off-limits. If your board rules out a source of funding without considering the potential benefits, you may be missing an important opportunity. The most successful organisations find a balance between seizing the initiative and knowing when to be cautious.

Stuart Niven is Business Development Manager (Scotland) at Charities Aid Foundation (CAF). Contact Stuart at Charities Aid Foundation on 03000 123 625, email [email protected] or visit