Using Loan Finance 19 November 2013 Mark White Lending Manager Wales – Charity Bank Mobile:

Using Loan Finance Workshop Overview: (1) Why consider loan finance? (2) Nature of loan finance (3) Applying for loan finance (4) Key issues to consider - structures - security - financials - processes and lenders’ requirements (5) Open session – Q&As and discussion

Using Loan Finance (1) Why consider loan finance? changing third sector funding environment: - public sector funding cuts - more strategic focus in European Structural Funds in Wales - increased match funding needs - risk sharing encouraged by funders survival development of social enterprise and other trading asset development desire for greater self-determination

Using Loan Finance (2) Nature of loan finance contract between 2 parties - lender/borrower commitment to meet the terms of contract borrower agrees to repay capital plus interest legally binding consequences for not meeting the terms commercial relationship dependent upon sustainability of business different from grants PERSONAL GUARANTEES: - can be a requirement of mainstream banks

Using Loan Finance (2) Nature of loan finance GRANTSLOANS Non-repayableRepayable Project drivenOrganisation driven Restricted to project purposeNon-restricted (except to general purpose) People need to deliver project planPeople need to deliver organisational plan Driven by project deliverables Driven by ability to generate income/profits Driven by funders’ objectivesDriven by need for lender to get repaid

Using Loan Finance (3) Applying for loan finance ASK VERY NICELY??

Using Loan Finance (3) Applying for loan finance “CAMPARI” Mine’s a double please!!

Using Loan Finance (3) Applying for loan finance C haracter (what’s the track record?) A mount (appropriate?) M argin (how much will the lender earn?) P urpose (appropriate?) A bility (can they repay?) R epayment (where from?) I nsurance (if it goes wrong – what security?)

Using Loan Finance (4) Key issues to consider - structures incorporation - limited company to avoid personal liability whole organisation is liable, not just the project management and governance - the people - their experience - their credit-worthiness (possible credit checks) - how does the board run the business? some considerations might be relaxed for ‘microloans’ - loans up to £20,000/£30,000

Using Loan Finance (4) Key issues to consider - security what is security? - alternative repayment if loan goes wrong - assets with ready market and value make good security - some banks will ask for PERSONAL GUARANTEES land as security - location, location, location - valuation (“loan to value”) - planning consents - alternative uses - contamination / environmental - restrictive covenants security alone is not a reason to lend - sound business case needed, forecasts etc

Using Loan Finance (4) Key issues to consider - financials usually minimum 2 or 3 year forecasts - cashflows - profit & loss - balance sheet be sensible, be realistic – provide several scenarios forecasts need to be supported by evidence - how definite are these income streams? - how likely are we to secure this grant/contract? - how likely are we to sell these products/services? track record is important to lenders address the ‘what if?’ questions

Using Loan Finance (4) Key issues to consider - processes and lenders’ requirements lender’s ‘due diligence’ – credit & risk procedures solicitors – suitably qualified in commercial property remember! - transactions can take time ‘pre-conditions’ (‘PCs’) - things you have to do before you get the loan - money laundering stuff - loan offers and agreements, security documents (mortgages) lending ‘covenants’ (a.k.a. ‘KPIs’) - things you have to do once you’ve got the money financial monitoring - monthly or quarterly management accounts - annual accounts

Using Loan Finance Whether to use loan finance? That is up to you. Don’t use it if it’s not right for your organisation

Using Loan Finance Thank you for listening Open session Mark White Lending Manager Wales – Charity Bank Mobile: