North East Connected

Lucy Armstrong – thought leadership piece

The late US President John F Kennedy said: “Change is the law of life. And those who look only to the past or present are certain to miss the future.”

And, for charities and social enterprises across the UK, that has never been more prescient.

With fewer grants available, changes in commissioning and greater competition for public sector contracts, charities are having to explore new ways in which to generate revenue and achieve their objectives.

To a private sector company needing to achieve its business plan gaols, the solution would be clear; raise capital – and borrowing would be high on the list.

In fact, borrowing money is not in itself an innovative way to raise funds – it’s always been available to charities – but historically they have steered away from it, relying instead on peripatetic grants and donations.

Lucy Armstrong is a Non-Executive Director of the North East Social Investment Company, which was set up to help stimulate the market for social investment in the North East, in order to create social change and help create a climate in which it can thrive.

“Many trustees are risk averse and have a cultural aversion to the concept of bank borrowing and paying interest.,” she said.

“Often, they feel that taking commercial loans is a risk and is outside their remit as a responsible trustee.

“But you are not personally responsible if you and your fellow trustees have taken the decision responsibly.

“The world has changed. Trustees have a duty to their organisation to be financially literate and that means they need to consider all the options available to them -including repayable capital, such as loans.”

There are myriad types of loan: overdraft facilities, term loans, revolving credit facilities and, of course, social investment loans.

Social investment is simply a repayable loan given to a charity or social enterprise, formed to benefit the community in some way.

“Of course, social investment isn’t appropriate for every organisation but, as a business model, there is no doubt that it works,” said Lucy, “and trustees certainly need to consider it.”

Help is available for trustees keen to navigate the minefields of funding and decide which solutions would best meet their needs.

A number of organisations, such as Big Potential, Numbers for Good and the Fresh Ideas Fund, are able to train trustees in issues around finance and borrowing money and to teach them the skills they need to be confident in their decision making.

“Trustees need to think like business leaders. They need to ask themselves if borrowing money will enable their organisation to do its job better, safeguard its future and enable it to meet its aims and objectives.

“And, if the answer is yes, then they absolutely should think about borrowing.”

For further information about NESIC visit www.nesocialinvestment.com.

For further information about North East Social Investment Fund please visit www.northstarventures.co.uk

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