For many charities and social enterprises, borrowing can feel like unfamiliar territory. Grants and donations remain the sector’s comfort zone, while bank loans can seem risky or “not designed with organisations like ours in mind”.
Yet in today’s funding landscape, tailored loan funding is increasingly becoming a strategic tool – one that can help charities grow, secure long-term assets, and strengthen financial resilience.
Why consider a loan?
Loans can unlock opportunities that grants alone can’t - particularly when organisations need investment that delivers long-term benefit.
Loan finance can help charities to:
- Secure a permanent home and avoid rising rental costs by converting rent payments to mortgage payments.
- Expand, modernise or refurbish facilities.
- Enhance buildings and reduce costs by making their building more energy efficient through energy improvement works.
- Widen area of activities through the provision of new or further facilities.
- Unlock large grants that require match funding.
- Invest in income generating activities.
- Strengthen long term sustainability through asset ownership.
Clarity of purpose matters
Before borrowing, charities should consider what are they trying to achieve, how will the loan advance their mission and what impact it could enable that wouldn’t otherwise happen.
When borrowing aligns with strategy, it becomes a catalyst for impact – not simply a source of finance.
Before taking on a loan, preparation is essential. It builds internal confidence, reassures trustees, and helps lenders understand your organisation clearly.
Strong governance and robust financial documentation will speed up approval. This includes up to date accounts, clear budgets, cash flow forecasts, and evidence of thoughtful decision-making.
Charities should assess their cash flow forecasts, reserves, secure versus variable income and restricted versus unrestricted income.
They should also assess their sensitivity to income changes by stress testing both income and expenditure.
A loan should complement, not replace, any grants or donations that you receive. Many organisations use a blended finance model combining grants and loans to reduce risk.
Plan for the future
Think beyond year one. Build in contingencies for income fluctuations and unexpected costs:
- What if a major funder withdraws?
- What if demand grows faster than expected?
- What if property maintenance costs rise?
- What happens if interest rates rise?
Planning for these scenarios prevents pressure later and helps ensure long-term resilience.
Borrowing readiness checklist
Charities can use this quick test to assess whether they are ready to explore a loan.
Mission and strategy:
- We have a clear purpose for the loan.
- The loan directly supports our charitable objectives.
- Trustees/directors understand and support the idea.
Financial strength:
- We have reliable financial reporting (management accounts and cash flow forecasts if appropriate).
- We have tested affordability under different scenarios (stress test)
- We have planned how repayments will be covered.
Governance and risk:
- We have a risk mitigation plan.
- We have considered what happens if income changes.
- We have sufficient reserves or contingency plans.
If charities tick most of these boxes, they may want to explore a loan further.
Helping trustees make the decision
Borrowing is a strategic board decision. Trustees will want to see a clear business case, loan purpose and expected social impact, affordability analysis, risk assessment and mitigation plan, and a comparison of applying for a loan versus grant versus doing nothing.
Trustees often find structured, transparent information reassuring.
With thoughtful planning and a mission-aligned lender, borrowing can help charities and social purpose organisations unlock growth, increase stability, secure their future, and deliver deeper, longer lasting impact. For organisations that want to own their premises, scale services, or navigate financial uncertainty, borrowing can be a powerful enabler.
