What loan funders look for in considering applications from potential CAT organisations

1. Securing a loan for your
Community Asset Transfer

2. Introductions
Jon Field
Unity Trust Bank
Matthew Brown
WCVA, Communities Investment Fund

3. Presentation Outline
- Why use loan finance and what for?
- What are lenders looking for?
- How can loans help you?
- What’s good about loans and what’s not so good?
- What do you need to consider?
- What happens once you take a loan?

4. Loan Finance
Why bother with loan finance?
• Changing funding environment
• Sustainability encouraged through social enterprise
• Desire for self-determination
• Flexibility
• Need to demonstrate risk-sharing approaches
• Emphasis on asset development

5. Loan Finance
What can loans be used for?
• Asset development – purchase/renovate property
• Purchase equipment and other capital assets
• Finance cash flow (i.e. “revenue costs” or “working
capital”)
• Finance public sector or similar contracting
• Set up new projects or ventures
• Invest in growth opportunities

6. Applying for finance…
There's a huge difference between spending money on expenses
and spending money to build an asset.
Ice at a picnic is an expense…
Once it melts, it's gone. Your electric bill, rent….these are costs of
doing business, and you should rarely, if ever, borrow money to
pay them

7. Applying for finance…
Assets, on the other hand, are things that sustain or grow in
value, that you can use again and again, and that are ultimately
worth more than they cost.
Unity Trust will look to lend only when
secured against assets but WCVA will
consider unsecured lending.
Typical Loan to Value 75% and WCVA
can consider lending you your 25%
Deposit.

8. Applying for finance…
As with all icebergs, the bulk, and the interesting stuff lies below the water, and that’s
what we’re interested in ... because that’s what anchors the iceberg and gives it its
shape.
There are many things that we want to know when
you come to us with your proposal, and your
business plan and cash flow forecasts are just the
tip of the iceberg.

9. Loan Finance
What do lenders want?

10. Loan Finance
What do lenders want?
LENDERS WANT TO GET REPAID!!

11. Loan Finance
What do lenders want?
Enough information to make a balanced judgement of the risks:
(1) good track record
(2) good people
(3) properly researched proposals
(4) financial forecasts supported by hard evidence and/or
sound arguments
(5) clear exit routes (i.e. where repayment comes from)

12. Loan Finance
What do lenders want?
One method of assessing the risks is by using this acronym:
“CAMPARI”

13. Loan Finance
C = Customer/Character
A = Ability to repay
M = Margin
P = Purpose
A = Amount
R = Repayment source
I = “Insurance”
(i.e. Security)

14. Loan Finance
What is “security”?
Assets which can be sold as an alternative source of
repayment if the loan goes wrong
Main types of security:
(1) charges (i.e. mortgages) over land and buildings
(2) all asset debenture charges

15. Loan Finance
How can a loan help you?
Consider the following:
• will it allow you to achieve your mission, aims and objectives?
• will the project generate enough income to meet repayments?
• will the loan help to improve service provision or reaching more
beneficiaries?
• will the loan contribute to the future sustainability of the organisation
by providing opportunities for further income generation?
You need to be clear about the business case before
contemplating loan finance

16. Loan Finance
What’s good and what’s not so good?
PROS CONS
Flexibility Repayable!
Independence Costs (interest, fees etc)
Quicker decision processes Legally binding agreements
Usually less driven by criteria Balance sheet liability
Usually less output monitoring Regular financial monitoring
Loans usually paid up front Credit checks
Improved business planning Lender may require security

17. Loan Finance
What should you think about?
(1) Incorporation - limits the liability of trustees and members
(2) Need to look at finances across the whole organisation -
lender interested in the full picture, not just the project
(3) Financial management systems - ability to report performance
(4) Management and directors/trustees
- business/financial skills?
- quality of governance?
(5) Repayment term – sensibly matched to loan purpose?

18. Loan Finance
The loan’s approved – now what happens?
(1) Loan offer and/or agreements issued
(2) If security is involved, solicitors instructed
(3) Preconditions need to be satisfied before funds
drawn
(4) Once drawn, maintain repayments and provide
management information

19. Loan Finance
The loan’s approved – now what happens?
(5) If you hit problems, or you see them
coming
TALK TO YOUR INVESTORS!!

20. Case Study
• NoFit State Circus
• Acquired 4 Elms, Roath, Cardiff via Asset
Transfer from Cardiff Council
• Unity provided a mortgage of £250k
alongside grant funding from Big Lottery
Wales to support the redevelopment of 4
Elms.

21. Thank you
Any Questions?