A voluntary organisation may need a loan to set up a project that will generate income, or to invest in equipment or property. Whatever the reason, you will need to go through certain preliminary processes. This guide explains the key steps that you will need to take.
Is my club or charity allowed to borrow?
Charities and other organisations have to operate under strict rules laid down in their governing document. Before even considering the possibility of a loan, the trustees of the charity must therefore check that their governing document gives them the power to borrow. It will then be necessary to debate the issue at a meeting in order to obtain a clear set of minutes containing the resolution to borrow money. The resolution will need to set out the main reasons for borrowing the money.
The reasons for borrowing should include:
Competitive quotes from several banks or other sources should be obtained before going ahead.
What sorts of questions will the bank ask?
Banks, generally, have standard questions they will ask if you want to borrow money. The bank will want to know what you want the money for, what it’s going to do for your organisation, how long you want to borrow it for and how you will repay it, for example. The bank will also need to see a resolution or evidence from the charity that they have agreed to the loan. In addition, accounts and/or details of your track record and other documents will almost certainly be asked for before the bank approves the loan.
Do we need a business plan?
It may not be necessary for charities or small organisations to present a business plan. A small organisation may not have the time or resources to do one. However, a business plan can be a useful tool and may ultimately dictate whether the lender is prepared to offer you a loan, as well as what terms it is prepared to offer.
As a general guide, your plan should include:
Who can we borrow from?
Checklist for choosing a lender
What are my personal responsibilities for the borrowing?
It is in your own interests to find out the extent of your personal liability and to be comfortable with this. Treasurers and other trustees are under a general duty to act always in the best interests of their organisation. This applies just as much to borrowing as to any other matter. So you need to be very sure of the benefits of borrowing.
If your organisation gets into problems in repaying the loan, then there could be serious problems. Some voluntary organisations will have a separate legal identity ie if the organisation has been incorporated and in these circumstances the officers will have limited liability. Others, such as small groups or clubs, which may not be incorporated, will not have a separate legal identity and can only take action through the committee of individual officers. In these circumstances the officers’ names will appear on the loan document and they are personally responsible for the loan. In a worst-case scenario, this means the lender could sue them personally to meet the liabilities of the organisation. Accordingly, the officers may wish to obtain an indemnity from the organisation and/or its members.
Useful contacts
Charity Commission
Harmsworth House,
13-15 Bouverie Street,
London EC4Y 8DP
T: 0870 333 0123
W: www.charity-commission.gov.uk
National Council for Voluntary Organisations
Regents Wharf,
8 All Saints Street,
London N1 9RL
T: 0800 2798 798
W: www.ncvo-vol.org.uk
Charities Aid Foundation
25 Kingshill Avenue,
Kings Hill,
West Malling,
Kent ME19 4TA
T: 01732 520000
W: www.cafonline.org
The Charity Law Association
Ros Harwood,
Rollit Farrel & Bladon,
Rowntree Wharf,
Navigation Road,
York YO1 9WE
T: 01904 625 790
W: www.charitylawassociation.org.uk
