Posted: Thursday 19 April 2012
Being aware of the different funding options available for community projects can make a vital difference. A common purpose allows separate funders to pull together. I have seen this recently on a community windfarm project where funding is being provided on both commercial and social levels.
Projects are expensive and it should never be underestimated how quickly costs can mount up. Ever heard Grand Design’s Kevin McCloud utter the words “ohh, it’ll never cost that much”? Inevitably the scene before the end credits reveals a substantial overspend, leaving me gasping in horror at the thought of those monthly repayments. Church halls, windfarms, sports halls etc are no different. Even with the best fixed price contracts, always ensure there is a reserve – no community wants left with a part funded project.
As commercial lenders are forced to tighten their lending criteria, the gap between project costs and available funding has increased. Communities will only have a finite resource available to them and so other options require to be explored to bridge the gap. A mixture of grants and loans can be combined to achieve this.
There are a variety of bodies lending to social enterprises and the collect and scatter approach can work well. The amount that one social lender can provide alone can be limited to set thresholds that cannot be increased but each chunk can provide a significant contribution. By ensuring that all social lenders are “on board” with the project at an early stage and are comfortable with everyone involved, this allows resources to be pulled and costs to be shared. For example, financial and legal due diligence reports can be carried out on behalf of a number of lenders, one valuation can be issued and overall control of the budget can be easier to maintain.
This has a direct improving affect on the cost of funds as although there may be a small percentage based arrangement fee payable to each lender, the project costs of each social funding segment will be proportionately smaller than it would have been if it were a sole funder. The main lender is also given comfort that the community will be able to provide the top up funding required by knowing that the social lenders are in the picture and that the funding pie can be complete. Food for thought indeed.