This Prosper resource provides an introduction to loan funding for arts, cultural and heritage organisations.
Grant funding has come under sustained pressure and arts organisations have struggled to resource their activities. Funders have challenged the arts to use alternative sources of funding, including loans, to develop and grow. This would, in theory, help organisations generate new sources of earned income. The arts could then be less reliant on grants enabling more arts activity to take place.
Organisations that are really good at getting grants are oriented towards it. Their staff understand how to write grant applications and what grant funders expect. Their business plans are likely to centre on the requirements of their big grant funders. It can then be a struggle for them to reframe what they do to suit a new type of funding, and trustees or directors can feel rightly very nervous of taking on loans.
“A loan is a specific type of debt that is usually a fixed amount of capital (also known as the principal) provided by the lender at an agreed interest rate with monthly repayments over a predetermined period of time.”
Other types of debt your organisation may already use are overdrafts, credit cards or credit facilities with suppliers.
Loans can be secured or unsecured. A typical example of a secured loan is a mortgage. Here, the borrrower receives a sum of money but provides a deposit and a building as security should they fail to repay the loan. Security is one of the main ways lenders can reduce their risk and provide lower interest rates to customers, so guarantees or secured assets are important. This is partly why mortgage rates can be much lower than credit card rates.
Loans can be provided by a bank, a business, an individual or an alternative lender.