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Secured Borrowing for Charities

Secured Borrowing for Charities. Janet Goode Partner Head of Commercial October 2012. What I am not going to talk about. Reasons to borrow Alternative sources of funding Decisions as to amount of borrowing Choice of lender Terms of borrowing Repayment options

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Secured Borrowing for Charities

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  1. Secured Borrowing for Charities Janet Goode Partner Head of Commercial October 2012

  2. What I am not going to talk about • Reasons to borrow • Alternative sources of funding • Decisions as to amount of borrowing • Choice of lender • Terms of borrowing • Repayment options • “Can you advise on taking out a loan?” www.charity-commission.gov.uk/faqs/running_a_charity/id142.aspx

  3. My assumptions about you • You are still awake • Your charity has decided to borrow money • At a reasonable level • For your charitable purposes • From a reputable lender • On sensible commercial or better terms • You have been asked to provide security

  4. Types of security • Unsecured personal guarantees • Secured personal guarantees • Mortgage over property (Jonathan) • Mortgage over chattels • Debenture (companies only) • Charge over book debts

  5. Considerations • General: • Can we afford to lose the asset if the lender calls on the security? • Is it a fair security for the borrowing? • Are the terms of the security likely to restrict our use of the asset? • Specific • Will it affect our other funding sources? • Read the small print in the charge document

  6. Process • Personal guarantees • Document signed by individual • Keep a record of all guarantees you give • Charge over home if secured (Don’t do this!) • Mortgage over Chattels • Option for large equipment • Identify chattel in document and physically on chattel • Registration at Companies House (if you are a company) • May need order of Charity Commission

  7. Process cont. • Debenture • Companies only • Can be “all monies” • Fixed and floating charge • Negative pledge clause • Crystallising on notice clause • Restrictions on use and maintenance • Registration at Companies House • May need order of Charity Commission

  8. Pitfalls • Personal guarantees • Cancel if you retire as a trustee • Remove the charge over your house (which you haven’t given anyway, have you?) • Be aware of your liability • Mortgages over chattels • Know the chattel and don’t sell it by mistake • Be aware of maintenance obligations

  9. Debenture • Is it “all monies” or can it be removed? • How might it affect other grant applications? • How “hands on” is the lender going to be?

  10. Conclusion • Unlike businesses, borrowing is new for many charities • Offers option to maintain a regular flow of funding • Good relationship with lender can be a lifeline in emergencies BUT • Be aware of the restrictions of security • Make sure they comply with your charitable objects • Regularly monitor amounts borrowed and repayments • Take advice

  11. Contact • Janet Goode 01622 698047 janetgoode@whitehead-monckton.co.uk

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