1. www.whitehead-monckton.co.uk ©Whitehead Monckton 2012 Secured Borrowing for Charities Janet Goode Partner Head of Commercial October 2012

2. www.whitehead-monckton.co.uk ©Whitehead Monckton 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 www.charity-commission.gov.uk/faqs/running_a_charity/id142.aspx 2

3. www.whitehead-monckton.co.uk ©Whitehead Monckton 2012 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 3

4. www.whitehead-monckton.co.uk ©Whitehead Monckton 2012 4 Types of security Unsecured personal guarantees Secured personal guarantees Mortgage over property (Jonathan) Mortgage over chattels Debenture (companies only) Charge over book debts 4

5. www.whitehead-monckton.co.uk ©Whitehead Monckton 2012 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 5

6. www.whitehead-monckton.co.uk ©Whitehead Monckton 2012 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 6

7. www.whitehead-monckton.co.uk ©Whitehead Monckton 2012 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 7

8. www.whitehead-monckton.co.uk ©Whitehead Monckton 2012 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 8

9. www.whitehead-monckton.co.uk ©Whitehead Monckton 2012 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? 9

10. www.whitehead-monckton.co.uk ©Whitehead Monckton 2012 10 www.whitehead-monckton.co.uk ©Whitehead Monckton 2012 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 10

11. www.whitehead-monckton.co.uk ©Whitehead Monckton 2012 11 www.whitehead-monckton.co.uk ©Whitehead Monckton 2012 Contact Janet Goode 01622 698047 janetgoode@whitehead-monckton.co.uk 11