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Standby / Underwriting facility

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How to secure credit to use if / when income drops - a type of social investment

What does it mean?

This is a commitment by a lender to advance a specified amount of funds for a period of time (i.e. a line of credit) for a particular project, which may be drawn down only if budgeted income does not materialise. Interest is only paid on the amount drawn down. This facility will provide financing if other sources fail.

Who might use it?

An organisation may need an overdraft facility, but be unable to obtain one due to its perceived credit worthiness. A standby facility is similar to an overdraft as the lender will make available a previously agreed sum of funds for a particular time period, which the organisation can use if needed. Unlike an overdraft, the facility is only available for a certain time period and does not “revolve” (i.e. repaid amounts reduces the overall size of the credit line, so when the full amount of the facility has been drawn down credit will not be replenished). 

A standby facility need not be drawn down, but allows an organisation to have a “safety net” in managing its cashflow fluctuations.

Who provides it?

  • CAF Venturesome offers standby and underwriting facilities between £25,000 and £250,000 specifically designed to meet the needs of small and medium sized charitable organisations.
  • Charity Bank can provide underwriting facilities for fund-raising programmes from £50,000 up to £2 million.
  • Social Investment Business can provide standby/underwriting facilities from £50,000 to a maximum of £1 million.
  • Social Investment Scotland loan finance is available for social enterprises in Scotland from £10,000 to £250,000 or more if appropriate. 
  • The Co-operative Bank offers small fixed rate loans between £2,500 and £25,000 where no security is required.

Case study - Hockerton, Nottinghamshire

Hockerton is a small parish close to the town of Southwell in Nottinghamshire. As the village is committed to becoming a more environmentally sustainable community, it decided to buy and erect a wind turbine within the parish boundary. The funds would be raised by way of a community share issue – and an Industrial and Provident Society called Sustainable Hockerton Ltd was subsequently set up for this purpose.

The electricity produced from the turbine would not be sent directly to local residents, but would instead be sold to the National Grid, which would sell this on to a power company such as Good Energy Ltd. The generated income stream would be distributed to investors (the majority of them are based in Hockerton, but might reside anywhere in the country) who could then use this money to pay their electricity bills from the power company.

Financing for this project had largely been raised by way of a community share issue. CAF Venturesome was approached for an underwriting facility for the remaining 10% of the funds which was necessary so that the project could commence. CAF Venturesome was able to provide a £30,000 standby facility which enabled the project to go ahead before the remainder of the project funds were raised. 

The standby facility was never utilised as the remaining 10% of funds was eventually raised in good time.

Page last edited Oct 22, 2015

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