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Funding, finance and fundraising

Sources of finance for your new charity or non-profit

The most obvious source of finance is an organisation generating its own surpluses to reinvest. But there are a range of further sources of finance available to charities, co-operatives and social enterprises. Some types of funding are available to all types of organisation, whereas others are only for certain legal forms. Don't forget you can get advice and support on funding from your nearest Community and Voluntary Service (CVS).

Fundraising

There are many ways to raise money. Choosing the best methods for your organisation is not easy. It takes thought, planning, time and skills. It can be  especially hard for a new organisation to fundraise if they don't have a wide circle of contacts to approach.

Grants

Charities, social enterprises and co-operatives often receive part of their funding through grants from charitable foundations, government or European funds. Any legal form is able to accept a grant although charities tend to find funders more receptive.

Debt

Debt finance, usually in the form of loans, may be obtained from banks, specialist social finance providers (such as community development finance institutions or co-operative lenders) or from supporters. Again, this source of finance is available to any legal form although an incorporated form is preferable as the obligation to repay the loan may be a substantial liability.

Equity

Equity finance means a company ceding part-ownership and selling shares in it to a third party in exchange for funding. Not all legal forms will allow a company to receive equity investment.

The Financial Services and Markets Act 2000 (FSMA 2000) regulates the activities of businesses seeking to attract investors, in order to protect individuals without expert financial knowledge. It is always worth seeking expert legal advice before you think about undertaking any activity of this kind.

Trading

Contrary to popular belief, charities are able to carry out trading activity – and many do. The income from the sale of goods and services by the voluntary and community sector now makes up over half of the sector’s incoming resources.

Many social enterprises, including community interest companies, are able to trade freely but there are law and tax restrictions on a charity’s ability to trade.

Tax

An obvious source of finance for any enterprise is retention of profits. If your organisation is likely to be very dependent on its surpluses, perhaps because you are not able to access other forms of finance, then it is worth considering the tax implications of choosing certain legal forms. In particular, a wide variety of tax liabilities can be avoided or reduced through adopting charitable status.

For some social enterprises the mutuality principle is also extremely important. This provides that where profits are derived from mutual trading between members of an organisation, those profits are not subject to tax. This role would apply for example, to a sports club bar open to members of the club only. It would apply to co-operative organisations if they trade only among their members but not if they sold goods and services to the general public.  For more information go to www.hmrc.gov.uk

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Page last edited Apr 28, 2015 History

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