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Investment and borrowing

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Investment management

If your charity has any money or assets that are surplus to immediate requirements and you want to invest them, either to make money to spend on your aims (financial investment), or as a means of directly furthering your aims (social investment) then you need an investment policy. 

You need to think through what you want to achieve with your investments, writing that up into your policy which then creates a frame of reference to support the Trustees to make good investment decisions.

There is plenty of guidance and support available because this is a tricky subject, here are some of the more straightforward offerings:

  • Charity Commission Guidance CC25 sets out the areas that should be included in a policy, and these are the headings in the template policy. 
  • Writing your charity’s investment policy – A guide from the Charity Finance Group and the Charity Investors Group give a very clear explanation of each of the headings and outlines the questions you should ask yourself. It also offers some template policies for different sized organisations. 
  • Charity Commission Guidance CC 14 Charities and investment matters: a guide for trustees goes into some detail about duties and responsibilities, and offers the following comfort to the more inexperienced or nervous trustees:
    If trustees have considered the relevant issues, taken advice where appropriate and reached a reasonable decision, they are unlikely to be criticised for their decisions or adopting a particular investment policy.

Loans policy

Loans can be a useful way to get hold of money, but need to be handled with care. As well as testing the financial viability of any loan, you need to ask yourself some questions about the circumstances in which your organisation would be prepared to borrow money.

  • Would you take out a loan to tide you over if funding was late, or if you were waiting for a new funding source? If so:
    • how long would you be prepared to carry that loan? 
    • what would be the maximum amount?
  • Would you take out a loan to purchase new assets?
  • Would you be prepared to borrow from anyone that wasn’t a commercial lender? If so how would you make sure:
    • the agreement was in the best interests of the charity?
    • set up legally?

Large loans will often require some security, for example a mortgage on a property. If this is required you need to assess the risk to the organisation if something were to go wrong. For example if the loan was secured on a building, what would be the impact if you had to sell the building?

Small organisations are unlikely to take out many loans, so a standard form seems like overkill, but you should present a report to the trustees that allows them to make a responsible decision (comparing lenders if appropriate). It would cover issues like:

  • details of project for which funding is being sought, any relevant cash flows that will be generated
  • evaluation of other forms of funding (eg reserves, fundraising)
  • terms and conditions of borrowing, including security required
  • interest rates and structure (fixed variable etc) and any other fees
  • plan for repayment of loan and interest
  • assessment of risks associated with loan

The basic details of the report, and their decision should be minuted.

CC8 Internal Financial Controls for Charities section 4.9 issues guidance about what you should document for any loans you hold.

Last reviewed: 30 May 2019

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This page was last reviewed for accuracy on 30 May 2019

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