Grant application processes can be complex, with different criteria to meet depending on the funding body. Research has shown that organisations of all sizes spend a significant amount of their time and resources applying for grants. A common challenge is that some of the funds are delivered retrospectively. While such delays may be temporary, they can cause significant headaches in terms of cash flow for organisations that may not always have the required level of reserves.
That’s where lesser-known financial products such as bridging loans can help. The investment is designed to be a short-term solution to help organisations overcome those tricky situations where invoices are due to be paid, but grant funding is yet to be received. A bridging loan allows projects to progress without delays and can assist charities and social enterprises to make key purchases during that interval period. As the name suggests, it bridges the gap between the two.
For Social Investment Scotland (SIS), these loans are one of our more straightforward types of investment, yet they can also be one of the most impactful. Organisations can apply for anywhere between £10,000 and £250,000, with a quick turnaround and set-up process. The bridging loan is then repaid in full following the organisation receiving the grant funding.
Smaller community groups, in particular, can access smaller amounts of finance that would perhaps be overlooked by many high street finance providers. We understand the impact that these smaller projects can have on local people and places.
We saw that first-hand very recently through our work with Lochaber Environmental Group (LEG). The organisation is on a mission to help community members to reduce carbon emissions and transition to a sustainable while protecting the environment. One of its’ main aims is to encourage active travel and earlier this year the group launched an electric bike share scheme in Fort William.
LEG secured funding from the Low Carbon Travel and Transport Challenge Fund as well as support from European Regional Development Funds, Transport Scotland, and Highland Council to set up a scheme with 40 electric bikes, five charging hubs and three virtual hubs. Three further charging hubs will be installed over the coming months, with 20 more bikes to be delivered.
Of course, in order to get the scheme up and running, there was a significant capital investment required for the purchase of the bikes. But given that funding would come retrospectively, Lochaber Environmental Group turned to SIS for support to help bridge the gap.
We provided the organisation with two bridging loans, which meant that plans could continue with the grant monies reclaimed afterwards. The scheme is now well established, with electric bikes available for use at affordable rates in order to encourage active travel in the community. Using the scheme is beneficial for health and wellbeing while reducing the environmental impact associated with other forms of transportation and helping to ease traffic congestion in the town.
Even very profitable businesses experience shortfalls in cash flow from time to time, but for social enterprises and charities, we understand how crucial access to bridging loan finance can be for unlocking grant funding. Our customers often tell us that the projects they deliver simply wouldn’t be possible without a bridging loan, and others have gone on to secure grants for even bigger projects as a result.
The current economic landscape is undoubtedly challenging, and particularly worrying for the types of organisations we work with, so the affordability of any kind of loan finance needs to be considered. Bridging loans require a degree of planning and admin to make sure that finance is available when needed, but the long-term results often speak for themselves.
Eileen Gardiner, investment manager, Social Investment Scotland