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A major stumbling block for many community projects is the 'at risk' money: the money required to get a good idea off the ground when the success of the project cannot be guaranteed or easily demonstrated. Loans can provide an important source of funding during this start-up phase. While the downside is that the money must be repaid, loan funding can often be the key enabler that makes a project happen.

Borrowing money from conventional high street banks may not be possible for your project, especially in the current economic climate. However, other specialist lenders exist who regularly assist community organisations through provision of loans and advisory support. Examples of possible sources include ethical banks (e.g. Charity Bank), funds such as the Community Generation Fund, and programmes like the Government-backed School for Start-ups’ Launcher scheme, which offers start-up finance alongside access to their one-day bootcamp, online community and mentoring at no extra cost.

Case Studies
Country: UK

Bath and West Community Energy raised £1 million of debt finance from SSE, which included £200,000 as a contingent loan (at the time a SSE one-off trial), to invest in at risk pre-planning work associated with their renewable energy project development. They found that while the scale of their project initially made it very difficult to get bank finance for, once their projects were established through the SSE loan, banks were likely to be more interested in re-financing the projects, thereby enabling BWCE to re-invest the funds freed up in further projects. The loan therefore played a crucial enabling role in helping to establish BWCE as a financially viable, locally owned community enterprise. Debt funding was deemed appropriate given the stable long term income streams and enhancement to the returns for investors. The debt is secured on the assets of BWCE, so ultimately the loan provider could seize the assets in the event of default. However, individual members have no liability to the debt provider, other than the financial risk to their invested capital. The loan is fixed interest; the cost of servicing is known and built into the financial projections. The loan is repayable only if the project is successful, with repayment taking place over a 15 year period or sooner if BWCE so chooses. Following their share issue they had a strong equity base which could, if required, enable them to repay the majority of the loan. SSE is also investing £20,000 as equity in BWCE, showing the confidence they have in the business.

Country: France

Given the total cost of Plaine Sud Energies’ solar panel project (more than 200 000€), the group sought different sources of funding to implement the project. A significant proportion was contributed by a loan taken out with a cooperative bank. The support of the public authorities was particularly important for securing this funding, as it brought recognition of the project and in turn a bank guarantee.