Funding a community-led housing project
If you have completed a project proposal or a business plan, you should have a clear understanding of the amount of funding you need for your community-led housing project.
Most CLH groups try to combine grant funding and debt finance (blended finance) to form the backbone of their project. In the majority of cases, groups will attempt to secure some sort of grant to get the project rolling, whether this comes in the form of cash, land or buildings.
The key point here is that CLH projects, once up and running, are capable of generating an income stream from rent and can therefore pay off a reasonable loan.
Remember that funding organisations are always keen to see that groups have investigated the available options for funding a project, and grant funders expect that you will have approached banks and other potential lenders as part of your planning process.
For more complex developments, it is often useful to work in partnership with others who can provide support, specialist expertise, manpower and access to funding.
It is also important to understand the value that your organisation can bring into a partnership with others from the public, private or voluntary sectors.
You may consider partnerships with the following:
- Local authorities
- Other public sector organisations (educational providers, health agencies, the police, fire and rescue services)
- Commercial developers
- Registered providers (housing associations)
Though increasingly hard to find, grants are extremely beneficial as part of the funding and finance mix for a new community-led housing project, because quite simply, they are given to you and do not have to be paid back.
Challenges of grants
- They are short term in nature
- They have different specifications
- They are often oversubscribed
- They are time consuming to prepare.
- Local, regional and themed grants: These are funds provided to finance community projects. They usually aim to create specific outputs or outcomes, or relate to a defined geographical area.
- Central government grants: These are used to stimulate economic, social and/or environmental outcomes and often come with specific conditions relating to the development of the project or the community benefits that will result from its implementation.
- Lottery grants: Big Lottery funds are distributed in the UK through 12 independent organisations. See www.lotterygoodcauses.org.uk.
- Power to Change: Power to Change is an independent charitable trust, set up in January 2015 with a £150 million endowment from the Big Lottery Fund, to support, develop and grow community business (including housing) across England.
Who can help me find grants?
Searching for grants can be time-consuming and complex. It is often helpful if you are a member of a community-led housing support organisation such as:
- The National Community Land Trust Network
- Confederation of Cooperative Housing
- UK Co-housing
- Self-help housing.
Most CLH projects will look to loans as an important part of their funding plan.
Social investment is any investment activity that has an expectation of both a social outcome and a financial return, which would usually be below market rate. For the purposes of most CLH organisations, social investment means secured loans (a form of debt finance).
Who makes loans?
Commercial loans are available from banks and building societies, and there is an increasing number of social investors set up to support community and voluntary sector enterprises. Social lenders such as Charity Bank, Unity Bank and Triodos have specialist knowledge in the sector and can provide flexible tailored loans.
Other organisations, such as the Architectural Heritage Fund can offer combined loans and grants, and support with business planning. These are rolling funds where the repaid money is reinvested in new projects.
Some local authorities will also provide loans or loan guarantees. A loan guarantee is a promise by one party (the guarantor) to assume the debt obligation of a borrower if that borrower defaults. A guarantee can be limited or unlimited, making the guarantor liable for only a portion or all of the debt.
Other types of finance
- Stand-by or underwriting loans which are arranged to cover projects for a set period of time if other funds don’t materialise.
- Overdraft facilities, commonly arranged to cover organisations facing cashflow problems. They operate at a set rate of interest if agreed in advance.
- Bridging loans to cover costs during temporary periods when costs cannot be matched by income. Interest rates apply.
- Pre-funding facilities that cover costs expected to be covered by ongoing fundraising but not yet received. These are repaid when the fundraising is complete.
- Patient capital, which is long term loan funding made by funders who charge low or no rates of interest because their interest is in high social or environmental impact.
- Blended finance, a mixture of loan and grant.
Making sure you are ‘investment ready’
While taking on a loan sounds relatively simple, there are some key points your organisation needs to consider in order to attract an investor. At this stage it’s often helpful to seek advice from a housing support organisation.
There is also support and grant available from Big Potential, which helps voluntary and community organisations and social enterprises (VCSE) consider how social investment could help them grow their impact.
In essence, investors want to see well-planned, viable projects run by well organised, professional and reliable organisations.
Locality offers advice and support to its members, as do many other housing support groups.
Community Enterprise Checker
The Community Enterprise Checker is an online tool provided by Locality and partners the Plunkett Foundation and UnLtd. It enables you to assess your community enterprise, or community organisation and find out if it is investment ready.
The Community Enterprise Checker asks you a series of questions about your business, including your systems, people and financial information. When you have completed all the questions, the Community Enterprise Checker will produce a summary report for you, with key recommendations. Find it here.
Other funding options
Many CLH projects will put together a combination of grant and loan, but other options can also provide a useful component of the mix.
- Community Shares
- Online giving
- Local fundraising.
Benefit of good marketing and communications
Finding funding is hard at the best of times, but the work is so much more difficult when potential funders are unaware of your project or it is only marginally understood in your own community. You also need to ensure that potential funders and donors understand how their money is being or will be spent.
Read more about marketing and communications here.Read more about how to fund your community-led housing project