Access to financial capital from accumulated reserves, donations, grants, or non-grant finance such as loans or revenue sharing (or quasi-equity) arrangements is a key component of helping arts and cultural organisations become more financially resilient.
However, often organisations do not understand how they might benefit from accessing capital, how the different financing mechanisms might best be used and how to access them.
John Kingston, a Board Member of Big Society Capital and the founding Director of Venturesome, provided a briefing for us on different forms of non-grant financing and their risk profile.
Watch the briefing:
John explains that arts and cultural organisations need financial capital for three main purposes:
- property acquisition or development;
- working capital (i.e. enough cash in the bank to pay the bills)
- growth and development.
Also, and these are in a different category, accumulated reserves, which give the organisation resilience, enabling it to respond to unexpected shocks for example, the loss of a major funder.
John stresses that a key factor that organisations need to bear in mind is that the financing mechanism used should be appropriate to the risk of the project. So for example, projects like new untried commercial developments might appropriately be financed through grants or revenue sharing (or quasi equity) since such investments do not have to be repaid if the venture is unsuccessful, unlike loans.
He also refers to the fact that there are specialist providers of finance to charities and other social purpose organisations, like Venturesome and the Esmee Fairbairn Foundation who offer financing at below market rates taking into account risk. (MMM has prepared an introduction to these which you can access here).
You can also view related material:
Tackling Overextension and Undercapitalisation where Russell Willis Taylor (President and CEO of National Arts Strategies based in the USA) talks about how arts and cultural organisations need access to both financial and human capital in order to be able to take artistic risks here.
And, two case studies of non grant financing Jim Beirne from Live Theatre and David Watt from Glasgow Sculpture Studio talk about their first experience of accessing loans here.
For more about MMM’s work on this topic see here.