Many arts and cultural organisations are resistant to non grant financing such as loans and revenue sharing arrangements (or quasi-equity) because they have little experience of them and/or they have anxieties about the risk of not being able to make repayment.
This is understandable, arts and cultural organisations already often have high fixed costs and boards are understandably reluctant to increase them. However, a growing number of arts and cultural organisations are finding that such financing offers real benefits.
A good example is Live Theatre in Newcastle. It is committed to helping writers to produce stage plays that are dynamic and compelling and is very successful with recent productions in the West End and on Broadway. In an interview with MMM, Jim Beirne, the Director of Live, referred to the fact that like most arts and cultural organisations its financial position is precarious despite this success because it lacks reserves. Jim explained that their response has been to develop a number of new social enterprises in order to create new revenue streams and generate additional income.
The majority of the initial investment for these developments came from the public sector and Arts Council England’s Sustain programme, but “the lynch pin”, as Jim puts it, “the investment that made the projects work” came from Venturesome and the Esmee Fairbairn Foundation, two specialist social investors who understand charities and social enterprises.
One of Live’s social enterprises is Broadchare a gastropub which is a partnership with a restaurant company. 10 per cent of the profits from Broadchare go to Live. This new income will enable it to put on one additional play each year. As Jim says this is a fantastic return on the investment made by Arts Council England and Esmee Fairbairn and Venturesome.
Jim says that as soon as you access your first non grant financing, you start to see its potential. He is now hoping to develop a significant property project based on prudential borrowing (i.e. borrowing at preferential rates) from the local authority.
David Watt , Director of Glasgow Sculpture Studios (GSS), reports a very similar experience, he describes the organisation’s first loan as having “opened our eyes to other social investment opportunities”.
GSS rents space to artists. It took out a loan from Venturesome to refurbish new premises it was intending to use for a 4 year period. The money was used for a studio complex for 50 artists fabricated by the artists evicted when the organisation moved. The studios generated sufficient income to enable GSS to pay back the loan within the 4 year period of the tenancy. David says that “without the loan we wouldn’t have been able to maintain a sustainable organisation”.
David is now pursuing a new property project. GSS is moving into new permanent premises next year. It’s working with a private investor and an urban regeneration company. The new building has been bought by the private investor for a nominal sum. The private investor is providing 90 per cent of the cost of the refit and GSS 10 per cent. GSS is ‘rentalising’ this investment over a 10 year lease and thereby making significant rent savings. It will occupy 40 per cent of the new building and it will be the building manager for the rest. It will benefit from a small commission on the rental charges and levy a service charge on tenants for the services provided (an extension of its current services).
See also Accessing financial capital– John Kingston (Board Member of Big Society Capital and founding Director of Venturesome) provides a briefing on different forms of non grant financing and their risk profiles here.
And, also Tackling over extension and undercapitalisation – 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.
For more about MMM’s work on this topic , including more case studies, see here.