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Working capital facility

Finance to support dips in cash flow - a type of social investment

What does it mean?

Many organisations can have cashflow problems due to the timing differences between outgoing and incoming payments and the lack of cash reserves. Working capital is used to finance the everyday operations of an organisation.

Who might use it?

An organisation may have a working capital shortage owing to the time lapse between bills being paid and invoices being settled. Working capital will fill these ‘gaps’, enabling an organisation to function normally until operating expenses can be consistently covered by revenue. This facility can be in the form of an unsecured loan, overdraft, standby facility, an equity or quasi-equity investment.

An organisation can have assets or run profitable activities, but be short of liquidity if its assets cannot readily be converted into cash. Working capital is required to ensure that an organisation is able to continue its operations and that it has sufficient funds to meet its operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash.

The funds can be used for every day use, for example to pay rent, utilities, salaries, inventory and marketing, to counter any ‘lumpy’ income streams.

Who provides it?

  • Big Issue Invest can provide loans between £50,000 and £1,000,000 and is able to partner with other organisations for investments above this limit.
  • Charity Bank can provide working capital loans from £50,000 up to £2 million.
  • Co-operative & Community Finance can lend from £10,000 to £75,000, but is able to lend up to £150,000 to organisations that are owned and democratically controlled by their members.
  • Key Fund provides working capital loans of between £2,000 and £50,000 to community owned organisations in Yorkshire and the Humber.  Some may include a grant equivalent to 20% of the overall funding.
  • The Social Enterprise Loan Fund provides loans to charities and social enterprises that are unable to secure sufficient funding from mainstream sources.
  • Social Investment Business can provide working capital from £50,000 to a maximum of £1 million.
  • Social Investment Scotland loan finance is available for social enterprises in Scotland, with loans from  £10,000 to £250,000, or more if appropriate.
  • The Co-operative Bank offers small fixed rate loans between £2,500 and £25,000, where no security is required.

Case study - KIDS

KIDS was established over 40 years ago and is now a leader in providing respite services and inclusive nurseries for disabled children and their families. The charity helps thousands of disabled kids and their families each year through a whole range of direct services from specialist nurseries and crèches to short breaks for disabled children, playgrounds and play schemes.

In October 2007, CAF Venturesome was asked to provide a £250,000 loan to KIDS to rescue it from a serious cashflow problem as it had made operating losses over a number of years, decimating cash reserves. The new CEO impressed CAF Venturesome with his plan to turnaround the financial situation. 

Just two years after Venturesome’s investment, the charity had transformed itself by eliminating its loss-making contracts with local authorities, refinancing its property assets, maintaining efficient management of its costs, and exceeding its fundraising targets. Furthermore, KIDS won government funding for the development of a major new internet platform for promoting its short breaks service to parents and local authorities. By January 2010, KIDS was making healthy surpluses and decided to repay its entire CAF Venturesome loan - three years early.

Page last edited Oct 22, 2015

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