Pros and cons of loan finance

Loan finance as a way of financing voluntary and community organisations have their own advantages and disadvantages.

Advantages

• Faster to arrange than grants - decision making processes are usually a lot quicker.
• Not as competitive as grant funding - loan applications can be approved on merit rather than suitability to a funders’ criteria.
• More flexible than grant funding - loan applications can be tailored to what best suits an organisation’s needs rather than funders’ criteria.
• Reduced output related monitoring and reporting than grant funding – however the implications of poor financial reporting must not be overlooked.
• Loans are usually paid in advance, not in instalments or arrears as grant funding.

Disadvantages

• Varying levels of interest.
• High arrangement fees are also sometimes applied.
• Taking on the responsibility of a legally binding agreement.
• Offering an asset as security.