YMCA Birmingham took their first Charity Bank loan out back in 2014 to part-fund a new housing development.
The charity had to meet a very tight deadline or risk losing the deal. The £1.94 million loan was the first large loan YMCA Birmingham had taken out, so as Chief Executive Alan Fraser explains, the trustees were understandably nervous.
What were the circumstances behind you seeking a loan?
We’d got an agreement in principle from another lender but over a year later still didn’t have the final mortgage confirmation. Our builders gave us a deadline and said if we didn’t sign the contract by then, they’d move on to another project. We’d got a good deal and didn’t want to lose it. I’d met Peter Hughes from Charity Bank previously, so in the end I called him and said, “Look, we’ve been going back and forth with this other lender for over 12 months. We need to sign the contract within seven weeks. Can you make our deadline?” He was completely unflappable and said he would make it work.
What made you decide to take out a loan rather than relying on other income?
We needed £4.5 million in total and had raised most of the money through grants and fundraising, but there was still a shortfall. We knew if we just kept fundraising, the builders’ costs would go up and up. The project was going to bring in an income and we’d be borrowing against solid assets, so it was a sensible option. Plus, interest rates were really low, so it was a good time to borrow.
Had you taken out other large loans in the past, or was this a new undertaking?
It was our first one, so it felt like a big deal. Our trustees were really cautious. They needed to know that this was the right deal and not too risky. Peter took the time to explain what made Charity Bank different to commercial banks, what we could expect from the loan process, and what would happen if there were any issues. It was really reassuring as it was clear that, if things did go wrong, Charity Bank weren’t just going to rush in rattling the sabre and trying to force us into insolvency or immediately try to recoup assets. The young people we were planning to support would have some protection.
What made Charity Bank seem so different?
They wanted us to talk about the social impact of the project. It wasn’t just about the financial details. Charity Bank would only lend to us if we could show that there would be a tangible, positive social impact.
How did you find the process of applying for a loan?
In short, incredible. Like I said, we’d spent 12 months trying to get a loan with another provider. Whatever we did for them was never enough. With Charity Bank, the experience was completely different. They were very clear about what they wanted and when they were going to need it by. It gave us time to prepare everything and the process felt much simpler. We provided the information Charity Bank asked for; they came back with questions; we answered them and the loan was approved.
From that first phone call with Peter, it took around six weeks for us to get the letter of confirmation we needed. So we were able to sign the contract with the builder just in time.
Peter took responsibility for the whole process and made sure he kept us in the loop. It was so helpful to have a single point of contact. We’ve built a really good relationship with Charity Bank since then. They’re genuinely interested in what we’re achieving.
Were there any challenges you had to overcome?
We had to provide a business plan for the whole organisation. That wasn’t something we’d done before, so it put some pressure on us. Ultimately, it was a good exercise because it introduced a new level of discipline and made it clear we needed to upskill our finance team. It forced us into sharpening up as an organisation.
Is there anything you would do differently?
Call Charity Bank earlier and spare myself a year of heartbreak! Other than that, I don’t think the process could have worked any better than it did.
What do you wish you’d known before you started the loan process?
I wish we’d understood from the start how different Charity Bank is. That would have given us more confidence earlier on. If we’d realised that Charity Bank wasn’t going to treat us like a commercial lender would, the trustees would have been less nervous about taking out a loan. All banks are not the same. We got a fantastic interest rate with Charity Bank, but you need to look at so much more than just the rate.
Do you have any advice for other charities who are thinking about applying for a loan?
Make sure you have the right skills in your finance function. Drill down into the figures before you go to the bank, to make sure you have a robust case. Remember that your income can go down and interest rates can go up, so you need to make sure you’ll be able to afford repayments. Look at the impact the loan could have on the whole organisation, not just the project it’s financing.
YMCA Birmingham completed their build in 2015 and welcomed their first tenants early the following year. 34 young people now call The Vineyard home. The charity has since returned to Charity Bank to borrow additional funds, including £225,000 towards the cost of buying their head office and £1 million towards the purchase of 24 flats.
Much of the charity’s borrowing has been used to support grant finance. A £435,000 Charity Bank loan meant YMCA Birmingham could bridge a Homes England grant in order to redevelop their main emergency accommodation centre. Magdalene Court reopened in 2019, and now offers 64 en suite rooms, improved kitchen facilities and several training rooms.