Charity Borrowing and Mortgages – a reminder

14th September 2020

In these difficult times many businesses are having to turn to secured borrowing in order to keep operating until financial circumstances improve and charities are not immune to this. Before committing to any secured borrowing, Trustees should be aware of the rules which charities need to follow.

Is the charity allowed to borrow?

The first consideration is whether, or not, the charity is allowed by its own constitution to borrow funds and offer security for those loans. For some charities there are terms within incorporation documents or trust deeds that prohibit or restrict the ability of the charity to offer security for loans. Legal advice may need to be sought before proceeding where those terms need to be amended. 

Taking advice

Once it is agreed that the charity can borrow, Trustees need to refer to the Charities Act which requires them to take written advice about a proposed secured loan from a financial expert before approving and signing any loan agreements. This advice needs to cover the following:

  • Whether the loan is necessary for the charity to pursue the course of action that the funding is intended for;
  • Whether the terms of the loan are reasonable, given the status of the charity as borrower; and
  • The ability of the charity to repay the loan on the proposed terms.

This advice must be given by a person whom the Trustees reasonably believe to be qualified to deliver it, and the adviser must also have no financial interest in the loan.

We are occasionally asked to provide such advice but that can be a costly exercise so in practice the advice is often provided by a suitably qualified Trustee or employee of the charity. If the circumstances are higher risk then paying for external professional advice may be the best course of action.

Depending on the amounts involved and the degree of risk, approval of borrowing can be delegated but is probably best considered by the full board of Trustees.

Further information

For further details, see section 9 of the Charity Commission’s guidance CC28 on mortgages, loans and grants given as security or speak to your regular Bishop Fleming contact.


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