Social Lending, Wellington, April 2011
Community Loans
Two Businesses • Investments • Grants • capital of $185m • $8 -10m p.a. • invested worldwide • Southland only Loans • commercial only • community only • community benefit • commercial benefit secondary secondary
Community Loans • A very useful tool to help community organisations • Made about 25 community loans - $9K to $3.4m • No such thing as a free lunch – somebody has to pay for the use of the capital – charge any concessions made on interest to our grants budget • Has to be: – an income stream – solid due diligence – appropriate security – a preparedness (by us) to enforce security • Means we can recycle capital, and leverage our grants budget
Treatment of Interest • Example: – Lend $800,000 to community organisation X – “Opportunity cost” interest rate = 6% – Interest forgone therefore $48,000 p.a. – Approve grant of $48,000 to community organisation X to “pay” this interest cost • Accounting entry is: – Dr Grant approved $48,000 – Cr Interest received $48,000 • So the amount remaining in our annual grants budget is therefore $48,000 less; we are recognising the use of our capital
Topoclimate Local Govt
Maori Before a Waterfall Bridging
Stewart Island’s Golf Club From Renting to Ownership
Old Bank of New South Wales Suspensory
Arrowtown Cottages Suspensory
Southland Outdoor Stadium Trust Repaid by our own Grant
Hockey Turf Trust Refinance Guaranteed by Council
Marae High Street Bank Wouldn’t Lend
Croydon Aviation Museum Change of Purpose of Grant
Yule House Ongoing Income Stream
Edendale Vintage Machinery Club Ongoing Income Stream
Southland Heritage Buildings Preservation Trust Back to Back Lending
Rest Homes (2) More Comfortable Financing
Borland Lodge Harvesting a Future Asset. Now
Velodrome In a Tight Corner
Bluff Healthy Homes Lending to Individuals
Southland Outdoor Stadium Trust Restructuring Balance Sheet
Events – Waimumu Southern Field Days Guaranteeing Interest
Social Lending, Wellington, April 2011
Velodrome – a loan that went off track
Velodrome – a loan that went off track • We had major reservations: – Very specialised facility, hard to justify $11m of community funding – Very optimistic operational budget, which we believed they would never achieve. They forecast that they would have positive cashflow, we forecast an annual operating cash deficit of around $1m • We granted $1.6m (they’d asked us for $4m), and said if you can raise the rest of the capital funds needed, good for you • Signed a contract to build it, when they didn’t have all the money they needed • Ended up with an $800K shortfall, with contractors needing to be paid • Bugger!
Velodrome – a loan that went off track • We agreed to advance them a loan of $800K to cover their shortfall • Two years later they said we’d promised to convert the loan to a grant. We hadn’t. • By then their annual operating deficit was around $1m • We called a meeting of all the major funders: - ILT, ICC, SDC, and us, and brokered a deal: • - ILT would grant $500K p.a. • - ICC would grant $400K per annum • - SDC would grant $50K per annum • - we would grant $80K per annum, and write off loan principal over 10 years
Social Lending, Wellington, April 2011
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