6.2.1. Institutional loans

Institutional loans are provided by financial institutions (banks/building societies etc) with ethical banks especially valuing the commitment shown in small scale community governance.

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Up to 70% of the development costs are likely to come from loan funding. This loan funding is either:

  • short term funding (eg. five to seven years) that enables the homes to be built; or
  • long term funding (eg. of perhaps thirty years) that enables the costs of the development to be fully repaid over time from rents and/or other sources

Key lending info

Most traditional financial institutions that provide funding for housing schemes only provide short term funding. In so doing, they want to know where the organisation would obtain long term funding so that their loans can be paid off. Many lenders will only lend to landlords who are registered with either the Homes and Communities Agency in England or the Welsh Government in Wales and who have a track record of managing development.

Some smaller ethical banks however are keen to lend to small scale CCLH schemes that have viable business plans, and some can provide both short and long term financing.

Ethical banks in this market particularly value the commitment shown in small scale community governance.

With most housing schemes costing significant amounts of money, the interest rate at which lending is made can have a significant impact on scheme costs. Financial institutions will base interest rates charged on their perception of risk (ie. the likelihood of them being repaid). Traditional financial institutions tend to view CCLH schemes as higher risk and charge more for their money, but this is not the case with ethical banks that lend to CCLH schemes.