Scottish Land Commission, 2019
13 models are described which are currently available in the UK.
• Charitable Funding
• Commercial lending
• Social Investment
• Lending in return for Guarantee of a Social Outcome
• Mutually Beneficial Arrangements between private and community businesses
• Private Investment
• Community Shares
• Peer to Peer Lending
• Corporate Social Responsibility Funds
• Leveraging Assets Obtained by Nil Value Transfer
• Impact Bonds
The 13 models identified demonstrate that there is a wide range of options available to assist communities in the financing of their aspirations. Which model or combination of models to use in any situation will depend upon the particular circumstances of the community involved and of the development opportunity it is seeking to finance.
Individual models are not mutually exclusive and a mix of models are often used by groups for financing projects.
Factors influencing Uptake
The fact that a particular model has been used does not indicate its wide acceptance in the sector or its applicability to a wide range of circumstances. In a number of cases the use of a particular model has been dictated or influenced by a range of factors including the non-availability of other models.
The study identified seven factors influencing the choice of model:
• Availability of Security. Commercial lenders require security over assets in order to provide secured loans. This can be challenging for groups who have few assets, whose assets are of low value, or whose assets are not suitable for providing security (such as those in crofting tenure).
• Availability of Capital. Primary lenders will not lend 100% of required funding for a capital project as a rule. The borrower therefore requires to match fund this from other sources. Large community landowners with assets can use the capital sales and surpluses from income generating projects to invest. These options are much reduced or not open to owners of smaller assets.
• Relative Availability of Types of Finance. Community landowners as a rule seek public funding programmes first followed by charitable grants for funding either land purchase or project development. They will only then look to other funding models when public and charitable funding will not fund a project in full or in part, and if their own resources are insufficient to fill any funding gap.
• Willingness to Take Risk. Decisions to raise money via non-traditional and nonpublic funding models are taken by boards of directors. In order to consider these directors need to have a need, be aware of the opportunities and (in a number of models) be willing to risk their organisation’s (and possibly their own) assets.
• Capacity. Organisations with a low capacity tend to be limited in their funding options to charitable giving, modest grant funding and (occasionally) philanthropic gifts. Organisations with a higher capacity can invest more resources in fundraising of all kinds and investigating options that are new to them.
• Structure. The majority of the organisations interviewed as part of this study operate as registered charities with trading subsidiary(ies) to undertake the activities that they are unable to undertake due to restrictions on charitable trading and/or they would like to safeguard the community owned assets from the potential risk of undertaking trading activities.
• Investor Tax Relief. The UK tax system offers various tax reliefs that are intended to encourage investment in UK businesses. In addition to the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) which are aimed at small to medium enterprises in the UK, an investment relief aimed at the social enterprise sector is also available in the form of Social Investment Tax Relief (SITR).
Three general factors influence the use of funding models:
• National Policy Framework. Government policy has played a significant role in the growth and development of land reform in Scotland and the sector continues to grow due to the continued political support provided by the Scottish Government. Whilst there was UK Government support for renewable energy, and in particular subsidies provided, community bodies in the Highlands and Islands of Scotland were able to benefit significantly from the development of renewable energy projects.
• Support from Representative Bodies. Representative bodies play an important part in mitigating the impacts of low capacity and increasing the capacity of their members. Interviewees spoke highly of the support given by Community Land Scotland (CLS), Development Trusts Association Scotland (DTAS), Community Energy Scotland (CES) and the Community Woodlands Association (CWA). The representative bodies have played an important role in developing and promoting the use of non-public as well as public funding models.
• Support from Public Sector Bodies. The public sector plays an important but variable role in promoting community land ownership. This variability occurs across time, geography and type of body.