A charity with a signed grant offer and an empty bank account is not insolvent. It has a timing problem. The grant pays in arrears, the staff and suppliers do not, and the gap between the two is where bridging finance lives. The mistake charities make is treating that gap as something to absorb by raiding reserves. The better question is what can lawfully be borrowed against, and what can lawfully repay it.
Restricted funds change the entire calculation
A charity's money is not one pool. Restricted funds — appeal proceeds raised for a stated purpose, grants tied to a named project, legacies left for a specific use — can only be spent on the purpose the donor set. They cannot be borrowed against, cannot be lent to another project, and cannot be used to service unrelated debt. A donor who funded a new minibus did not fund your overdraft, and trustees who treat the two as interchangeable are in breach.
That has a hard consequence for any borrowing. Debt is serviced from unrestricted income only. When a lender sizes a facility, the restricted balance on the balance sheet is largely irrelevant to repayment, however large it looks. What matters is the unrestricted income — trading surplus, unrestricted donations, the management fee a grant allows the charity to retain — because that is the only money the charity is free to point at a loan repayment. A file that does not separate the two cleanly invites the lender to assume the worst.
Reserves are not the answer they appear to be either. Free reserves at three to six months of running costs is the signal a lender wants to see is intact. Spending them down to cover a grant that is two months away converts a strong covenant into a fragile one, and does it precisely when the next funder is about to ask what the reserve position looks like. Bridging exists so the reserve stays where it does its job.
What a social lender will and won't advance against
Specialist lenders — Charity Bank, CAF Bank, Unity Trust, Social Investment Business, Social Investment Scotland, Big Issue Invest — bridge timing for charities routinely. They are not, however, advancing against a hope.
They will advance against:
- A signed, unconditional grant offer letter paid retrospectively, where the loan is repaid directly from the grant once it lands. This is the cleanest bridge in the sector — the repayment source is contractual, named, and dated.
- A contracted public-body income stream where the cash is delayed in the system rather than uncertain.
- A confirmed legacy where probate is in hand and the bequest is quantified, used to bridge a project the charity wants to start before the estate distributes.
They will be cautious about, or decline:
- A grant that is pledged but still conditional on milestones, match-funding or a future board decision. Until the conditions fall away, it is not a repayment source, and a lender that knows the sector will not pretend otherwise.
- A legacy notified but not yet through probate, especially a residuary share whose value moves with the estate. A pecuniary legacy — a fixed cash sum — is far more bridgeable than a residuary one, because the amount is certain; residuary value is not known until the estate is administered.
- Anything repayable only from restricted income, which by definition cannot repay the loan.
The legacy point is worth sitting with. Pecuniary legacies should normally be paid within a year of death, and statutory interest accrues if they are not — so a confirmed pecuniary gift is a near-certain inflow on a roughly known timetable. A residuary legacy can take far longer and arrive smaller than expected. Lenders price that difference, and they are right to.
Why bridge instead of eating into reserves
The case for bridging over reserves is not about cost — short-term finance carries a fee the grant rarely reimburses. It is about what the reserve does. A charity's free reserves are its evidence of resilience to its trustees, its funders and the Charity Commission. Drain them to plug a known, dated timing gap and the charity looks weaker exactly when it is fundraising or contract-bidding. A bridge is a deliberate decision to pay a small cost to keep the balance sheet looking like what it is: solvent and well-run.
There is a structural reason a cashflow loan often fits this better than a generic overdraft. The facility can be sized to a specific, evidenced inflow and repaid in a single bullet when the grant or legacy arrives, rather than left revolving and forgotten. Where the bridge is against a trading subsidiary's sales ledger rather than a grant — a commercial arm waiting on customer payment, not a funder — the cleaner route is often asset-based lending against that ledger, which keeps the charity's own restricted-fund position out of the lender's security entirely.
Get this onto one page before you ask
Before approaching any lender, the charity should be able to state, on a single page: which inflow repays the bridge, whether it is unconditional, its expected date, and what unrestricted income covers it if the inflow slips. That document is the whole underwrite. A lender that funds the sector can move quickly on a signed grant offer or a confirmed pecuniary legacy; it cannot move at all on a restricted balance with no clear repayment route. The charities and non-profit sector page sets out how this sits alongside the longer-term funding a charity uses for capital projects and growth.