Loans and finance

Loans, overdrafts, credit cards, mortgages, micro-loans are all forms of ‘debt finance’: money is borrowed from a lender then repaid over a period of time, usually with interest. The total amount repaid is always more than what you originally borrowed.

Potential lenders for artists include banks, specialist loan providers and credit unions.  Some trusts and foundations (like the Princes Trust) also offer small loans rather than grants.

Many artists borrow funds from friends, family and banks to fund their practice or development, and more lenders are starting to offer small loans from a few hundred pounds as well as mortgages for studio spaces.

Given that you have to repay a loan, why not just look for a grant instead?

  • Grants are very competitive, and you have to follow the funder’s priorities which might not be same as yours.  Lenders are usually only concerned with whether you can repay the loan and not what you use the money for, so they are more flexible.
  • Lenders can often provide you with a quick decision instead of having to wait for grant deadlines to come up.  If you need funds quickly, getting a loan can be faster.

Taking out a loan won’t be a suitable course of action in all cases.  You will need to be confident about your finances to be able to calculate how you will repay.  Make sure you calculate:

  • How much the loan will cost: loans can have arrangement fees as well as interest charges – and penalties if you miss a repayment or pay it off too early.  Make sure you’ve understood the full cost of any loan and the terms of repayment before proceeding.
  • That you can afford the repayments: loans are useful when you need to pay for a course, an opportunity equipment or materials up front – providing you are confident that as a consequence you will be earning sufficient income to cover loan repayments over the whole life of the loan.  You must have a realistic understanding of your future earnings and cash-flow.
  • That you can convince a lender that I will be able to repay: depending on the lender and amount you ask for, you will be expected to show that you’ve planned how you will generate income to repay your loan – for example via a business plan, budget or a cash-flow projection.

Artists have used various types of loan to:

  • Fund training and education, such as through student loans, overdrafts and credit cards.  These debts are repaid once you start earning.
  • Surviving on credit cards or loans from family during a ‘start-up’ phase of your career is common, but it’s important to avoid debts mounting up by being as frugal as you can be.
  • Purchase studio space, live-work space through mortgages, or buy large-scale specialist equipment, such as darkroom facilities, through loans from High Street banks.  Artist-led studio providers have used mortgages to purchase buildings and used studio rents to pay them off, creating permanent spaces for artists to work.
  • Some arts organisations provide incubator or start-up loans.  Cockpit Studios have run a Business Growth loan scheme as part of their ‘incubator package’ for several years that enables designer-makers to invest in new equipment, marketing or making larger batches of work.  The Princes Trust Enterprise Programme offers start-up capital to small creative businesses.

Getting a loan needn’t mean going to a High Street Bank: community finance providers like credit unions are usually more accessible to social enterprises, freelancers and small businesses.  There are also some online small loan providers such as Zopa and Funding Circle beginning to emerge that could be useful, and you can also invest money into these for them to lend to others.

If you find that you are having difficulty repaying your debts then it’s important to seek advice quickly so that steps can be taken to get things back under control.  Start by contacting your local Citizen’s Advice Bureau.

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