Not for Profit sector 1 / 1

Getting a Loan

Similar criteria as would be used for profit-orientated entities

  • How secure is the loan?

    Here use the capital gearing ratio:
    Long-term loans to net assets

    Clearly if this ratio is high, further borrowing would be at an increased risk

  • Ability to repay the interest & capital

    Interest cover should be calculated
    PBIT / Interest

    The higher this ratio the less risk of interest default

    Look for trends indicating a deterioration in this ratio

  • Nature and trend of income

    Are the sources of income increasing or decreasing

    Does the reported income contain ‘one-off’ donations (which may not be recurring) etc?

  • Other matters

    Market value of, and prior charges against, any assets used as loan security

    Any (perhaps the trustees) personal guarantees for the loan