Why go to a bank when you have members?

Alistair Dunsmuir
By Alistair Dunsmuir December 4, 2011 16:50

Nearly all businesses have the need to borrow funds from time to time. In the case of golf clubs, the amount of finance required can be very significant (particularly if the club is considering a capital project such as redeveloping a clubhouse).

One of the most publicised effects of the credit crunch has been the lack of availability of bank finance for borrowers (both individuals and corporates). Those who have been able to borrow have found that, despite the Bank of England’s near zero base rate and extensive programme of quantitive easing, the interest and associated fees being charged are still very high. Public perception is that the prudent borrowers are being used to help pay for dodgy loans and to bolster the banks’ capital reserves.

Banks are also withdrawing overdraft facilities and, in some cases, demanding repayment of term loans, when the borrower is only in technical – not payment – default.  Banks are also increasingly asking directors or shareholders to provide personal guarantees. Latest figures from the Bank of England also demonstrates that loan repayments are exceeding new loans.

Other sources of finance

There are a number of alternative sources of finance available to companies and, in particular, to organisations that have members, such as golf clubs. Factoring, invoice discounting, lease finance, angel or VC finance can all help fill the bank lending void. Loans from directors and / or shareholders are also increasingly common. In the case of golf clubs, the membership can also be incentivised to offer financing to their club.

Incentivising your membership to lend

While companies and clubs have struggled to raise finance from banks, individual savers have also been hit by the unprecedented low level of interest rates. According to a report by the Bank of England, the average savings account offers a return of just 0.18 per cent while the average ISA is paying 0.46 per cent. With inflation at more than 5 per cent, savers are seeing a negative real terms return on their savings. This is without the additional concern of their bank going bust!

One firm, Fox Williams, has recently advised a number of London private members’ clubs, a sport’s club and even a public school, looking to raise several millions of pounds in finance from their members (or in the case of the school, from the pupil’s parents).

The scheme involves issuing loan notes to the membership which advances cash to the club. In return, members receive a discount / total waiver on their membership subscriptions rather than being paid interest (which is taxable). This can result in a very attractive (currently non-taxable) rate of return for members. Also, as golf clubs tend to be asset rich (although sometime cash poor), members feel comfortable that the loans are low risk. Clubs can, in addition, avoid all the usual arrangement / non-utilisation / renewal bank fees.

Best of all the members are helping out their much-loved club.

The loan is typically repayable in five to ten years (or sooner if a member dies or leaves the club). There are a number of legal, regulatory and tax matters which must be considered before a club can enter into a successful and compliant fundraising scheme. One area, which requires particular attention, is the Financial Services and Markets Act. This prohibits the offering of certain types of investment, unless a full prospectus is drawn up. Fortunately, there are number of exceptions to this rule, one of which is suitable for clubs.


In these troubled times, it is no wonder that a scheme, which provides non-bank finance combined with an attractive return to members, has proved popular. Even more so, when it helps preserve the members’ much valued 18 holes of golf! As always, clubs should take financial advice to make sure any finance scheme suits their own financial circumstances.

Alistair Dunsmuir
By Alistair Dunsmuir December 4, 2011 16:50
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1 Comment

  1. johnsmit September 19, 10:15

    The World Bank is like a cooperative, made up of 188 member countries. These member countries, or shareholders, are represented by a Board of Governors, who are the ultimate policymakers at the World Bank. Generally, the governors are member countries’ ministers of finance or ministers of development. They meet once a year at the Annual Meetings of the Boards of Governors of the World Bank Group and the International Monetary Fund.

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