Types of finance

External funding can be divided into two categories: 

• Non-repayable finance – money you do not need to pay back. This includes donations, grants and sponsorships.
• Repayable finance – money you are expected to return. This can come in the form of equity or debt, or their permutations, sometimes referred to as quasi-equity.

In the next chapters we summarise some of the characteristics. For further information consult our Simply Finance guide.

Co‑ops and non-repayable finance 

Donations

Donations are funds given by individuals or organisations without specific terms attached to them. Donations are usually given to support the general mission of your organisation, or a specific project or activity. 

Platform co‑ops can collect donations by adding a donation button to their website, as well as their social media platforms, allowing donors to give one-off donations, or set up a recurring donation. 

Platform co‑ops should consider launching regular calls for donations, particularly in conjunction with certain activities, for example when running an event, or producing a valuable resource for the community.

An effective way of collecting donations is via a crowdfunding campaign, which usually involves setting up a campaign for a specific period of time to raise a predetermined target of funding. Crowdfunding campaigns can be donation based, or can provide rewards to donors that go from a simple acknowledgement on your platform, to providing priority access to your services. Crowdfunding campaigns require a clear marketing strategy and a big effort to make them successful, but they are an invaluable way of testing if there is appetite for your business idea and identifying potential users.

Grants

Grants are usually provided for a specific purpose and have a time frame (grant period) within which your organisation needs to deliver the outputs agreed with the funder. If the business is unable to deliver on it’s agreement, then usually the grant funder will expect part of the money to be returned. Each grant funder will have a set of priorities that determine the type of activities they are interested in funding. Platform co‑ops with a clear social mission are more likely to access grant funding.

Requirements from grant funders, both in the application process and once the grant is approved, will vary immensely depending on the funder and will be proportionate to the amounts you are applying for. 

Grant funding tends to be easier to access if they are for a specific purpose, rather than to cover core costs of running an organisation. 

Some grant funders might only fund charities and CICs, but more and more are now open to funding co‑ops without a charitable status, though they might require an asset lock, or a dissolution clause prohibiting distribution of reserves among members.

An interesting way of raising funds for co‑ops is the use of match-funding, where a funder agrees to match funds raised from the community or the members via a crowdfunding campaign, which can be either equity or donation based. Match-funding usually provides a boost to crowdfunding campaigns as it has the effect of providing assurance to individuals that the organisation is worth investing in.

Grant funding for platform co‑ops in the UK is still sporadic and tends to be available to those operating in specific sectors. Co‑operatives UK is monitoring the grant funding landscape for platform co‑ops and maintaining a database of #TechForGood funders.

Sponsorship

Sponsorship is funding provided by another organisation in exchange for some form of recognition within a project or an event that can contribute to improving their reputation. 

Sponsorship is advised only if there is a clear alignment with the sponsor, as alternatively it could cause reputational damage to the organisation. Sponsorship is most effective when associated with the delivery of a specific activity, for example an event, or a resource, a newsletter.