A Micro-Loan Scheme for Artists and Enterprise

A Micro-Loan Scheme for Artists and Enterprise Background Opportunities exist for philanthropists and government to be investors in culture extending loans to artists and cultural enterprises which are re-paid over time. Loans can deliver a blend of cultural and financial value from the return on capital, including some with modest interest rates. Respondents to the consultation for the Foundation for the Artist could see both the benefits and risks of introducing loan funding for artists. The concept of low interest loans is appealing. Younger and emerging artists are often held back by limited financial status when developing new work. Organisation response The micro loans seem a bit irrelevant to theatre as it is hard to imagine much theatre which is profit making. Already independent artists often work in a profit share arrangement. The idea of more debt hanging over the heads of already impoverished artists feels a bit scary. Organisation response Of all the concepts I think loans are most important. If they could be fast-tracked in all states and attached to commercial institutions [this would mean] immediate results for artists. And also longer term results because it gets artists thinking differently. Individual artist response. Examples of Loan Funds for the Sector Non government initiatives Quickstart Quickstart is an interest free loan scheme for artists and small scale cultural enterprises in Queensland managed on a not for profit basis through a joint venture between Positive Solutions and accountant Brian Tucker. Loans of between $500 and $5,000 have been made available to assist artists, cultural and creative enterprises to develop their product or service to the community. The average loan has been c. $1,900. Successful applicants have included both sole traders (visual artists, designers, musicians, artistic directors) and cultural and creative businesses (a publisher, bands, a dance company and a number of small scale theatre projects). Applicants have made approaches for a loan from the Fund for the following reasons: the need for immediate access to finance due to an unforeseen opportunity, e.g. an invitation for a residency at short notice projects being ineligible for grant support or having failed to secure a grant through current programs a desire to try some other form of funding other than public sector grants the need for support over and above a grant that may have been received for a project the difficulty of securing and repaying a loan from a conventional financial institution From an initial capital investment of $16,000 the project has delivered over $70,000 loans over the last 7 years and has demonstrated that micro loans when structured to the appropriate 1

needs of the individual or project can be of benefit. This project has also required in kind support from the companies involved. Recipients Artist/ designer Matt Dwyer received a loan of $3500 to assist with the design development and production of a new range of lighting prototypes. The final products of this work were displayed at Craft Queensland Gallery (now Artisan) and have subsequently gone into production. A loan from Quickstart has enabled me to bring my project to fruition as my grant (Australia Council) only covered part of the costs. The application process was simple and artist friendly and the re-payments tailored to my own financial position. The fact that the loan was interest free is supportive to an artist s situation and has enabled me to pay it off sooner. A loan of $3,500 was provided to this Indigenous media organisation for a second print run of the publication A History Life and Times of Robert Anderson, Gheebelum Ngugi Mulgumpin. Finance for a second print run of this unique publication was unavailable because such support was outside currently available arts policies and Uniikup Productions Ltd., a not for profit organisation, did not have the necessary collateral to attract a bank loan. A Quickstart Loan provided the only culturally appropriate and successful means to meet demand for further copies of this important publication. Based upon the success of our loan contract, Uniikup Productions Ltd. highly recommends this form of support. 23rd Productions, an independent theatre company in Brisbane have had loans totalling $6,000 for their last two shows: 23rd Productions owe much of our success to the program - the first production we used the money for received 4 major theatre awards in 2010. The loan has meant that we have been able to secure texts that are in great demand and stage them as Queensland Premieres, have cash up front to purchase materials to ensure high production values, and most importantly not put ourselves in irresponsible personal financial positions. The fact that the loan is interest free ensures that we are not stressed or distracted by money and an increasing debt: we are free to create extraordinary and unique work that challenges and inspires our community. Independent theatre companies like 23rd Productions need bold organisations who will invest in their vision -- taking risks and trusting creatives when others are more attached to the bottom line or playing it safe. The Quickstart loan program is such an investor and because of this we are now one of the most successful theatre companies in SE Queensland. Fair Finance Australia Foresters has identified the need for further community development initiatives in the area of addressing financial exclusion, including financial product options which seek to address the financial stress faced by those on low or fixed incomes, which through this research we suggest would include artists. It has proposed a new initiative, Fair Finance Australia, based on a UK model, to fill the gap in the Australian finance marketplace and the unmet financial needs of low income Australians. Fair Finance Australia will be Australia s first personal finance Community Development Fund Initiative dedicated to identifying processes, developing products, and engaging in action research and education for the financial inclusion of all people in Australia. It will be a partnership with a major financial institution with opportunities for other social investors. The model represents an opportunity to develop specialised personal finance products for artists designed to bring them in out of the financial cold and tailored specifically to their capital 2

requirements. The model is based on an interest bearing micro loan that will enable access through a sustainable model that goes beyond grant making. Loans could be applied to purposes not directly related to artistic production such as registration of a motor vehicle or directly to artistic production for the hire of equipment for a performance. National Australia Bank NAB (NILS) Developed by Good Shepherd Youth & Family Service nearly 30 years ago, the No Interest Loan Scheme (NILS ) offers small, no interest loans for people on low incomes for the purchase of essential household goods. Loans are in the region of $800 to $1,000 and are completely free of interest and fees. In addition, the NILS loan process also helps borrowers improve their savings and budgeting skills. Good Shepherd Youth & Family Service accredits community organisations to be NILS providers and co-ordinates the National NILS Network, currently consisting of 280 NILS programs around Australia. Over time, NAB s support of the NILS network is expected to treble the number of interestfree loans currently offered to Australians living on low incomes. With NAB's investment, the program s expansion will also focus on communities experiencing increasing disadvantage including Aboriginal and Torres Strait communities, a focus for NAB and outlined in NAB s Reconciliation Action Plan. NAB Microenterprise Loans This is a low interest loan program between $500 and $20,000 for small scale businesses and start ups with a term of up to three years. These loans have been accessed by creative businesses, but for some the interest (around 60% that of a commercial loan) still creates a barrier to entry. QUT Creative Enterprise Australia (CEA) - Creative Business Loan Fund The Creative Business Loan Fund (CBLF) is designed to bridge the gap for proof of concept and business development funding, offering interest free loans of up to 12 months for $10- $15,000 for qualifying creative industries businesses. The purpose of CBLF is to allow a creative venture to focus and consolidate their business strategy, operations and revenue model. This is specifically aimed at enabling creative industries ventures to access loan assistance and mentoring to realise their plans for growth. Launched by CEA three years ago there have to date been c.100 enquiries, 20 full applications and five loans awarded. The five have included one Indigenous media business, two in fashion, one in music and one in film. The strengths of this program are seen to have been the ability to reduce short term cash flow problems to enable a company to take a step to next level in their business however there have been some weaknesses identified: the inability for companys to re-pay within the interest free 12 month period they have all had to pay interest (minimum amount) after this term too much paper work for the amount of money the use of the CEA mentoring program just to get access to a loan Crowdfunding Crowdfunding describes the collective cooperation, attention and trust by people who network and pool their money and other resources together, usually via the Internet, to support efforts initiated by other people or organisations. Crowdfunding allows artists and arts organisations to 3

reach out to their audiences and supporters for funding and brings together large numbers of small donations. In Australia crowdfunding sits somewhere between investment and philanthropy the money given to projects is a donation (but not tax deductible) and some gift is provided to the donor depending on the level of their support. In the UK these platforms have been used to fund business ideas and entrepreneurial endeavours, to connect with potential investors and raise venture capital. Discussion with the developer of the principle crowdfunding site for creatives in Australia pozible.com.au, indicates that there is potential for crowdfunding to be used as a tool for micro financing through investments or loans but this would require some changes to current legislation. For businesses, it is possible for contributions to the artists to be tax deductible as sponsorship. Government Initiatives A number of initiatives are beginning to emerge from government in this area but focus almost exclusively on social welfare. At a state level, Tasmania has a Community Development Finance Fund; Western Australia is about to launch a Community Development Investment Fund; and the New South Wales Government is giving consideration to Social Impact Bonds. Arts Tasmania is the only State Government agency to offer loans including the highly successful COLLECT art purchase scheme, an interest-free loan scheme that enables people to purchase artworks by contemporary Tasmanian artists from participating Tasmanian galleries. Social Enterprise Development and Investment Fund (SEIDF) In response to a Productivity Commission report and other research in impact investing the Australian Government has recently created the SEDIF fund to work with the finance, legal, philanthropic and social sectors to develop a new mechanism to leverage investment in social enterprises and ultimately improve the ability of social enterprises to access the capital they need to develop. It is an allocation of $20 million in seed funding to be used in partnership with private and philanthropic investment at a minimum 1:1 ratio. Financial institutions who have been successful in tendering to manage this fund will be announced shortly. Depending on the structure of the loans, there could be opportunities for cultural enterprises to access investment. Overseas Experience The interim report includes a number of examples of European social investment schemes through government or financing institutions such as Triodos, which have provided no or low interest loans to cultural organisations. Recently research has been undertaken in the UK into the feasibility of a micro loan fund for small scale creative activity in Scotland on behalf of Mission Model Money. The research team concluded that: a range of different types of funding were required with a multi faceted approach to delivery a need for entry level, low interest, small scale loans for which investment through grants or philanthropy would be required existing financial providers such as credit unions and social finance institutions as well as high street banks were possible partners in delivery crowdfunding had a potential future in this space 4

Conclusions The issues which we believe need to be considered in developing a model for the arts in Australia are: the lack of familiarity and hence wariness of the idea of this type of financing in some parts of the sector and a requirement for education the provision of small loans that are project orientated as well as for business development the need for pathways through a range of schemes to mainstream financing opportunities delivered by existing finance providers so there is no duplication of products the need for a partnership with a compliant finance organisation the need for an appropriate value system which recognises and understands the work of the sector the need for on the ground buy in and regional delivery mechanisms for the front end opportunities for training in business skills/financial planning around the loan Recommendation New Models New Money is proposing the creation of a new entry level micro loan scheme for the arts (artists, cultural and creative enterprises), building on the Quickstart model from Brisbane, and in partnership with Foresters Community Finance through their Fair Finance Australia program. Product Loans of between $500 and $5,000 to assist artists, creative and cultural enterprises to develop their product, project, or business. These would be no interest loans for the first 12 months but incur a small fee for approval. Model This will be a scheme operating on a regional basis building on the concepts of mutuality found in many international microloan and community savings schemes. Management The management of the loan would involve two parties regional arts service organisations undertaking the front end work to promote the loans and undertake initial appraisal for which they would receive a fee. The management of the lending process will occur through the auspices of Foresters Community Finance under the organisations Consumer Credit Licence. Loan management, arrears management and general loan maintenance and reporting will be provided as part of the management services. Capital Building on the Quickstart model the initial loan capital would be raised from interested parties and individuals in each region, so building the idea of mutual local development. Development The initial development of material and promotion to a number of regional arts service organisations (in consultation with State arts funding agencies) and the education of those agencies will be undertaken by the team behind Quickstart and Foresters. A limited number of schemes would be launched initially no more than six and structured to reflect the specific needs of artists and creative organisations in each region. 5

Current Partners Foresters Community Finance have agreed in principle to design and provide the management model required. The team behind the Quickstart program in Brisbane will provide the capital for a South East Queensland scheme. Discussions have commenced with an regional arts service provider in Central Queensland with access to loan capital and a desire to establish the scheme. Discussions have commenced with the state funding body in Tasmania and Regional Arts Tasmania regarding the possibility of a pilot in that State. Finance requirements Loan Capital Development Costs Loan identification Loan Management Evaluation To be raised by the regional organisation promoting and delivering the loans. The development of the product will require some initial upfront investment to ensure that is compliant with Consumer Credit Law. Access to artists requiring loans, including tailored marketing will require resource support. Charged per loan this fee will be covered through the loan itself. An on-going evaluation structure would be built into the program, through New Models New Money to include the impact of the loan on the growth and development of the recipient. The income from the program will therefore be a mix of fees and funding. Government funds will support development and market reach and the loan itself will generate self sustaining income to cover the costs of making and managing the loan. Outcomes The anticipated outcomes from this scheme are: Increased investment in the sector, initially through the capital secured in each region for the loans and subsequently through the activities and partnership funding from the recipients Economic/cultural/social impact of the projects and businesses receiving the loans Improved business and financial experience of those in the sector enabling them to consider the use of loans as part of their future business Creation of pathways to mainstream financing 6