We’ve provided this working financial glossary as a resource to help elucidate different financial terms, and how they can be understood and applied fruitfully in the Arts and Cultural sector.
Asset-Based Community Development (ABCD): a methodology for how to mobilise self-organising community groups to achieve change and development by identifying often unrealised or under-utilised resources and strengths for the greater civic good. It’s often used in the context of community organisation, but certain financial consultants have applied it as a useful model for Arts and Cultural Organisational planning and development (for example Margaret Bolton’s Capital Matters p. 28ff).
Bond: a bond is a type of loan. The bond issuer is the recipient of the loan, and when you buy a bond you are providing that loan. Bonds specify what rate of interest will be paid and when the loan will be repaid in full. Bonds are often used by governments and corporations to borrow money to finance large capital projects. Margret Bolton and David Carrington explore how Arts and Cultural Organisations can use certain types of bonds to finance capital schemes that are likely to be revenue generating New and Alternative Financial Instruments p. 15 and 18).
Business angel/s: typically an individual providing independent capital to develop a business. Often a wealthy individual aiming to help the receiving business succeed through a combination of funds and through aiding the project with their advice, networks and/or mentorship. The term is often used in relation to start-ups, however there have been a number of case studies of its use to support commercial musicals and theatre productions in the West End. More information: New and Alternative Financial Instruments p.19
Cash sponsorship: cash sponsors pay fees in the form of money (as opposed to ‘in-kind sponsors; see below) who provide benefits to the receiving organisation in lieu of cash. Cash sponsors are typically used in events and not-for-profit fundraising. In 2015, it made up 54% of the total types of business investment in Arts and Cultural Organisations (Private Investment in Culture Survey 2016, p. 12)
Community Development Finance Institution (CDFI): a financial institution that provides credit and financial services to disadvantaged communities. There’s an example of how this sort of financing could be used by artists and crafts people setting up their own businesses on p.19 of New and Alternative Financial Instruments.
Community Interest Companies (CICs): These were set up in 2005 by the UK government. They’re designed as social enterprise companies that aim to create social good, rather than profit for shareholders. Bolton and Carrington explain how CICs can be used by not for profits as a way of allowing them to trade. (New and Alternative Financial Models p.25).
Development capital: the money that an organisation needs to invest in its future development (for example in research and development for new products and services). See also ‘Working capital’. Definition is taken from Capital Matters p.38.
Equity investment: money that is invested in a company by buying shares buying shares in a company. Bolton and Carrington make a case for quasi equity investments as a way of financing new projects for Arts and Cultural Organisations, New and Alternative Financial Instruments, pp. 14ff.
Endowment: a donation of money or property to a not for profit, which the receiving organisation will use for a specific purpose – typically in order to provide it with an income. The Sage in Gateshead has established an endowment to help it meet its revenue costs. Bolton and Carrington outline a case study of using endowment financing to support work in a new centre long in the making on p.22 of New and Alternative Financial Instruments.
Full cost plus: (see also Full cost recovery) full cost plus adds a mark up on all costs specified on full cost pricing. The Bolton and Carrington argue that Arts and Cultural Organisations’ contracts and grants should not only “reflect the full cost of delivery, including a legitimate portion of over head costs – they should also allow a margin for re-investment in the organisation/service. This is important – voluntary organisations tend not to recognise that they can only maintain projects or programmes if they invest periodically in their capital and human resource base.” (New and Alternative Financial Instruments, p.26)
Full cost recovery: securing funding for the full cost of the project, including a portion of overheads.
In-kind sponsorship: (see also Cash sponsorship) in-kind sponsorship provides goods or services in lieu of cash to the organisation it is sponsoring, in exchange for agreed benefits such as publicising the business name, its products and services. In 2014/5 In-kind sponsorship made up 19% of business investment in Arts and Cultural Organisations. (Private Investment in Culture Report 2016, p.12)
Loan: the lending of money by one individual or organisation to another. The borrower incurs a debt, and typically interest on that debt, which must be repaid, along with the original sum. Bolton and Carrington outlined scenarios where Arts and Cultural Organisations might benefit from using loans (from pp.11ff in New and Alternative Financial Instruments).
Patient capital: also known as long term capital. Refers to an investment where the investor does not expect to make a quick profit – instead the investor is willing to forego short-term gains, in anticipation of long term returns. Bolton outlines some lenders that operate in the Arts and Cultural sector that work in this way (p.25 Capital Matters).
Quasi-equity: the funder takes a financial stake in a venture – for example, in return for providing the capital for the development of a new piece of software, the funder receives a percentage commission on each sale (i.e. the return the funder receives is linked to the financial success of the venture). (Definition from Capital Matters p. 39).
Subsidy: a benefit granted by the state or a public body to help an industry or business. Subsidies are typically given in order to overcome a certain kind of burden or to promote social good / the economy. In New and Alternative Financial Instruments pp.5ff Bolton and Carrington talk about the fact that grant-based subsidies to Arts and Cultural Organisations are declining and being spread ever more thinly (and so make a case for greater adoption of alternative financial instruments in the Arts and cultural sector).
Venture philanthropy: applying, or redirecting, the principles of venture capital (VC) investment to achieve philanthropic goals. One of a number of financial instruments discussed by Bolton and Carrington in New and Alternative Financial Instruments.
Working capital: (see also Development capital) “the sort of financial capital an organisation needs to meet day to day expenses and pay its bills when they come due.” Definition: Capital Matters p. 38.