Loans, overdrafts, credit cards, mortgages, micro-loans are all forms of ‘debt finance’. Money is borrowed from a lender then repaid over a period of time, usually with interest. The total amount repaid is always more than what you originally borrowed.

Charging Bull statue, New York

Potential lenders for artists include

Grants vs loans

Given that you have to repay a loan, why not just look for a grant instead?

  • Grants are very competitive. You have to follow the funder’s priorities which might not be same as yours. Lenders are usually only concerned with whether you can repay the loan. They don’t care what you use the money for, so are more flexible.
  • Lenders can often provide you with a quick decision. Grant providers can take a long time to reach decisions. If you need funds quickly, getting a loan can be faster.

Taking out a loan won’t be a suitable course of action in all cases. You will need to be confident about your finances to be able to calculate how you will repay. Make sure you calculate:

  • How much the loan will cost. Loans can have arrangement fees as well as interest charges – and penalties if you miss a repayment or pay it off too early. Make sure you’ve understood the full cost of any loan and the terms of repayment before proceeding.
  • That you can afford the repayments. Loans are useful when you need to pay for a course, an opportunity equipment or materials up front. You must be confident you will be earning enough to cover loan repayments over the whole life of the loan. You must have a realistic understanding of your future earnings and cash-flow.
  • That you can convince a lender that I will be able to repay. Depending on the lender and amount you ask for, you will be expected to show that you’ve planned how you will generate income to repay your loan. For example via a business plan, budget or a cash-flow projection.

Artists have used various types of loan to:

  • Fund training and education, such as through student loans, overdrafts and credit cards. These debts are repaid once you start earning.
  • Surviving on credit cards or loans from family during a ‘start-up’ phase of your career is common. It’s important, though, to avoid debts mounting up by being as frugal as you can be.
  • Purchase studio space, live-work space through mortgages, or buy large-scale specialist equipment, such as darkroom facilities, through loans from High Street banks. Artist-led studio providers have used mortgages to purchase buildings and used studio rents to pay them off. This has created permanent spaces for artists to work.
  • Some arts organisations provide incubator or start-up loans. The Princes Trust Enterprise Programme offers start-up capital to small creative businesses.

Alternatives to bank loans

Getting a loan needn’t mean going to a High Street Bank. Community finance providers like credit unions are usually more accessible. Especially to social enterprises, freelancers and small businesses.

There are also some online small loan providers such as Zopa and Funding Circle that could be useful. You can also invest money into these for them to lend to others.

If you are having difficulty repaying your debts, it’s important to seek advice quickly to get things back under control.  Start by contacting your local Citizen’s Advice Bureau.

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