Got Cash? The Nonprofit Loan FundLisa Cremin | Centerview, July 2012
For cash-strapped nonprofits that juggle cyclical grant and contract payments, planning is crucial. One unexpected bump in the road can mean missed growth opportunities, unsteady operations, and months of playing catch-up.
A 2009 feasibility study, conducted by The Community Foundation for Greater Atlanta to determine the sector’s financial needs, found that:
82% of those shortfalls were due to timing (money that was supposed to come in, but didn’t);
70% of nonprofits indicated they might borrow, if loans were available, but
65% of nonprofit organizations do not have a stable, vibrant banking relationship.
As a result of these findings, The Community Foundation created the Nonprofit Loan Fund (NLF) to help nonprofits in the 23-county metro Atlanta region secure short-term funding and establish healthier banking relationships. Building on the success of The Community Foundation’s Arts Loan Fund, the NLF helps nonprofits bridge those unavoidable cash gaps - a reality at some point for more than 80 percent of all nonprofits - through short-term bridge loans. “Nonprofits unable to secure traditional bank financing to help cover unexpected cash shortages are not alone” said Cathi Spornick, administrator of the NLF. “Most nonprofits have encountered grant or contract payments that have not been paid on time, or an unanticipated reduction in the contract amount, or a crisis expense.”
"The Nonprofit Loan Fund loan enabled us to thrive during a slow cash flow period."
Dolph Goldenburg, executive director of Living Room, recently took advantage of the Nonprofit Loan Fund to keep their housing programs and services running despite lagging funds. “Traditional financing of our receivables was not available, and the Nonprofit Loan Fund was the only lender that would seriously consider our request,” said Goldenburg. “Most important, the NLF loan enabled us to thrive during a slow cash flow period and eventually obtain a traditional line of credit through a bank.”
In addition to loans that bridge the cash gap, the NLF offers training in budget management and cash flow forecasting, a tool that helps organizations calculate which months will be short, and which will be robust enough to pay back short-term debt. “If one of your grant or contract payments is late,” said Spornick, “you can use the cash flow forecasting tool to predict your organization's cash needs during the waiting period, and you can forecast the repayment on short-term debt.”
Spornick also noted that, “presenting a cash flow forecast to colleague nonprofit staff leaders, as well as your board, will go a long way towards getting everyone in agreement on the options.” Again, planning is essential: “Without planning, debt can seem like a slippery slope,” said Spornick. “Used wisely, bridge loans can be a valuable financial management tool.”
Lisa Cremin is a director at The Community Foundation for Greater Atlanta. She focuses on the Nonprofit Loan Fund, the Metropolitan Atlanta Arts Fund and social innovation and social venture philanthropy.