Why Nonprofits Borrow
Access to credit is essential to the success of any business, and the case is no different for nonprofits. Without affordable loan capital, nonprofits may forgo growth opportunities, operate in suboptimal real estate (or pay high rent), or consider expensive financing.
Nonprofits use borrowed funds to:
1. Make real estate purchases.
Approximately 87% of nonprofit debt is used to finance real estate, making this the most common use of a loan by nonprofits. This isn’t surprising, since most nonprofit programs are place-based and local to their communities. A good property can make a huge difference in a nonprofit’s success, and timely financing can help nonprofits compete for attractive properties.
2. Manage cash flow.
Many government grants operate as a reimbursement system, where nonprofits first perform work (and incur costs), then bill the government (or other sponsors). While these grants provide critical funding for nonprofits, the unfortunate reality is that it can take months before a nonprofit receives any funds once they have been awarded a grant. This cash flow uncertainty can be mitigated by bridge-to-grant loans.
3. Expand program services.
When a nonprofit’s program is successful, demand for their services increases. While small businesses can tap into existing programs at banks or networks of investors for growth or seed capital, the landscape of similar options is more limited for nonprofits. Working capital loans allow a nonprofit to expand their services without being financially vulnerable.
By focusing on these loans for creditworthy nonprofits, LENDonate
– Puts more resources in the hands of effective, visionary NPO leaders
– Connects with impact investors to enable NPOs to reduce borrowing costs
– Together create a funding environment that is focused on facilitating their mutual success
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LENDonate is All About Nonprofit Financing
LENDonate’s mission is to create a dynamic market that allows capital to flow more freely in the nonprofit sector. We harness the power of nonprofit networks – a desire to contribute to social good – onto one single platform. This platform facilitates desired philanthropic actions, from offering grants and donations to making market-rate capital accessible to qualified projects. See Borrowers FAQ for more details.
Like all businesses, having access to credit is essential for many NPOs to execute their missions. Without affordable loan capital, nonprofits may have to forgo growth opportunities, operate in suboptimal real estate space (or pay high rent), or consider predatory loan options.
Nonprofits today face several challenges, and nonprofit employee retention is at the top of many lists. Numerous positions from senior leadership to entry-level go unfilled even as corporations are trimming their workforce. What has changed when it comes to nonprofit employee retention? The answer may lie upstream, the sector’s largest funding partner – the government. Most government contracts work generally like this: provide services in the areas and/or in the way the government specifies, then the nonprofit can get reimbursed after the work is completed or underway. So, when the government system is also understaffed, approvals and reimbursements also get delayed.
As this Behind the Red Tape article quoted one large nonprofit CEO, “The combination of bureaucratic red tape and a refusal to increase funding for nonprofits makes it all but impossible for groups like hers to pay competitive salaries.” When “it can take the city as long as a year to actually pay the nonprofits, they have to borrow money to stay afloat, pay interest, and have difficulty recruiting and retaining staff.”
The government is trying to address nonprofit employee retention, along with general employee retention, by offering Employee Retention Tax Credits (ERTC) through the IRS which is a refundable tax credit for employers that continued to pay employees during the pandemic shutdown or had significant declines in gross receipts.
By focusing on these loans for creditworthy nonprofits, LENDonate:
Perhaps the group that is working the hardest on nonprofit employee retention is the nonprofit leadership – their management and board. One of our nonprofit borrowers, Mountain Valley Child & Family Services, has started to turn their understaffing situation around by employing some of these good practices. One of these best practices is to continuously monitor turnover rates and retention strategy success. If ongoing nonprofit employee retention challenges are not properly addressed, this sector’s value which represents 5.6% of the US GDP could trigger a domino effect that exacerbates greater societal problems when needs go unmet. Therefore, the price of doing good ought to start with funders taking care of the nonprofits so that they can provide their employees with the competitive salaries they deserve.
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LENDonate is All About Nonprofit Financing
LENDonate’s mission is to create a dynamic market that allows capital to flow more freely in the nonprofit sector. We harness the power of nonprofit networks – a desire to contribute to social good – onto one single platform. This platform facilitates desired philanthropic actions, from offering grants and donations to making market-rate capital accessible to qualified projects. See Borrowers FAQ for more details.
