Of course non-profits are accustomed to getting donations from individuals and many run annual fundraising campaigns to feed their financial needs. However, sometimes these avenues are not enough for a non-profit to reach its goals or even remain viable. This is why many have to consider other forms of capital.
What does this mean? Well, for some non-profits and charities, seeking capital can be as simple as asking wealthy supporters or board members to help them stay afloat. These people either make large donations or offer loans. Organizations have to be careful that conflict of interest policies aren’t going to be violated if board members step up to the plate. This isn’t the only choice though. Non-profits also have the option of approaching banks and other lenders.
It is true that lending isn’t an easy process, but it can be done. For example, a U.S based organization that focuses on services for children with developmental disabilities was turned down by several banks when they wanted to secure a loan to expand classroom space, but after explaining the need and importance of their program, as well as how they could sustain operations, they were able to get a significant line of credit for their expansion from a community bank.
Accountants like, Paul Magdaline who has worked with private, public and charitable organizations, warns that this does not mean that everyone who seeks help gets it. “You have to have your house in order. If you can’t prove that you are fiscally responsible then why should anyone support you?” Magdaline recently stated.
On the positive side, Magdaline pointed out that there are a lot of different ways to seek capital today. Here are a few tips that experts including accountants, bank managers, and financial advisors say could help non-profits.
- Have good financials – keep good records, be able to prove that you can pay back any money that is borrowed. Have current financial statements, recent tax returns, as well as cash-flow projections available.
- Consider all loan variables – is a loan the best option? Do you have power to borrow? Do you have power to pledge assets as security? Do you have the right skills to manage a loan? Have you assessed the risks?
- Trading – non-profits can earn income by selling goods and services to members. Examples of trading by non-profits include, selling tickets to events, selling publications, selling in-house expertise, selling products and renting out facilities.
- Equity Capital – this means external investors take a stake in the organization and if the organization is successful, the investors share in the rewards. Members of a charity or non-profit have to consider whether they have the power to raise equity capital.
- Crowdfunding – this is the practice of funding by raising money from a large number of people through the Internet. In San Bernadino a small, annual online fundraiser “Give Big” raised close to $300,000 for local non-profits in 2016. It was $30,000 more than the previous year’s crowdfunding campaign.
- Microlenders – typically they lend $50,000 or less to start-ups or smaller organizations. These loans often include low interest rates and access to other business-related assistance.
As non-profits consider the different avenues for seeking capital, they should also consider that the philanthropy outlook for 2017 is very good. In 2017 total giving is expected to rise above historical 10-year average rates. According to the leading fundraising consulting firm, Marts and Lundy, this can be partly attributed to the involvement of a new generation of philanthropists who are now feeling inspired and engaged. A recent report by the firm suggests that as the disparity grows between the very wealthy and the rest of society, non-profits should pay special attention to the potential for securing commitments from top-level donors.