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Loan Fund a Bridge for Nonprofits – Market-level rates relieve cash-flow gaps

13 Jun 2014 by BizDESIGN in Building Community, SUMMER 2014

By David B. Pittman –

Nonprofit organizations aren’t in the business of making money – but that doesn’t mean they can lose money. To survive, the revenue of nonprofits must exceed expenses.
That has not been an easy task in recent years.

“The recession hit everyone hard – but it has been particularly hard on nonprofits because they’ve had to serve more people with fewer resources,” said Helaine Levy, executive director of Diamond Family Philanthropies.

“One of the things I’ve seen as a major funder in the community is that contributions promised to nonprofits continued to come in – but often at a slower pace. That has resulted in many nonprofits experiencing cash-flow gaps requiring bridge funding.”

But many Pima County nonprofit organizations do not have the tangible assets required to qualify for traditional bank loans. It is for these nonprofits that the Nonprofit Loan Fund of Tucson and Southern Arizona was created. The organization, which has already raised more than $500,000 of its $1 million goal to bankroll the program, began granting loans last December.

The nonprofit loans range from $10,000 to $50,000, have interest rates at market levels and must be repaid within 12 months. The loans are available to help achieve financial stability, seed new programs, bridge a cash-flow gap, purchase needed equipment or expand existing services.

To be eligible for assistance, the applying group must:

  • Be a 501(c)(3) organization in Pima County
  • Have minimum annual revenue of $250,000
  • Have at least a three-year operating history
  • Have three years of financial statements (audited preferred) and tax returns
  • Have a verifiable source of funds for repayments

The new fund provides loans that a bank would not.

For instance, of the first three loans approved, the first was backed by the promise of a future grant, the second was personally guaranteed by two supporters of the organization receiving the loan and the third was secured by money to be raised in an upcoming fundraiser.

“There is no bank that is going to say, ‘We hope your golf tournament is successful,’ ” said Levy, a founding member of the NPLF board of directors. “We are trying to fill a niche and we will take more risk than a bank would.”

The new program operates under the auspices of the Community Foundation for Southern Arizona, a nonprofit whose primary mission is to connect financial donors to the causes they care about.

Clint Mabie, president and CEO of the foundation, said the NPLF fits nicely under his organization’s umbrella because it already had the back-office functions in place that were needed to establish the new loan program.

“It also gives us another arrow in our quiver” in helping Southern Arizona nonprofits, he said. Mabie said another goal of the NPLF is to provide needed financial education and expertise to Southern Arizona nonprofits.

The impetus behind the creation of the loan fund came from Levy, who had seen similar concepts work in other communities around the nation. About three years ago she approached Mabie and Tony Penn, president and CEO of the United Way of Tucson and Southern Arizona, about creating the loan program.

“The three of us decided to do a basic survey of nonprofit leaders in our community to determine if this was something that would be helpful to them,” Levy said. “The consensus was overwhelmingly positive.”

Next, it was determined that business leaders and banking representatives needed to join the conversation about creating the loan fund. Levy said she contacted auto magnate and former bank owner Jim Click “to help us convene a group of people representing the business, nonprofit and banking sectors.”

The result was “the formation of a core committee that morphed into what is now the board of directors,” she said.

Don Jenks, executive VP and chief compliance officer of Bank of Tucson, recently succeeded Michael Hammond, president and CEO of Cushman & Wakefield | PICOR Commercial Real Estate, as president of the board of NPLF. Hammond remains on the board. Levy serves as vice chair and Debbie Chandler, a business consultant, is secretary/treasurer.

Other members of the board include Michael McDonald, executive director of the Community Food Bank of Southern Arizona; Frank Valenzuela, executive director of the Community Investment Corp.; Sean Murray, business relationship manager at Wells Fargo Bank; Steven Banzhaf, a retired Bank of America executive and community volunteer; Ray Lancaster, CEO of Pyramid Federal Credit Union, and Christina Rossetti, a nonprofit consultant.

“It’s an amazing board,” Levy said.

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