CFO by xuyuzhu


									Alternative Financing for
Non-Profits and Charities

    Today’s plan:
    •Understand financing challenges in today’s environment
    • Consider financing options other than grants
    •Build on your options, using the wisdom in the room
    •Determine next steps for you on the alternative financing “road”

      What are sector people saying to us?
    • Grants will always be important, but the granting situation, particularly
      government granting, is bleak
    • Can’t bridge it anymore; time from approval to receiving funds from
      government is putting organizations at risk
    • Want to work towards financial stability
    • Want someone to look at the whole picture of their organization’s financial
      needs and situation
    • Disconnect between financial health (reserves) and what funders are telling
      us they’ll allow
    • Need to look for new options and opportunities

                        Capital Markets

    Private sector:            Non-profit:
    • Seed Capital             • Philanthropy and Grants (seed capital)
    • Venture Capital          • Not much venture
    • Working Capital          • Little if any working capital
    • Loans:                   • Some loans against assets and
                                 mortgages, little else
           • lines of credit
           • Bridge
           • loans against
             purchase orders

                           Where is the Gap?
    Some great regional organizations working to fill need but:
      •   Fewer grants and contributions (and considerable time lag between
          approval and receipt of funds) mean the need is high
      •   Organizations who want to explore other financing:
          •   Some reluctance (does it mean end of grants?)
          •   Technical assistance (where?)
          •   Is there Board and community support
          •   Don’t always have access to needed financing

      •   Very few organizations looking at the full financing needs of the sector
          regardless of the type of financing
      •   “Conventional wisdom” leads to limits

      Conventional Wisdom 1
    Most sector financing comes from grants

    Conventional Wisdom 2
       No demand for financing

                 Conventional Wisdom 3
                     Organizations won’t take loans

    • Nonprofit Finance Fund in the US has loaned over $212 million to
      charities and nonprofits
    • Vancity has a large portfolio of nonprofit loans
    • Some regional have lent to non-profits and charities

     Conventional Wisdom 4

               Charities and nonprofits are
                         bad risks.
               Default rate of sector is ½ to ¼ of private
                           sector borrowers

           Conventional Wisdom 5
If this was a good idea, somebody would already be doing it.

There are many “alternative” financing groups worldwide and in Canada.
                Conventional Wisdom 6
     If Charities and non-profits need financial support services, that
                      proves they are badly managed.

                          Just like the private sector?

                  Conventional Wisdom 7
     Charities can’t take loans or other financing because donors won’t
                                   accept it

         Donors are clearly accepting that
         loans are a means to an end
         Loans allow scarce granting funds to
         be used for things where other
         financing isn’t possible and as an
         additional source to increase options.

      New Financial Challenges

• What has changed in the last 4 years and in
  particular, the last year?

            Financing Case Studies
• How did some of your colleagues meet their financing needs?

                             Creation Centre
     The organization:
     • A 20 year old aboriginal arts organization
     • Has income from theatre, art, video, community engagement services
     The need
     • Needs to build a centre for their activities
     • Has a good site off reserve, inexpensive land

     What are the financing options?

                    Community Mediation
 The organization
 • 60 year old organization, providing restorative justice, community,
   organization and workplace mediation
 • Funded entirely by grants
 The need
 • Has the opportunity to develop fee for service mediation training and
   workplace mediation services and to expand nationwide

 How will it finance fee for service development?

         Environmental Organization
      The organization
     • Sixty year old environmental education organization
     • 100 year lease on a building
     • Has substantial land
      The need
     • Has an opportunity with Ontario Microfit program
     • Wants to purchase solar panels and sell power back to the grid

      What are their financing options?

                Cultural arts organization

     The organization
     • Serves artists and low income community with education and
     • Provides gallery space
     The need
     • In the process of building a building
     • Grants are delayed and some are only available after completion of
       the project
     How can this be financed?

                  Women and construction
     The organization
     • Job training program for women in conflict with the law
     • Education in construction field
     The need
     • Wants to develop a business in construction for graduates for work and
       on the job training
     • Has opportunity with larger construction groups; access to their smaller
     Their financing options?
       1.   What do they need to do first?
       2.   What are their financing options?

                          Sustainable food
     The organization
     •Certification for local and “ethical” food
     The need
     •Rapidly growing organization; many new grants
     •Some grants only available after completion of the project
     •Need to even out cash flow and stop living moment by moment

     Financing options?

      Types of needs define options
• Building, growth, equipment, bridge, social enterprise, cash flow and
  corporate sponsorship opportunity
• Loans for existing programs, bridge, facility, growth
• Fee for service or product (social enterprise)
• For big developments, community bonds
• Corporate partnerships, sponsorships
• Procurement with government

     A quick primer on financing and loans

 What could a non-profit or charity use a
               loan for?
     As bridge financing for cash flow when grants or fees are pending but
     the funds are not yet received

     •To invest in diversifying a funding base with new partners and/or corporate
     •To expand to new communities where services are needed
     •To build new lines of business when an organization has the expertise to fill a
     gap that fits its mission and could provide a potential revenue stream

     Financing an asset:
     For capital to buy materials and equipment or a building

            What might a lender ask for?
 Organizational Information:                       Financial Information:
 •Strategy and business plan                       • Audited financial
 •Annual report and brochure                          statements
 •List and bios of board of directors, key staff   • Current year budget
 •List of major funders                            • Financial statements
                                                   • Existing debt and borrowing
 Asset Financing:                                     history
 •Description of the asset                         • Monthly cash flow
 •Construction budget                              • Current contracts
 •Copies of lease, contracts, construction and
 architect’s agreements
 •Insurance                                        (source: NFF)
 •Maintenance contracts

                 What do lenders look for?
     • Financial Strength (revenue sources, positive trends, sufficient cash flow,
       positive cash balances, maintenance plans, reserves for unanticipated
     • Management and Governance (strong management team, engaged
       board, well-developed infrastructure to support operations)
     • Planning and reporting (accurate reporting, financial / audited
       statements, good accounting practices, clear business plan, planning for
       growth, plans are reasonable and measurable)
     • Repayment sources (committed and confirmed repayment sources,
       available and budgeted by funder, contingency plans in case of cutbacks)

             What if I don’t have all these?
     What if you don’t have strength in all areas? If you are strong in many areas,
     you may show these can offset weaknesses. Or, if you have a plan to fix
     weaknesses, this can also help.

     What is your first step? Be clear on the purpose of the loan and have the
     appropriate plans or information available. (working capital, growth, asset

     Do you need a business plan? You may need a business plan if your loan is for
     growth, or a new line of services

     Do I need collateral? Not always, and sometimes can be secured against
     coming grants or fees.

              What to look for in a lender
     • Do they understand your business?

     • Are they willing to invest time in understanding your organization, your
       community and how you operate?

     • Will they offer solutions tailored to your needs?

     • Do they know your community?

     • Are the terms reasonable for the market?

     • Is the application process reasonable?

                   Is everyone loan ready?

     • No, but it is worth considering
     • Becoming loan ready also helps you look at financial weaknesses
     • The process itself can help things improve
     • Helps to look at the whole picture; preparing for a loan (even if you
       don’t apply for one) can help strengthen financial knowledge and
       point out where more work is needed

                  If you are not loan ready
     • Complete a thorough internal assessment: what are your vulnerabilities or
       the areas that need improvement
     • Based on your analysis, develop a work plan, identifying resources needed
       to fill those gaps:
           • Engage staff and board
           • Talk to your peers to share challenges & develop solutions
           • Talk to your funders about potential resources or external expertise
           • Perform thorough financial analysis: Implement controls, budget
             reporting, evaluate programs, profitability etc.


                                Your tales

     15 Minute Financial Review

     • Using the wisdom in the room (peer review)

     • Gather information, offer ideas (brainstorming, out of the box, high level)
     •Have at least one follow up option

     • Pick up on common themes and exceptional ideas

 What is the Community Forward Fund?

 A loan and financing fund for Canadian
 nonprofits and charities.

 Designed to address a gap in access to
 patient capital, working capital, bridge
 financing and growth capital for the

 Developing regional partnerships.

                  Financial Support Services
     • Financial coaching and support
     • Several offerings, including on-
       line, short assessment,
     • Also includes full financial “MRI”
       of the organization, and a plan,
       with a group of advisors (staff
       and volunteers) with significant
       financial, and charitable/
       nonprofit sector experience

     The Community Forward Fund

            Our goal:
            A strong and well
            financed non-profit
            and charitable sector

         Next step: take it to the next level

     •    What are your opportunities?
     •    What do you need to do to evaluate which to choose?
     •    What’s next? (Discussion, meeting, business plan/feasibility study
     •    Specific plan
     •    Application for financing


To top