Social Currency

Much of our work here at NFF focuses on easing nonprofits’ access to capital--both in sufficient quantities and the right kinds--for dealing with short- and long-term needs. Loans can be used to help meet such needs, but there are important distinctions between loans and other types of capital. What will a loan mean for your organization?  How will you meet the terms of the loan once you’ve received one?  With these questions in mind, NFF Associate Dana Britto assembled five introductory blog posts each providing a helpful tip that you should consider before applying for a loan.  (Read all five tips here!

One thing many prospective borrowers may not understand from the outset is that we really want to lend money to you.  Once we’re convinced of your basic fitness to take on debt, the next task is to advocate for your loan in front of a lending committee.  We become advocates for your interests, and you never want your advocate to be surprised by some relevant information you forgot to share. 

The questions we ask and the information we seek as lenders is required to ultimately protect the potential borrower while ensuring our ability to lend.  Throughout this process, developing and maintaining the trust of your lender is crucial. With this in mind, it is in your best interest to do all you can to provide information for your lender to help generate confidence in your organization, specifically with regards to your leadership team (including your board), financial health, fiscal and programmatic controls/protocols and of course, your repayment sources.  Attaining this information will only increase a lender’s ability to effectively advocate on your behalf, which ultimately increases your chances of securing a loan.

Many potential borrowers fail to recognize that withholding or falsifying information can be extremely costly.

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Much of our work here at NFF focuses on easing nonprofits’ access to capital--both in sufficient quantities and the right kinds--for dealing with short- and long-term needs. Loans can be used to help meet such needs, but there are important distinctions between loans and other types of capital. What will a loan mean for your organization?  How will you meet the terms of the loan once you’ve received one?  With these questions in mind, NFF Associate Dana Britto assembled five introductory blog posts each providing a helpful tip that you should consider before applying for a loan.  (All five tips will be available here

The time needed to evaluate a loan can vary by lender and by the type of financing you’re requesting.  But in general, even if a repayment source is secured, lenders review lots of information and follow very specific guidelines and protocols which have many requirements and can generate many questions. For loans financing facility-related needs, the time to secure a loan often increases due to the need to secure required property assessments, projects budgets, drawings, the scope of work and construction contracts.  For these reasons, loans might not be the best option for an organization that requires an immediate infusion of cash.

As lenders, it’s our job to identify risks and see what factors are present to effectively mitigate these.  This cannot be done without reviewing sufficient information and having our questions and concerns addressed.  When we don’t do this, we ultimately jeopardize our ability to continue providing capital to those who need it while also potentially putting the borrower in a position of financial hardship in the long run.  Consequently, borrowers need to be prepared to take the time to field these questions in order to make their lender more comfortable moving forward with a loan.  Which brings us to our final tip: Tell it Straight 

We’re making it easier than ever to inquire about whether a loan from NFF is right for your organization.  Please review the lending guidelines at our new loan inquiry form!  

Much of our work here at NFF focuses on easing nonprofits’ access to capital--both in sufficient quantities and the right kinds--for dealing with short- and long-term needs. Loans can be used to help meet such needs, but there are important distinctions between loans and other types of capital. What will a loan mean for your organization?  How will you meet the terms of the loan once you’ve received one?  With these questions in mind, NFF Associate Dana Britto assembled five introductory blog posts each providing a helpful tip that you should consider before applying for a loan.  (All five tips will be available here) 

Know your repayment source.  This may seem like an obvious request from a lender.  But nevertheless, the importance of knowing your source of repayment cannot be emphasized enough.  If you are seeking a loan that will be paid off over a period of time through monthly debt service payments, you should have at least some understanding of your cash flow trends and capacity on a monthly and annual basis.   A preliminary financial assessment from almost any lender can further determine and highlight an organization’s debt service capacity based on trends in operating performance and cash flows.

If repayment is coming from a specific grant, contract or pledge, be ready to verify that this funding is confirmed, most often through official documentation, and don’t be surprised if lenders want to contact the source of this funding to verify the security of these funds.  Under these circumstances, many borrowers often fail to recognize that in the event that this repayment source is ever unexpectedly reduced or significantly delayed, operating cash flows essentially become the source of repayment.  This is why many lenders cannot simply ignore an organization’s overall financials even if they are bridging a specific source.    

Depending on a to-be-raised or unconfirmed source to cover repayment can be extremely risky, especially in the current economic environment.  Under these circumstances, be sure that a secondary source of repayment is available, sufficient, reliable and/or confirmed. 

We’re making it easier than ever to inquire about whether a loan from NFF is right for your organization.  Please review the lending guidelines at our new loan inquiry form!  

Much of our work here at NFF focuses on easing nonprofits’ access to capital--both in sufficient quantities and the right kinds--for dealing with short- and long-term needs. Loans can be used to help meet such needs, but there are important distinctions between loans and other types of capital. What will a loan mean for your organization?  How will you meet the terms of the loan once you’ve received one?  With these questions in mind, NFF Associate Dana Britto assembled five introductory blog posts each providing a helpful tip that you should consider before applying for a loan.  (All five tips will be available here) 

Sometimes we’re approached by organizations who have suffered years of large consecutive operating deficits thinking that a loan will help resolve this issue.  What these organizations fail to remember is that a loan is not a source of revenue and should not be treated as such. Loans represent capital that is expected to be repaid in full plus interest and fees. While a loan can provide necessary cash flow to support operations and cover upfront project costs, it ultimately cannot reduce year-end deficits or provide a permanent boost to your liquidity if your organization is unable to consistently bring in sufficient operating revenues to cover expenses each year.  For these reasons, debt is not the best option for organizations in severe financial distress. 

Obtaining a loan only increases the need to achieve operating surpluses. They’ll be necessary to cover both standard operating expenses in addition to debt service payments!  Demonstrating and implementing some type of contingency planning can make lenders more confident in your ability to achieve year-end operating surpluses.  Ideally, your organization should budget for these contingencies, which could include revenue losses or reductions, unanticipated expenses, or project cost overruns specifically with regards to large construction or renovation projects. When applying for any loan, be prepared to explain how you will mitigate these contingencies, whether it is through expense cuts or securing alternate reliable revenue sources.  This gives lenders confidence in your ability to adjust and course correct, a very necessary skill in this very unpredictable economic environment.

Please note that showing deficits in your financials does not necessarily mean that you don’t qualify for a loan.  Just be prepared to discuss the circumstances of the deficits, what specifically is being done within the organization to prevent future ones, and what progress has been made towards improving operating results.

We’re making it easier than ever to inquire about whether a loan from NFF is right for your organization.  Please review the lending guidelines at our new loan inquiry form!  

Much of our work here at NFF focuses on easing nonprofits’ access to capital--both in sufficient quantities and the right kinds--for dealing with short- and long-term needs. Loans can be used to help meet such needs, but there are important distinctions between loans and other types of capital. What will a loan mean for your organization?  How will you meet the terms of the loan once you’ve received one?  With these questions in mind, NFF Associate Dana Britto assembled five introductory blog posts each providing a helpful tip that you should consider before applying for a loan. (All five tips will be available here)     

We are sometimes approached by organizations inquiring about loans who simply ask for “as much as you can give me.”  This is almost never the best way to apply for a loan.  It’s appropriate--and even encouraged!--to inquire about the types and sizes of loans a lender provides, but if you can’t tell your potential lender what amount and type of financing you will need, a lender may think you don’t have a firm handle on your organization’s finances or that you are in dire need of cash that you will most likely have a hard time repaying.  Your request should always be informed by a specific need and based on an assessment of your financials, including your balance sheet, income statement, annual budgets and monthly cash flow projections.  When you request financing for a specific project, be sure to assess the costs to complete the project and the costs to fully maintain the project in the long term.

Use this type of assessment to help determine what loan products are most appropriate. Don’t be afraid to ask your lender what type of loan products they offer and how the terms differ for each.  

For example a line of credit may be most appropriate for organizations seeking a resource that can be drawn and repaid at various points throughout the year to help manage cash flow shortages.  A bridge loan may be more appropriate for an organization that requires a certain amount to be disbursed in full up front to fund certain expenses as they await the receipt of a confirmed contract or grant.

It is helpful to at least have an idea of what pricing (aka interest), fees, and terms would most benefit your organization and then see how these compare to what lenders generally offer in your geography.  For example, when considering amortization--the process of paying off a loan over time--it is helpful to have an understanding of what your organization can afford in terms of monthly payments and how much time it would take to pay off the loan given the size of these payments. 

It is also helpful to understand what a lender may require in terms of covenants, which are essentially conditions stipulated by the lender that must be met to guarantee continued access to loan capital.  For example, some lenders may require organizations to maintain a certain amount of cash or receivables throughout the term of the loan.  Lenders can also implement financial reporting covenants that require organizations to regularly submit updated internal and audited financial statements.  It is also important to understand what a lender may require with regards to collateral: assets that are pledged to the lender that could potentially be handed over if terms of the loan are violated.

Again don’t be shy about asking your lender to clarify terms of their financing and the potential consequences of these terms.  If your lender isn’t willing to answer these questions and also does not seem interested in better understanding your business model and programs, definitely do not hesitate to find one that does.

We’re making it easier than ever to inquire about whether a loan from NFF is right for your organization.  Please review the lending guidelines at our new loan inquiry form!