Nonprofit Resource Connection Newsletter
Third Quarter 2010
How Nonprofits Can Obtain Financing in a Difficult Economy
Ron Zweber, Senior Vice President Nonprofit Banking, Bremer Bank Twin Cities
Obtaining financing in today’s economic environment may be more challenging for individuals and businesses alike. Financial hurdles, new regulations and additional documentation have made the process more difficult for some. Nonprofits, like for-profits, may need to access lending resources to further their missions. What can nonprofits do to best position themselves to obtain financing? What information should you and your organization be prepared to present and what questions should you be ready to answer?
Work with a Nonprofit Banker
First of all, it is important that you meet and work with a banker who understands your nonprofit’s needs. Find a banker and a bank that has experience working with nonprofit organizations and, better yet, find a banker who truly understands your nonprofit’s mission.
How to Prepare
Typically, when applying for a loan at a bank, you’ll need to supply a wealth of information. The information required in today’s lending environment is greater than you may have experienced in the past. At most banks, you’ll need to supply: financial statements, forecasts, budgets, annual reports and/or other non-financial reports that list the nonprofit’s board of directors.
Underwriting standards have tightened at banks and financial institutions. That said, most banks have money to lend to good clients and are eager to work with you. Understand that banks are heavily regulated and additional and new regulations have placed new capital requirements on banks —requiring them to be extra diligent in determining whether or not to lend to a client.
Listen to Your Banker
It is critical that you listen to your banker. If your loan request is denied, ask for as much specific information as possible to determine what you can do to get it approved. Banks have rigorous processes in place to determine whether or not they are able to lend money. Those processes and procedures are in place for your protection as well as the bank’s. Know that the banker has your best interest in mind as important lending decisions are made and they are willing to work with you to help understand how you can obtain financing in the future.
Understand the Bank’s Finances
Be sure you are asking the right questions of your bank to best understand its current financial position. Was the bank profitable in the past few years? Did it receive a good rating from the Office of Comptroller of the Currency (OCC)? Is it FDIC-insured? How does it view its stability in the near future?
One way you can look up a bank’s rating is through Bauer Financial, which is a nice tool that provides ratings on the financial condition of banks. Another way to get public information about a bank is to visit the bank’s regulator sites: the OCC for national banks, the Federal Reserve Board for state chartered banks that are members of the Federal Reserve System and bank holding companies, and the FDIC for insured state banks that are not members of the Federal Reserve System.
At Bremer Bank, we publish a quarterly update on our company’s strength and stability to help clients and prospects understand our financial position. We have been profitable, stable and well-capitalized for years and continue to maintain that strength and soundness.
There are other options for nonprofits who are looking to obtain a loan or a line of credit when it is not accepted at a bank. One great resource is the Nonprofits Assistance Fund (NAF). NAF provides financial management training and resources that promote healthy financial practices, and guidance to nonprofit staff on strategic financial planning and management. More than that, they offer loans and lines of credit and financing of $5,000 to $500,000 for immediate or long-term needs. Any nonprofit 501(c)(3) organization in Minnesota or adjacent communities is eligible. NAF specifically focuses on supporting nonprofits that serve the community, including healthcare, community development, housing, education, social services and arts organizations. Terms are typically three months to five years.
Another option might be the Program Related Investments (PRI) program offered through the Otto Bremer Foundation. PRIs operate like a low-interest loan, instead of or in addition to a grant. PRIs are made for five years and carry an annual five-percent interest rate on the unpaid balance. Examples of organizations that have utilized a PRI include nonprofits that are involved in building affordable housing.
Keep Communications Open
Whether your quest to obtain financing is successful or not, continue to keep the lines of communication open and work with your banker. There may be more options that financial services professionals can uncover for financing your nonprofit organization.