In January 2017, the Nonprofits Insurance Alliance of California (NIAC) reached $2 million in lending through its pilot loan program. The Loan Fund offers short-term credit to small and mid-sized nonprofit members of NIAC.
When NIAC first developed the fund we wanted to create an efficient solution to the cash flow needs so common in nonprofits. We received survey responses from 300 nonprofit organizations and found that getting access to cash flow loans through a quick and efficient process that demonstrated understanding of nonprofit financials was darn near impossible. Many nonprofits showed a need for short term loans while waiting for confirmed grants and contracts to be funded. Thirty years ago NIAC took up the challenge of proving that nonprofits were not poor insurance risks and we decided it was time to try to show that nonprofits were also good credit risks. So, we developed a pilot program in 2014 with $1 million of loan capital. Another $500,000 in loan capital was added the next year to meet demand. The NIAC Member Loan Fund provides 12-month loans up to $50,000 at a fixed six percent interest rate.
What does this milestone mean?
We think the $2 million milestone shows that there is a real demand for programs like this within the nonprofit community. Furthermore, the fund has a zero percent charge-off rate. That means that when a nonprofit says it will repay the loan, they mean it! Those of us who work within the field know the immediate need all too well when grants are delayed or an opportunity to expand arises. As an industry, nonprofits too often must shuffle resources within the ebb and flow of the contributed income cycle. For those organizations without large reserves, this can mean limiting mission-based programs, cutting staff, or asking board members for a loan. Further, the effort to find sources of credit can take a lot of time and effort away from mission critical operations. Short-term loans can offset these issues. Most commercial banks don’t lend to nonprofits for various reasons, including the misperception of risk and an unclear understanding of nonprofit financials. [Editor’s note: See a related article this issue on how nonprofits can work with their bankers.]
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The nonprofit sector has unique challenges, and we hope that we can demonstrate to other lenders and funders that they should consider creating sources of loan funds using the efficient model we have developed. Imitation is the highest form of flattery! NIAC’s ultimate goal is to transfer the program knowledge to American Nonprofits so that they might execute this exciting new model on a national scale with foundation and lender partners.
What do you think? Would your organization benefit from short-term lending? What does your nonprofit need? Who lends to nonprofits in your community?