Lending to Non Profit Organizations

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Lending to Non Profit Organizations

• Meeting critical non-profit financing needs
  through Direct Loans

Shari Berenbach, Executive Director
October 2008
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Setting the Stage

• Good Uses of Loan Capital
• Bridge financing Finance operations while
  waiting for financing promised in a government
  contract or foundation grant
• Mortgage When foundation wants to make
  available terms more favorable than a commercial
  lender (usual in an interim basis)
• Pre-development financing Initial working
  capital allows organizations to get project off
  the ground with take out from commercial
  sources highly likely.
• Loan Capital For different classes of revolving
  funds, CDFIs, etc.
• Project financing - Expansion of Non-profits
  Where stable financial model has been tested over
  time, generates the means for repayment and now
  needs capital to scale
• Loan Capital only works if it is really clear
  that there will be means for repayment

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Setting the Stage

• What Kinds of Non-profits are Good Candidates
• Community Development Affordable Housing
  Developers, CDFIs, Community Development
  Corporations, Land Trusts, Supportive Housing
• Social Services Workforce development
  intermediaries, Healthcare facilities, Charter
  Schools, Daycare or Aftercare programs, Social
  Enterprises
• Environmental Land conservation, water
  facilities, sustainable agriculture
• Arts Organizations Museums, Theaters, Arts
  programs, Cultural Centers
• Bad Uses of Loans
• Wrong kind of borrowers Dont have the means to
  generate repayment
• Inappropriate financing Often seen as a
  band-aid for inadequate internal financial
  capacity. Even soft, patient, loan capital cant
  make up for inadequate unrestricted net assets.
• Cash crisis without a clear sense of exit.

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Pre-qualify Loan Candidates

• Does the project to be financed generate the
  means to repay the loan?
• Is their adequate management and staff capacity
  to successfully execute proposed project?
• Does the organization overall have sufficient
  management capacity and internal systems
  (including accounting) to administer the project
  and the loan?
• Is there support from the Board of Directors?
• Is the project well aligned with the
  organizations mission? Is it desired by key
  communities serviced? Is it supported by other
  funders as well?
• Is a loan the right answer? What about a
  guarantee? Are you making best use of other
  capacities and resources Commercial banks? Other
  intermediaries?

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Loan Underwriting

• Defining clearly project to be financed and its
  capital requirements?
• Reviewing the business plan
• Products or services
• Market assessment
• Management and staff requirements and capacity
• Policy and regulatory framework
• Financial projections
• Financial Plan
• Make sure you tap technical expertise for your
  given project
• Technology? Market? Geography?

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Loan Closing, Documentation, Monitoring
Servicing

• Term Sheet
• Amount, terms, rates, use of funds, conditions or
  covenants
• Social impact requirements? Desired outcomes?
• Collateral
• Position relative to other funders
• May need to be registered at state level
  authorities, appropriate legal documentation
• Promissory Note Other Agreements Amortization
  Schedule
• Loan covenants? Net worth? Limit use of funds?
  Other debt? Performance?
• Loan servicing
• Collecting payments, monitoring financial health
  of borrower, monitoring progress toward project
  objectives?

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Direct versus Intermediary

• Direct - Pros
• Build on your relationship with the grantee
• More direct engagement, capacity to monitor and
  help-out over time.
• Direct Cons
• Requires in-house capacity at the time of
  evaluating the loan, but also ongoing basis
• May be difficult to enforce tough collection
  decisions
• Take direct risk higher chance will loose your
  funds

• Intermediary Pros
• Brings dedicated expertise and installed
  capacity.
• Introduces arms length relationship
• Diversifies risk
• May bring technical support along with financing.
• Intermediary Cons
• Places an intermediary between you and the
  grantee
• Have to balance the intermediaries requirements
  with grantee needs.

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Calvert Foundation

• Mission To End Poverty Through Investment
• Goals
• Maximize the flow of capital to disadvantaged
  communities in order to foster a more equitable
  and sustainable society
• Establish community investment as a new asset
  class in the financial services industry
• To meet these goals, Calvert Foundation employs a
• range of innovative financial products and
  services

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Our Three Main Programs
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CCI Note Details
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CCI Note Model
Investors
Partners
CCI Note
Affordable Housing
IndividualsFoundationsFaith-BasedNonprofits
High Net Worth Corporations
150 millionLoan Pool Diversified
Professionally-Managed
Investor Capital
Microfinance
CommunityDevelopment
Institutional Investors
Social Innovations
Capital Support
DonorCapital
GiftShares
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Learn More

• Shari Berenbach, Executive Director
• Shari.Berenbach_at_CalvertFoundation.org
• 301.951.4895
• Lisa Hall, Chief Lending Officer
• Lisa.Hall_at_CalvertFoundation.org
• 301.280.1377