Foundations should ’crack the corpus’

Jennifer Pryce and Courtney Bourns | January 12, 2009

The first instinct in times of economic uncertainty is to "batten down the hatches" and ride out the storm.

The health of the nonprofit sector depends on foundations resisting that urge.

Now is the time to think creatively about how foundations can leverage their endowments, relationships and funding strategies to give nonprofits the support they need in a tight credit market.

Specifically, how can foundations provide nonprofit organizations with much-needed access to capital?

According to a pre-event survey created for the recent "Money Matters" conference convened by Nonprofit Finance Fund and Grantmakers for Effective Organizations, more than half of respondents in the foundation community believe nonprofits have the same access to debt as for-profit corporations.

In fact, nonprofits have a much harder time securing debt than their for-profit counterparts.

There are several reasons, chief among them that it is often more complex and time-consuming for banks to understand a nonprofit's finances.

There may be many different types of revenue, restricted and unrestricted funds, and balance sheets that make it impossible to discern reliable revenue from one-time grants, as well as other realities of nonprofit accounting that can obscure value and make due diligence difficult.

As government pulls back on spending, and traditional lending institutions make it even harder for a good nonprofit to get a loan, foundations can play a unique and powerful role by "cracking the corpus" and taking a more strategic role in the financial health of the sector.

Consider, for example, either program-related investments, which are investments made to support charitable activities that involve the potential return of capital within an established time frame, or mission-related investing, which consists of investments in organizations aligned with the foundation's mission.

Leveraging of philanthropic dollars can also come through partnerships.

To date, there has been a lot more talk than action on both sides of the nonprofit/foundation fence about partnerships.

What we heard at the Money Matters conference was encouraging.

Foundations are increasingly embracing the idea of partnering with others to increase the size -- and thereby the impact -- of capital investments.

Foundations are in the best - and perhaps only - position to help bridge the funding gap in this economic downturn.

Everyone is taking big hits, and the required 5 percent payout will provide fewer dollars this year than in years past.

The sector - particularly social-service organizations - is operating in a weakened state, and the stakes are high.

Now is the time to think of creative ways to leverage philanthropic dollars.

Jennifer Pryce is director, Washington, D.C.- Maryland-Virginia, for  Nonprofit Finance Fund and Courtney Bourns is director of programs for Grantmakers for Effective Organizations.

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