CLIMBING OUT

 

In their eagerness to get a building opened, or as a result of calamitous economic changes, too many nonprofit boards have found themselves with more debt than their organization can bear. When your “customer” becomes the bank rather than the community, it’s time get serious about reducing debt.

Not all debt is bad. A manageable mortgage, a bridge loan, a line of credit can all be useful tools to help an organization move forward. Donors – many of whom are business people themselves – understand that debt can be useful. However, when debt service gets in the way of the mission, or puts your organization’s very existence in peril, it may be time to consider a special campaign to help your organization climb out of the debt.

We’ve had some success working with several nonprofits on just such campaigns in recent years, and those experiences have taught us several important lessons.

  1. Debt reduction isn’t a case for support. Your mission isn’t to appease a bank after all. Instead your case needs to focus on unmet needs. What could your organization be doing in the world if that debt service didn’t have to come out of the budget?
  2. Debt reduction is not a complete case for support. Combining debt reduction with a modest capital effort, endowment growth or program support can make your campaign more intriguing to a variety of donors.
  3. Consider also that your goal doesn’t have to be zero debt. Reducing it to a manageable level can do much to invigorate a struggling nonprofit or church. Do you know what would be a manageable amount of debt for your organization?
  4. Focus on your organization’s friends. These types of campaigns are rarely a community-wide, public campaign. Rather, think of a “special forces” group of committed volunteers to focus on a small group of your organization’s most consistent supporters.
  5. Challenge gifts work. They give urgency to a campaign by creating a goal and a deadline. In addition, some local banks may find it easier to renegotiate a nonprofit’s debt in the context of “matching” funds raised by forgiving an equivalent amount.
  6. If your debt is relatively new, consider asking donors who are about to sunset their 3- or 5-year pledge to add an extra year of support toward this effort.
  7. Consider calling your efforts a campaign for a “Legacy Fund” versus “Debt Reduction.” Make sure your case is forward-looking, not backward-explaining.
  8. Any sort of debt reduction effort is best done when your nonprofit is in a position of strength and growth. Show how your members/participants are growing. What new innovative programs have you developed? How has your outreach expanded? Demonstrate that you are a well-managed, thriving nonprofit that could do even more without the restriction of debt.

The best advice I could give anyone is not to go deep into debt in the first place. We generally recommend that a campaign is at 70% – 80% of goal before it goes public and 95%+ before a shovel goes in the ground. But if you find your organization in the less-than-desirable position of crippling debt service, know that a debt reduction campaign, while challenging, can work, freeing your energy to focus on bringing your mission to life.

If you’ve got a moment, check out my interview with Bob Wanek, CEO of the Valparaiso Family YMCA, about how they approached their debt reduction effort.

Do you have any stories of climbing out of debt as a nonprofit organization?

Posted by Bruce Berglund
Bruce Berglund

Written by Bruce Berglund

For nearly 30 years, Bruce Berglund, CFRE, has been a successful professional fundraiser in the fields of higher education, arts and culture, and social services. Bruce is the CEO and Founder of DBD Group (formerly Donor by Design Group), a national firm providing comprehensive fundraising services to nonprofits, churches, community colleges and schools. DBD is currently managing more than $3 billion in capital, annual and endowment campaigns. Bruce is a highly sought-after writer, speaker and teacher.

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