By Cherie Kirschbaum
At some point in every nonprofit’s lifecycle, the organization reaches a point where its current facility no longer meets its needs. The organization may consider leasing new space, purchasing a new property, expanding or renovating, or building a new space. In the past, nonprofits thought the only way to finance the project was through a capital campaign. And, nonprofits in this situation typically embarked on a campaign feasibility study to see how much could be raised.
The feasibility study conclusions typically became the sole instrument to guide leadership throughout planning for the capital project, placing the focus on what could be done for this amount of money. This approach keeps nonprofits from assessing and addressing comprehensive facility requirements – both immediate and long-term.
Today, progressive nonprofits approach capital projects by first determining what they need, then by developing a financial plan to fund the project. A financial plan allows nonprofits to develop a diversified approach for funding capital projects, and includes a variety of sources accepted by financial institutions, foundations and donors.
There are five funding categories available to nonprofits for capital projects:
1. Public funding (local, state and federal)
2. Foundation funding (grants)
3. Bank financing (bonds or commercial loans)
4. Cash reserves
5. Capital campaign
While, each source has advantages and disadvantages, they are not mutually exclusive. Nonprofit capital projects can be funded using a combination of these methods. In many cases, a combined approach allows a nonprofit to leverage the investment among all stakeholder groups. A well developed project and financing plan will not only inspire confidence from potential funding sources, but also encourage participation in the project as an investment.
Below are a few comments about each of these five funding categories:
Public Funding: While the process to apply for and receive public funding can be daunting, the amount of money that could be granted to the project is well worth the effort. These funding sources include Community Development Block Grants, HOME Funds and others. It is important for a nonprofit to understand the requirements that come with some of these funding sources, such as Davis Bacon Wage requirements or HUD Section 3 compliance. These requirements can have an impact on the cost and schedule of the project.
Foundation Funding: Most nonprofits are aware of the private and community foundations in their area that provide capital grants. Foundations recognize their role in financing a well-conceived project for a nonprofit with a strong financial track record, qualified leadership and a committed Board of Directors.
Bank Financing: Bank financing can become a bridge between getting a project done now and completing a capital campaign. Some nonprofits may be able to continue to pay the debt service on a bank loan even after the capital campaign is complete. This category of financing is becoming more mainstream, and is frequently accepted by both nonprofit funders and the nonprofits themselves.
Cash Reserves: A nonprofit’s cash on hand or endowment can provide the equity sometimes required by other funding sources, and can be replenished through a capital campaign.
Capital Campaign: Nonprofits that embark on a capital campaign, even in difficult economic times, can be very successful. A well conceived project and financial plan can help to leverage stakeholder support, while also deepening donor commitments. Campaigns can attract new donors, and elevate visibility within the community and beyond.
Savvy nonprofits consider the full spectrum of funding sources available for capital projects. By doing so, these organizations are often able to open the doors to a new space without sacrificing elements necessary to best meet program needs. They are also able to engage, rather than exhaust, donors, foundations, and community partners in their long-term success.
City Projects partners with nonprofits to plan, orchestrate and complete their real estate development projects to transform not only their space but their organization. City Projects’ project management guidance unlocks productivity, unleashes creativity and enhances capacity. City Projects has worked alongside public and private organizations including the Mental Health Center of Denver, Karis Community, Mile High Youth Corps, The GLBT Community Center of Colorado, Pikes Peak Hospice & Palliative Care and others to successfully conceptualize and complete real estate projects. The City Projects team integrates each client’s mission, programs, financing and fundraising strategies into the day-to-day requirements of the project. In addition, the team serves as a translator between the client’s staff, board and project team, facilitating communication and managing implementation through project completion.