When John Maxson needs feed for the birds at the Born To Be Wild Nature Center in Westerly, he digs into his wallet and takes out some cash. When John O’Flaherty at the Community Boating Center in Providence needs another lifejacket, he hits the phones with pleas to past donors. And when Jenny Peek at the Manton Avenue Project in Providence needs supplies for a theater class she runs, she uses the corporate debit card as a credit card, giving her a small window to pay off the bill. But none of the nonprofit executives turns to a line of credit.
In interviews with more than a dozen relatively small nonprofit organizations, executives said cash flow is always a concern. Small budgets and varying income from donations make it all but impossible to secure a credit card, never mind a loan. So organizations adapt.
“It means that you get very creative,” said Debra Tanner, executive director of Seniors Helping Others in South Kingstown. “It means when you need pens and paper to make the work happen, you ask for donations for that. You cut back everywhere you can.”
While small businesses face difficulty securing loans in a harsh credit market and keeping lines of credit, the challenges are compounded for nonprofit groups. Many are tiny, and their cash flow swings wildly depending on the donations flowing in. Additionally, there are no owners of nonprofits that organizations can use to boost credit ratings. And when nonprofit organizations do secure credit, the rates are often high, and the executives are often on the hook if the loan defaults.
That is why Pamela Hood, president of Sweet Binks Rabbit Rescue in Foster, shies away from her line of credit from Citizens Bank.
“I really don’t like to use any credit, because it’s not known when the money is going to come in,” she said.
But in March she was forced to borrow $500 when veterinarians discovered that Mac the bunny had a bladder stone that required surgery to remove. Six months later Hood is still trying to pay off the debt while keeping the rest of the operation running. For now, she has had luck soliciting donations. But donations are off 25 to 30 percent – a fact Hood attributes to the poor economy – and she wonders if someday her line of credit will be the only option to save a bunny’s life.
Other organizations turn to donors. Groups with 501(c)3 status remind benefactors that cash and in-kind donations can be used as tax deductions. Tanner also likes to note that her organization saves taxpayers thousands of dollars a year by providing services free.
Credit, she said, is not an option “because you don’t know if you can pay the bill at the end of the day, and that creates a huge risk for a nonprofit.”
As a result, many executives avoid the situation.
Maxson, vice president at the nature center in Westerly, funds his organization primarily through donations and fees collected from presentations. He and his wife, the group’s president, also occasionally dip into their own pockets when cash is tight.
O’Flaherty, director of the boating center, sets fundraising goals for specific projects and has his phone handy if the campaign fizzles.
“We’ve spent a lot of time on the phone asking for a little bit more than usual and asking for help,” he said. “And quite frankly people have really responded very well.”
Peek, executive director of the theater group, said her eyes are constantly on the books. And the group’s dreams of opening a permanent theater – something that would likely require credit to build – are on hold for now.
“Our priorities are shifting to be able to maintain what we do and still do it well,” she said.
Executives with credit cards are thinking twice before swiping them at the cash register. Monique Renaud, president of Books are Wings in Providence, said she only uses the corporate credit card from Bank of America once a month to avoid paying the associated fees. She complained that in this economy – when donations are down – banks are raising their fees on cards. That, she said, leaves less in the bank for the snacks and supplies the organization provides at book-reading events.
“I think what a lot of nonprofits have done is just try and hunker down and obviously just try and reduce expenses,” she said. “This is not the time where they want to take on additional debt.”
Those organizations that do take on the debt go through the kind of scrutiny that a small business applying for credit would, Dyer said. That includes an investigation of the business plan, meetings with management and a review of the company’s books.
Centreville Bank Vice President for Commercial Lending Donald Osley said the bank has seen a small increase in the number of nonprofits looking for lending as their donations slide. He has also noticed some nonprofit executives shopping around after big banks changed credit terms and priced out nonprofits. As a community bank, Osley said Centreville is often more willing to customize lending programs for nonprofits, but Osley said the real ramifications of the poor economy might not be felt until a few years from now.
The sour economy comprises just a small slice of a nonprofit’s financial history. But in two or three years it could turn into a pattern of poor performance and leave nonprofits in an even more difficult position to obtain lending. So Osley recommends nonprofits tuck away capital in a rainy day fund when days are good.
“The real good nonprofits, they’re going to have some resources to get them through these times,” he said. •
