Bridging financial gaps for your nonprofit
By Dave Voris, Vice President and Regional Manager, Horizon Bank
If you’re an administrator working for a nonprofit organization, you understand the financial challenges behind finding support to do good work.
Big fundraising events or donation drives may bring in large amounts of money all at once, but spreading that money to meet monthly expenses can stress your resources.
For qualifying organizations, Horizon Bank can provide lines of credit (LOC) to help you through leaner times of the year to gap your cash flow needs – cash receipts in and cash payments out — until grants and other funding commitments are received.
It is not unusual for a nonprofit to incur substantial upfront expenses associated with delivering services. Ultimately these are funded by a third party, such as a government agency or a foundation, but the challenge is the lag between the expense on the front-end and the promised funding that may take weeks or even months to come.
Lines of credit have proven to be valuable resources and tool for nonprofits and allow organizations to continue to deliver vital services while awaiting receipt of grants or payments from contract work. After all, salaries, rent, marketing services and other expenses must be paid consistently and on time.
One important caution is that lines of credit should be used only to address a timing discrepancy between expenses payments and cash receipt. Even nonprofits that spend ample time on budgeting, and even have year-end surplus revenues may need to access a line of credit occasionally to fund general operating. When used appropriately, it can help solve the cash flow problem and allow an organization to borrow based revenue that is due and collectible.
Your nonprofit should prepare monthly or weekly cash flow forecasts and revise them over time to keep tabs on repayment of an LOC. Identify when cash will be received that will pay the LOC’s outstanding balance. Remember, borrowers pay interest and funds should be used judiciously, building payment amounts into your year-round budget.
A line of credit can give you access to the funds you need, when you need them — with a manageable payment to help spread those costs out over a longer period of time. This approach can help balance your cash flow, though, in the long run.
When to see us
If you already have a relationship with us, that’s great. We’ll be happy to sit down with you to review your financial trends from the past, discuss your challenges and determine the times of year when you might most benefit from a line of credit.
If you haven’t worked with us before, it’s a good idea to come in and discuss your year-round cash flow trends before you actually need help. That way we can assist you in getting an appropriate plan in place ahead of time.
Here’s what to bring when you come to talk about a line of credit.
- Commentary about how the organization raises funds, including the identification of sustaining funds.
- Discussion about what would likely cause or has caused the need for a line of credit.
- Three years of prior financial statements, including the balance sheet and the cash flow statement so our bankers can review your history.
- A 12-month cash flow forecast to show the bankers that, despite the request for a line of credit, the organization will continue its self-sustaining capability.
All of this information will help us better understand why you may need short-term financing, and that you’ll be able to repay any debt.
Dave Voris is a vice president in the Indianapolis market for Horizon Bank. As a senior treasury management officer, he works closely with middle market, nonprofits and small business companies in a broad span of industries. His 25 years of business experience have included treasury management, merchant services, and international banking including sales management, client service and implementation management, product management and electronic payment operations.
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