Funding Non-Profit Organizations: A Banker’s Perspective

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Funding Challenges

Many NPO’s are facing both a rapidly changing funding environment and an increasing need for services from the communities they serve. Reduced or more tightly focused government funding is placing greater pressure on this sector, which has also experienced a proliferation of new non-profits during the past decade, thereby increasing competition for a smaller pool of funds. Countless non-profit organizations are feeling the impact of federal reductions to their core funding streams, and at the same time that foundation endowments and giving are also declining. Additionally many state and municipal governments are experiencing deficits that are reflected in reductions in spending on social programs.

However, these challenges notwithstanding commercial banks remain a viable alternative source of funding for project related investments, lines of credit and asset purchases. Knowing what performance indicators are important to lenders, and understanding the rationale behind their lending criteria are both absolutely essential for any non-profit organization strategically exploring bank funding as an alternative.

A Banker’s Perspective

In drafting this article, based in part on personal experience as a commercial lender to small businesses, I am especially indebted to Ms. Debbie Kobak, Vice President, Commercial & Institutional Banking at MB Financial Bank for sharing her nuanced banker’s perspective on lending criteria for non-profits, and for her valuable advice to NPO’s.

In our discussions Debbie outlined the following 6 key NPO performance areas as important to lenders:

Business Model:

  • Is the NPO’s business model viable?
  • Is it differentiated in ways important to whom it serves?
  • Is it sustainable?

Capital Structure:

  • The NPO should have:
    • Diversified funding sources and revenue streams
    • A history of borrow/payback as per terms
    • A cash flow ratio of 1 to 1.2 (i.e. for every dollar borrowed, $1.00 to $1.20 is earned)
    • Ability to maintain at least 3-4 months of operating expenses in reserve
  • What assets does it own?
  • How easily can they be converted to cash?


  • How effective is the organization in:
    • Staff development and retention
    • Diversification of responsibility throughout the organization
    • Strategic planning and execution
    • Meeting performance goals
    • Learning and innovating

Performance Metrics:

  • Has the organization clearly identified its key performance drivers, mission impacts, and how to measure ROI?
  • How effective is it in developing and implementing strategies to improve ROI?


  • How is the organization using technology to:
    • Manage data
    • Translate this data into actionable information
    • Track and report on key performance drivers, impacts and ROI to staff, board, donors, lenders and other constituents

Board Engagement :

  • How effective is the organization in:
    • Recruiting new board members as per its board renewal cycle
    • Clearly stating roles and expectations of members
    • Fostering and sustaining board engagement/enthusiasm
    • Reporting organizational performance to the board

Additional Questions Addressed in Our Discussion:

JS: Debbie how would you describe your ideal client?

DK: An ideal client is certainly one that meets many of the criteria above, but also one that is both serving its constituent’s needs as well as strategically using its resources to have even greater impact in years to come. As an example, the CFO of one of our client organizations typically reserves funds to cover short term expenses instead of tapping into their bank line of credit which he uses for longer term expenses, growth or unforeseen circumstances. This is a good strategic use of valuable resources.

JS: What advice you would offer to non-profits in these difficult economic times?


  • Develop diverse funding and revenue sources to spread your funding dependency over multiple sources
  • Avoid mission creep, which can lead to organizational misalignment and misuse of valuable resources.
  • Tell your story (elevator speech) in quantitative and human terms, in 30 seconds or less.

JS: What other banking services does MB provide to NPO’s?

DH: In addition to traditional services such as depository and credit products, treasury management services, trust, pension and investment management advisory services, MB has developed tangible, values-based solution that address needs as diverse as FDIC insurance coverage to uneven cash flows.
One such example is our MB GAP (Grant Alternative Program), an innovative credit program that provides qualified non-profits with increased access to affordably priced working capital to help manage periodic cash flow crunches.

JS: Debbie thanks for making time to share your insights and very valuable information with our NPO community!

For additional information contact Debbie Kobak at:

Some Final Thoughts

  • In this challenging economy an increasing number of NPO’s that I advise are aggressively exploring alternative funding options, some for immediate needs and others as a forward thinking strategy in order to prepare for future circumstances. Here are some the important steps they are taking which you should take as well:
  • Start by assessing how your organization stacks up to the criteria outlined above and develop a plan for improving any shortcomings in performance. This will allow you to better position yourself with lenders. Guidance from knowledgeable and objective outside advisors will be very valuable in this step.
  • Identify banks in your area that fund non-profits, ideally before you need funding. They will view this as a sign of good planning and management on your part. Develop a dialog with those lenders that impress you as being a good financial, service and cultural fit. This will give them time to learn more about you, your organization and its focus on meeting the criteria outlined above, before you need their help. By increasing their comfort level in this way you’ll increase the likelihood that they will to do business with you when the time is ripe.

Sustainability requires that NPO’s successfully navigate today’s unique challenges, yet also look beyond today to strategically position themselves for future funding and other challenges that are sure to come.

To do so requires the focused commitment and support of your entire team and developing a solid and achievable plan for improving organizational performance in all areas, sooner rather than later.

Jim Stoynoff, President Synthesis Solutions

Click here to see how I help non-profit organizations.


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