Tag Archives: Endowment Campaign

Should You Raise Money to Pay Off Your Nonprofit’s Mortgage?

We have had 3 similar inquiries in the past few weeks that sound like this: a board member suggests that your organization eliminates your $5.1 million mortgage. ​​Everyone is excited by the idea. They call us to talk about the possibilities. Sounds great, doesn’t it? In theory yes.

​​In practice, it might not be the best way to use $5 million dollars. What could you do with that money besides pay off your nonprofit’s mortgage?

Option A – Raise $5.1 million and eliminate the mortgage and save the $275,000 a year in debt service.

Option B – Raise $5.1 million, put the money into an endowment, and use the proceeds to service the mortgage.

Option C – Raise $7.6 million dollars, put it all into an endowment, use the proceeds to pay the mortgage, and increase programming.

Option D – Do nothing because that sounds like a lot of money and we can’t raise that much.

There is no right answer. Instead, there are a lot of factors to decide if you should pay off your nonprofit’s mortgage. Here are 7 considerations:

  1. Is now the right time for you to raise money? Do you have the volunteers, staff, infrastructure, and know how to run a successful campaign?
  2. What are the terms of your mortgage? If you have a low fixed rate, the decision may be different than a short-term variable rate.
  3. How comfortable are you with debt? There are people that live in huge houses and drive luxury cars but are heavily leveraged. Others have no home mortgage and buy cars outright. Neither is right or wrong, but each board member’s personal preference will influence their opinion.
  4. Do you understand your current donors? Do you know what potential you have within your donor base?
  5. Do you have a culture of asking? Of course, you want a culture of giving, but that starts with a culture of asking. And if you have not asked them for anything in the past, a big ask is a hard place to start.
  6. Can you raise that much money just to pay off the mortgage? From a fundraising perspective, it is a hard sell for many people. Especially if they, personally, live with a mortgage. If you add programming or other capital needs into the fundraising plan it offers people a clearer vision of what you want to achieve with their donation.
  7. There is a difference between practical/realistic and negative perspectives. If most of your board assumes you cannot achieve the goal, you will not achieve the goal.

Wondering if you have what it will take to raise money? Click here to schedule a complimentary consultation and we can help you think through the possibilities.

Want to learn more about our Capital and Endowment Campaign services?

For more blog articles, click here. For general information, click here.

Strong Leaders Help You Fundraise During a Pandemic

A Tale of Two Case Studies – Part 1*

Strong leaders help you fundraise during a pandemic - Be strong

The pandemic has changed fundraising and development for 2020 (and, perhaps, beyond). Most annual, capital and endowment campaigns have been halted. We have developed a love/hate relationship with Zoom. And, fear has so profoundly infected nonprofits that many may not recover. But what hasn’t changed? Strong leaders are still essential and can help you succeed in almost any circumstance. And, strong leaders help you fundraise during a pandemic.

Want proof? Here are case studies from two very different congregations that are working towards multi-million-dollar campaigns and finding success because of their leadership. Well, here is the first one. Check back next week for number two!

Organization 1 – The Scene: 

A suburb of a small city. A small congregation (fewer than 300 family units). Turnover of the most senior staff – including all clergy within the past two years. Passionate leaders who understood that without a capital and endowment campaign, there would be an annual deficit. And that an annual deficit for the foreseeable future was unacceptable.  

The Questions: 

A feasibility study was done to test interest before the pandemic. Would their members still support the effort? Could their prospects still give at pre-pandemic levels? Were members ready to have the conversations about five- and six-figure donations?  

The Campaign to Date: 

The campaign committee is leading by example. And others are following. Is it easy? No. Is there fear, changing circumstances of prospects, and sometimes people who can no longer give what they would/could have given a year ago? Yes, yes, and yes. But the campaign leadership are moving forward. They are raising money for their endowment and some capital needs, one gift at a time. Three months in, they are more than 20% to their goal. And that doesn’t include the fact that they have increased their annual giving for this year, with additional annual commitments secured for four more years. The simultaneous dual ask, one for endowment/capital and one for annual has proven incredibly successful. 

Bottom Line: 

They are systematically reducing their annual deficit with both increased annual gifts and substantial, five-year endowment commitments. And they are expanding their campaign committee to help broaden their fundraising efforts. Proving, strong leaders help you fundraise during a pandemic. 

*Part 2 has been postponed. Stay tuned….

Should Your Nonprofit Spend Endowment Principal to Cover Budgetary Shortfalls?

For those looking for a five-minute escape, grab a friend and play MJALibs! Fill in the blanks to play. Or just jump down to the next headline to read the rest of the article.

The endowment dream – an MJALibs fill in the blank game

MJALibs to help with budgetary shortfalls

Raising an Endowment

When thinking about an endowment, the possibilities seem endless. Will you have an additional $50,000, $120,000 or even $200,000 every year? Will you be able to cover budgetary shortfalls or expand your services and/or the number of people you serve? Will monetary stress disappear from staff and board meetings?

The Realities of Having an Endowment

For many organizations, having an endowment – whether inherited by the nonprofit’s current staff and board or raised in recent memory – is essential. Most of the time it does what it is supposed to. It helps the budget by providing operating revenue to be used on an annual basis. But, when the organization has a budgetary shortfall – like organizations may be experiencing or expecting during this pandemic – it can be tempting to take principal from the corpus of the endowment. Consider this a warning, it is a slippery slope.

Well, from an MJA new business perspective, it’s a great idea! Organizations often engage us to raise money after they have reduced or depleted their endowments. But, we also give advice to our clients to prevent this from happening. In fact, this is blog post based on an exchange I had with a client just this week.

The Slippery Slope

It starts with an unusual need. A new roof or, let’s say, a pandemic. You need to cover $100,000 one time.  So while it feels wrong to take out principal, it may be urgently necessary. But, once you start taking out principal for the annual budget, it is then easier to go to the well again and again for capital needs and budgetary problems. It is much simpler to get board approval to take out more money than spend time and/or money on a real self-examination. That would require looking at the organization, it’s mission, the current needs of the community, reducing expenses, the annual fundraising, etc.

The reduced endowment is a future problem when the lack of annual funding is current problem.

Before long, instead of $75,000 a year towards the budget it is $40,000 – causing a larger annual deficit/budgetary shortfall every year. And then you must spend money to engage us to help you raise funds to increase your endowment. It’s a vicious cycle we are committed to assisting you to avoid.

If you do decide to take out principal, “just this once,” make sure there is a Finance policy in place. To ensure this does not happen again.

So, if you are confronting financial challenges that have you looking at the balance in your endowment as an easy answer, what do you do? It may seem hard to fundraise in this climate. It is different – but not impossible. (Here is a webinar that will give you some tips). Consider a self-examination (we offer a special Organization and Development Assessment to our clients which we can tailor to your needs).

Want Your Own Endowment?

And of course, if you want to raise an endowment, click here to schedule a time to talk. Yes, we are still raising endowments during the pandemic. Our world still needs nonprofits. Nonprofits still need funding. And donors, still have money to donate – maybe not all donors – but many still can, and want, to give.

The Pros and Cons of Fundraising Campaigns to Reduce Debt

by Kerry Olitzky

Among the challenges that many nonprofits increasingly face are budget deficits and a rising amount of debt. This is especially true for membership institutions. To strengthen their financial position, many of these institutions mount campaigns as a way of mitigating their debt load.

There are usually two reasons why institutions undertake campaigns to reduce debt: a deficit budget that is hard to balance; and/or debt service (usually in the form of a mortgage).

In both cases, debt often overwhelms the operating budget and the ability to maintain vital programs and services. Not to mention the need to develop new programs as organizations evolve. If you are considering a fundraising campaign to reduce debt, here are some things to consider:

Cons (Common negative reactions to a campaign to reduce debt)

  1. Potential donors want to invest in a vision for the future, not just fix the past.
  2. Potential donors fear the slippery slope of debt (sometimes called “kicking the can down the road”) and may be reluctant to make an investment in an institution that is used to carrying debt.
  3. It is difficult to transform the goal of reducing debt into a strong case for giving.
  4. Supporting new buildings is more attractive to donors than paying off the debts on older ones.
  5. Donors don’t want their funds going to the bank—to affect debt reduction. They prefer that their funds support the good work of the institution.

Pros (Common positive reactions to a campaign to reduce debt)

  1. Potential donors want to free leadership of the burden of debt so that they may plan for the future.
  2. Campaigns are an efficient way to reduce or eliminate debt and strengthen the annual budget.
  3. Homeowners may appreciate a “burning the mortgage” campaign.
  4. Some potential donors, especially those with history with the institution, may be more interested in sustaining current facilities rather than raising funds for new buildings they see as unnecessary.
  5. Debt service is expensive with little to show for it at the end of a year. Donors want their funds to support the institution rather than service its debt. With that in mind, they may be willing to rid the institution of its debt. 

If you choose to initiate a campaign to reduce or eliminate debt, we recommend that you do so alongside an endowment or capital campaign—in order to prevent future debt from accumulating. This will also demonstrate to loyalists and newcomers alike that you are fiscally responsible with plans in place for a secure and successful future.

We can help you navigate a campaign, plan for future building and security while, at the same, time reducing your debt. If you would like to speak to someone about how we can help your organization call us at 800.361.8689.