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The Nonprofit Financial Center: a bridge over troubled cash-flows

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Last fall the Muntu Dance Theatre was going through that phase known in the not-for-profit world as downtime. It had been promised a grant for productions, but the check was "in the mail." The south-side dance troupe was facing a dilemma: work for free or suspend its current production.

"I think everyone in this business goes through these kinds of phases," says Joan Gray, president of the dance company. "Money doesn't always come in as fast as you would like or when it's promised. You have to live through the gaps. You need to find the cash to keep going."

Muntu survived that crisis with a loan from a little-known source: the Nonprofit Financial Center, located at 166 W. Washington. Backers say there's no institution quite like the center in the state or maybe the country. Using money raised from foundations, philanthropies, and large banks, it has made about 500 loans, worth roughly $7 million, to 300 different not-for-profits, most of which were on the edge of bankruptcy.

The default rate on the center's loans is only 1.8 percent, a full percentage point below the standard for small banks. But what's most remarkable is that the staff consists of only three employees: executive director Delena Wilkerson, administrative assistant Gloria Wise, and finance director Dottie Johnson.

For their efforts they recently won the praise of Mayor Daley and were rewarded with $500,000 in contributions from a consortium of eight downtown banks. That gives them a loan base of $1.5 million, which, if all goes well, they will be able to turn into nearly $4 million worth of loans.

"We provide basic working capital to not-for-profits--we bridge their cash-flow problems," says Wilkerson. "We lend to groups that banks and other conventional lending sources overlook. A lot of times the difference between a group going out of business and keeping afloat is whatever loan we can muster."

The center was created in 1980 by the Donors Forum, a consortium of Chicago-based foundations that saw that few banks in Chicago were willing to lend money to not-for-profits. "The banker's typical response to a not-for-profit's loan request is no," says Wilkerson. "That's because the not-for-profits do not provide a service that can be used as collateral. They may have government receivables--that is, government contracts. But no governmental entity will assign these contracts for a mortgage."

Many banks also won't lend money to not-for-profits because they operate in high-risk, low-income neighborhoods. And some bankers don't think they'll make enough money lending to not-for-profit groups; they'd rather lend their money to fast-talking developers who can make bankers believe that just about any Loop or suburban-based project will turn a profit.

"I also think there's an attitude on the part of some people that if you're in a social-service organization you don't understand finances," says Jane Garza, executive director of El Hogar del Nino, a day-care provider in Pilsen and Little Village. "And I'm up against the attitude that 'These females don't know what they're doing.'"

Ironically, the Nonprofit Financial Center faced some rough times early on because its first managers didn't have a head for finance. "When I came here in 1982, 85 percent of our loan portfolio was delinquent," says Wilkerson, who used to work for the South Shore Bank. "The people administering the program did not have a strong financial background. These were supposed to be loans, but they tended to treat them as grants."

Wilkerson took a sterner, more bankerlike approach. "I didn't treat not-for-profits with kid gloves. They had to be held accountable like everyone else. We send them an application packet, which they have to complete. We ask them to cite their sources of income, which we then verify. We look at tax statements. Sometimes we take personal guarantees. We take nothing for granted."

If necessary, the center also tutors loan recipients on the ins and outs of budgeting. "Most not-for-profits get to be directors of their groups because they're good at the services the organization provides, like day care," says Wilkerson. "So we offer them assistance at things for which they haven't been trained, like projecting expenses and income sources. Money is getting harder to come by, so it's more important for groups to be more sophisticated about the money that they have."

The center's interest rates fluctuate within a few points of the prime rate. "We'll rate an organization based on its history," says Wilkerson. "An A group could get an emergency loan for about 5.5 percent, which is one point below the current prime. A C-rated group would pay 9.5 percent. The maximum loan term is one year, but typically our loans turn around every 90 days. The faster you repay a loan, the faster we can make another loan. It's called revolving investment. If I loan you $100 and you pay it back $5 a month, I can relend that $5 as soon as you pay it. That's how $1.5 million can become $3,750,000 worth of loans."

The center denies roughly 16 percent of its loan requests, says Wilkerson. "Applicants have gotten angry at us. They have made threats. But we stand tough. If you don't have a financial statement, you won't get a loan. Some people think we're supposed to give them a loan just because they exist, because they're doing a good thing. We may love you, we may love the services you provide, but we will turn you down if we don't think it's a good loan."

They're also determined about retrieving their loans. "We've taken people to court to get them to pay us back," says Wilkerson. "Generally if a group can't pay us, it means that they've gone out of business. We like to think that if we can't collect, nobody can."

Usually, however, there's no need to go to court, as better than 98 percent of the loans are repaid. Most people who come to them are dealing with perennial cash-flow problems. Such was the case with the Muntu Dance Theatre. "There is historically a cash-flow crisis with arts groups during that period when you're in between productions," says Joan Gray. "You're preparing for the next production, building costumes, making sets, rehearsing dancers--but you don't have ticket sales coming in. What you have to do is ask people to contribute their time and energy. Everyone chips in, but we don't want to have to do that.

"Last fall we were at a point where we were unable to meet the payroll and we would not have been able to complete a production project. We were waiting on an Illinois Arts Council grant that hadn't come in yet." But they were able to mount their production after receiving a $15,000 loan from the Nonprofit Financial Center.

"We did what most people in America do when they hit hard times--we got credit," says Gray. "The helpful fact was that we got the loan so quickly after we applied. There was only a four-day turnaround. Had we gone to a conventional bank, it might have taken three to four weeks. They would have sent us to a loan officer, who would have then gone to a bank-loan committee, and so on. There's more paperwork."

The operators of El Hogar turned to the Nonprofit Financial Center because they had expanded their day-care operation too quickly. "We sought their help in 1989--that was our worst year," says Jane Garza. "We became really big really fast. Our board thought we had a handle on things, but we didn't have a total grasp on all the contracts we were accepting. We added two other sites. It was a mess. I later learned that every big agency, even ones who are 100 years old, goes through what we did. But that knowledge doesn't always help you at the time."

They borrowed $40,000, and have not had any financial problems since. Garza says, "I'd tell other people facing a similar problem, 'Don't feel humiliated--it can happen to anyone.' The great thing about the center is that you can act with them in a way you can't act with a bank. With a bank, you have to go in like gangbusters. With Delena, you can admit that there's something you don't understand, and she won't hold it against you.

"You also feel a greater urge to pay it back. Partly because you know there are three women in that office who worked like dogs to help you get that money. But also because you know that they're going to loan that money again just as soon as you repay it. You feel responsible to repay, because the next case waiting in line is just as urgent as yours."

Art accompanying story in printed newspaper (not available in this archive): photo/Bruce Powell.

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