The CARES Act's combined focus on providing cash flow relief via low interest or forgivable loans and making cash gifts more attractive to donors highlights non-profit strategy as never before. Many of our non-profits are battling multiple fronts simultaneously – short-term cash flow concerns, headcount worries, work–from-home challenges, donor relations and long-term strategy questions. How can we best process this new reality, much less move forward productively? Here are the answers to some of the most frequent questions we've recently received from our non-profit partners:
1. What can I do to improve my donor relationships during this time?
Pick up the phone. Don't call your donors to ask for money. Call to check on them. If older, perhaps they are alone at home and need groceries or someone to check in on them a few times per week (safely distanced, of course). If younger, you can connect them to like-minded donors via virtual cocktail parties, career connections and family support groups.
Also, it's time to augment/improve digital marketing strategy to capture this cash gift momentum. Do you already have a robust online fundraising process in place? How can you tweak it for the current environment, providing education and opportunities for donors and volunteers? Solution: Engage a board member or dedicated donor to fund a new vendor relationship with a digital marketing firm. Support your own mission and a local business owner simultaneously.
2. How can I even begin to ask my donors for financial support when they're worried about their own portfolios, livelihoods, businesses and employees?
The trend continues for development directors to become integral in their donors' estate planning and strategic philanthropy decisions. Now, more than ever, we are working with our non-profit clients to provide this expertise in planned giving, institutional donor advised funds, and solving every day donor concerns in a low-return environment.
Example 1: An elderly donor became concerned for her estate plan in the midst of this crisis. Her favorite charity's development director happened to call and they discussed the issue. We were able to help the development director examine a few scenarios for charitable trusts and investment models. Ultimately, the donor decided upon a significant estate gift that would help her feel comfortable with her current cash flow needs and still be able to support her favorite non-profit long term. Kindly, she let the development director know how much she appreciated the help with a cash gift now, taking advantage of the new deductibility rules.
Example 2: A business owner saw a need to support frontline workers and local business, plus engage his employees at a fearful time. So he worked with local hospitals to set up early stage funds to get restaurants cooking and feeding hospital personnel, engaging his employees in the process.
Ultimately, we are seeing increased innovation and a willingness to explore new solutions, not fearful retreat. The good news is that donors want their non-profits to tell them how to help. Stay in contact.
3. Is the CARES Act blurring the lines between non-profit and for-profit? How can non-profits compete for loans?
The CARES Act underscores that all business models, whether non-profit or for-profit, must layer capital to fund longevity. Donations alone don't always suffice. Many non-profits are unfamiliar with using debt, and as such will have a longer ramp up time establishing KYC (Know Your Customer) paperwork as they're applying for CARES Act loans. Now is the time to strengthen existing and seek new partnerships across the spectrum of social investment. For more information on “Funding the Ecosystem" please find relevant articles here.
4. Should we ask our donors/board members to co-sign a working capital loan or to help in the Small Business Administration (SBA) lender access process?
Yes. If your board members or major/mega donors aren't comfortable with this conversation, find out the reason for reticence, adjust strategy if possible and keep these learnings in mind when it’s time to reconsider board governance and makeup.
5. We have lines of credit already, should we use them now vs. applying for a CARES Act loan, or should we use endowment/reserve funds first?
While each situation is different, the basic logic is the same. Avoid using reserve funds as long as possible. This crisis may last longer than three to six months, and you will want to preserve options for liquidity. Explore all loan options simultaneously, using the cheapest debt first. Be transparent with donors and don't be afraid to ask for help with accessing debt as well as cash, stock and other assets.
6. Should we rethink our spending rate in this environment?
If you're using a traditional rolling average of the market value for 12, 24 or 36 months to calculate your annual spending rate, yes. Market volatility is a new normal. To manage through the next decade, we advise a more dynamic spending rate formula that allows your organization to handle low return environments a bit easier. For more information on spending rates in low return environments, please visit here.
7. Our mission isn't directly affected by COVID-19. Should we seek support from COVID-19 Relief Funds?
Make sure you're plugged into the relief funds' process in your area. If your mission is not considered an immediate need such as food, shelter or health care, work through how you can articulate your mission's value in terms of this crisis. Everyone is affected; how can you and your board best add value?
8. Are there additional resources for financial support beyond the SBA loan process?
Check here for a very comprehensive list of global capital resources – Duke's Center for the Advancement of Social Enterprise has put together an incredible resource for all business owners/leaders – both non- and for-profit operators.
In this unprecedented time, this list is by no means exhaustive. It will also continue to evolve as the COVID-19 virus crisis response matures. Each situation is unique, of course, but one thing remains constant: to remain true to their purpose and increase their impact, both non-profits and donors must partner well, listening and sharing mutual expertise. Non-profits must continue to seek multiple capital sources and educate all stakeholders along the way.