13. Borrow Funds

  1. Charles K. Coe

Published Online: 21 MAR 2012

DOI: 10.1002/9781118386064.ch13

Nonprofit Financial Management: A Practical Guide

Nonprofit Financial Management: A Practical Guide

How to Cite

Coe, C. K. (2011) Borrow Funds, in Nonprofit Financial Management: A Practical Guide, John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9781118386064.ch13

Publication History

  1. Published Online: 21 MAR 2012
  2. Published Print: 13 JUN 2011

ISBN Information

Print ISBN: 9781118011324

Online ISBN: 9781118386064

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Keywords:

  • borrow funds;
  • debt financing;
  • debt instrument;
  • loan

Summary

Nonprofits borrow funds to meet short- and long-term needs. Some nonprofits are chronically short of cash. For them, short-term borrowing is an everyday occurrence. Other nonprofits, enjoying a healthy cash reserve, borrow only in the rare event of a precipitous financial downturn. This chapter discusses issuing debt which is a two-step process, select the debt instrument and purchase the debt. A debt instrument has three features: (1) a funding period, (2) repayment conditions, and (3) security against default. To obtain a line or a loan, the nonprofit should submit a financing proposal that includes an executive summary explaining the nonprofit’s: mission, core services and values, managerial capabilities, and ability to repay the debt. A nonprofit typically uses it net operating revenue to repay a loan. If operating funds prove insufficient to repay a loan, a nonprofit may have to sell assets or refinance the loan.

Controlled Vocabulary Terms

Debt instruments; Loans; Nonprofit organization