How to Work With Your Banker Amidst Change
Kathy Swift for Blue Avocado

April, 2017

With more than 25 years of banking experience and an equal tenure serving the Portland, Ore., community with Catholic Charities, Impact NW and other organizations, Kathy shares this advice for how to help your banker to give your organization as much credit as possible.

In the past, nonprofits tended to be asset rich with limited need for credit. Times have changed, however, now that constrained governmental funding, and lower charitable contributions are continuing for the foreseeable future. No banker wants to be the bad guy or to say no to an organization that is doing good work in the community, but a nonprofit borrower that starts to struggle can fall quickly from an acceptable risk to an unacceptable risk, threatening the viability of the organization and the essential services they are providing to the community.

This article seeks to provide several ideas for how a nonprofit can address the impact of these trends in order to help a bank to assist this transitional period through providing credit lines or term loans. The suggestions and the bank's perspective on financial performance can be grouped under the two distinct concepts: conservative financial management and institutional agility.

Conservative financial management

Banks perceive nonprofits to be a riskier type of borrower in general. The fundamentals of cash flow and collateral are the same as for-profit customers. But without an equity owner who has other resources and a profit motive, nonprofits tend to require more balance sheet cushion than other borrowers do.

Help your banker help you by mitigating as much risk as possible:

Institutional agility

Discussing poor financial performance is uncomfortable for everyone. By their nature, nonprofit leaders believe in hope and a better future. You can ask your lender to provide support from appropriate sources, but you should not expect the bank to accept continuing operating losses for more than one fiscal period, or to make an exception to their credit risk management practices due to the importance of your mission.

In order to make the lender comfortable with an operating loss, you need to provide a plan that shows how you will return to profitability within the next fiscal period:

Nonprofits play a vital role in our economy, and banks can comfortably support them with both deposit and credit products. Our healthcare and social service nonprofits in particular are facing a sustained period of funding constraints and rapid business model changes, which make liquidity and access to credit more important than before. Risk is inherent in lending to for profits and nonprofits. Finding Having a banker who understands nonprofit accounting policies and sector risk will help alleviate unwarranted headaches and help you manage your credit requirements.

Kathy Swift is senior vice president and commercial banking officer for Pacific Continental Bank.