Nonprofit organizations and agencies
can take advantage of specialized
services offered by lending institutions, according to Cary Yates and Oscar
Martinez of Wells Fargo Houston’s Specialized Nonprofit Banking Group.
Smart Business talked with Martinez,
who is Wells Fargo’s business banking
manager and team leader of relationship
managers, and Yates, vice president and
senior relationship manager for Wells
Fargo Houston Business Banking. The discussion centered around how nonprofit
organizations can work more effectively
with lending institution to apply for loans
that will stretch their dollars.
What organizations are considered to be
‘nonprofit’?
Yates: Any organizations with designations 501(c) (3), (4), (5) or (6). These
include human services and arts organizations, housing organizations, foundations,
civic organizations, associations, business
leagues, and religious organizations.
All of these organizations may qualify for
a lending institution’s many products and
services that serve the nonprofit sector.
What types of services are available to nonprofits?
Yates: Look for a full range of turnkey
solutions, and look for an institution that is
willing to work with you to find the best
ways to serve you. Look for an institution
that will actually get to know your organization, one that doesn’t just look at financials and make assumptions.
Of course most nonprofits have cycles of
giving, so a good lender should be willing
and able to analyze how your organization
operates and how your cash flows.
Martinez: A good lending institution
will help a nonprofit to stretch its dollars
further and can assist it in uncovering
other resources.
How does a nonprofit go about applying for a
loan?
Yates: One of the biggest myths is that
the lending requirements and/or documentation requirements are looser for nonprofits. While underwriting standards may
vary from lender to lender, the nonprofit
should still be prepared when applying for
credit.
Before approaching a lender, the director of a nonprofit should have the organization’s financial documents professionally prepared, presented in a manner that is
easy to follow and have a specific objective. The lender will want to know who the
leaders are, so the director should provide
the names, titles and experience of board
members. All information presented
should be clear, concise and well organized.
What are some of the factors that lenders
look at to determine whether to lend to a nonprofit?
Yates: First, lenders examine whether
the nonprofit is operating effectively and
efficiently. Is it producing results? Does it
have a reputable name in the community?
Who sits on the board?
Nonprofits must be well managed and
supported by their boards. The board
needs a good mix of people, including professional business people such as accountants, lawyers, architects and public relations representatives.
What other advice do you have for nonprofits
that might be seeking a loan at some point?
Martinez: Create internal endowments
— something to generate funds to cover
fixed costs and other expenses year after
year. Educate yourself. Make the board
strong and viable so you can obtain financial products and services and increase
the lender’s confidence in your organization.
Yates: However, nonprofits cannot survive off endowments and donations alone.
They must create revenue streams. They
must view, run and manage their organizations like businesses.
Martinez: The nonprofit will struggle if
it continues to depend on the same types
of revenues. Events, federal budget shortfalls (for instance, when Congress redirects money or cuts it off) and other factors can have a negative impact on revenue, so it is helpful to create annuitized
streams.
Directors of smaller nonprofits would do
well to find a mentor from a bigger nonprofit. That guidance will be invaluable.
Educate yourself on how to run the
organization like a business. There are
many resources available to help, such as
the University of Houston Small Business
Development Center.
CARY YATES is vice president and senior relationship manager
for Wells Fargo Houston Business Banking. Reach him at (713)
284-5556 or [email protected].
OSCAR MARTINEZ is the Wells Fargo Houston business banking manager and team leader of relationship managers. Reach
him at (713) 284-5561 or
[email protected].
