How can your organization raise the money it needs to pay off:
- Money borrowed from a lending institution?
- Unpaid invoices from vendors, suppliers, and contractors for the purchase of a capital asset?
- Money allocated from other of the organization’s resources/assets?
Accentuate the Positive
Surveys tell us that people give to charitable organizations as an “investment” of their resources, expecting to see results that are tangible and good. They can do that when a building is erected with their support, and when they fund a special program or service which is directly provided to those who benefit from the organization. They feel that way as well when they have invested their money to help an organization meet its general annual operating costs, since those donors know that paying salaries, utilities, etc. makes it possible for the organization to carry out its mission fully on an ongoing basis. Developing a case for support of each of those endeavors is a relatively easy thing to do. The arguments can be clearly delineated and convincingly presented, and the results can even be quantified.
But, how much success do you think any organization would have with the following approach to its donors?
“Would you please consider making a contribution of $ _______ to help us pay off our organization’s debt?”
A request for a contribution made in this way by a solicitor to a prospect would have the former hardly feeling eager to make the ask. With almost certainty, the solicitor herself or himself would not be a true believer in the project. As for the prospect, she or he would be asked to give money for what, at face value, would be a most unattractive, and dubious, purpose. This combination of a solicitor being uninspired and a turned-off prospect, coupled with an unpopular cause, would be the worst of scenarios for the solicitation of a charitable gift. While the atmosphere surrounding a campaign to pay off an organization’s debt is indeed unattractive, it is still possible that funding to pay off that obligation can, in fact, be solicited successfully. The development of a special fund-raising campaign to reduce or eliminate a debt—whether it’s to pay off that bank loan, the overdue major bills for the new building or renovation, or to wipe out those years of accumulating deficits—or for any other reason—can work, and work well. But it requires unique strategies and tactics.
You Need a Plan
The willingness of donors to provide funding for debt relief is greatly influenced by the organization’s ability to provide in writing a clear, defensible and believable plan for effective fund-raising which includes not only paying off the debt, but strong assurances the organization will be keeping its financial books in balance in the future. To put it bluntly, you can’t fill a current debt “hole” if it is thought that you will go into another financial hole in the future. Non-profits cannot go to the debt relief “well” soon again—if ever. I have seen many such “bailing out” of troubled organizations, only to have them go back again and again for the same debt relief. It just does not work, and the organizations lose the confidence—and break the patience—of everyone all around.
You Need a “Package” And It’s All in the Semantics
A non-profit, by its very nature, has operating deficits (being the reason for fund-raising), so in the case of Annual Fund Campaigns, where those understandable shortfalls are addressed, we have an Annual Fund-Raising Campaign, but never an Annual Deficit Elimination Campaign—the latter hardly being a good “sell.” Oversimplified, but you get the point. So, if it works in this short-term, annual operating, debt elimination example—to put aside words that not only are unattractive, but evoke impressions of financial troubles—we can as well be assured that a similar creative description for a campaign to pay off a loan or an accumulated deficit can be developed and produced with success.
Asking the general public, almost all foundations, and most donors to pay off a bank loan, or some other liability, is a challenge. It’s only going to work selectively, and if correctly and convincingly packaged. It’s a semantics issue to some degree, with some strong realism thrown in, but you can effectively package the debt relief project nicely.
You can even have debt reduction as part of a total fund-raising campaign effort. You could, with conviction and truth, refer to that campaign component as a “Bridge Fund”—meaning that the debt reduction is a bridge to which you can connect the building of a sound and stable financial future for the organization. For example, you can make the bridge from the use of debt elimination funds to:
- Solicit endowment funds to provide assets to work in perpetuity to keep up with future funding needs, be they for general operations or to fund new programs, projects and services.
- Proceed with plans for a needed capital building or renovation project.
- Provide the funds needed for current operations, as in the case of your overall Annual Fund Campaign.
Along with the use of the bridge fund concept, we employed those very same initiatives by convincing donors to help us retire our debt by referring to it as an “Interim Fund,” i.e., money needing to be raised in the meantime so we could plan to build on solid ground for the future.
Another time, we called the debt reduction component a campaign to secure “Working Capital” which worked to pay the debt under the same conditions and promises we made in the other instances.
I suppose we could apply the old saying, “If it walks like a duck, quacks like a duck, or looks like a duck, it must be a duck” to—“If it looks like a Bridge Fund, or a Working Capital Campaign, or an Interim Fund, we are still talking about funding a debt.
It’s not as much what we call it, it’s mostly what we do about it.
You Need Special Prospects
You’ll have a much better chance to raise those funds from people close to the organization who better understand the need, and would be more receptive to your plan to be solvent in the future by helping you out of the debt situation. Chances are much greater that you will find in this group—more than from any other potential funding source—far more tolerance and acceptance of your explanation regarding how you got into debt in the first place.
That’s why you should not look to traditional foundations with undue expectations for funds of this type. Examine all of your potential donors, especially those having major giving potential, from your trustees and those loyal and knowing supporters who have given money in the past. There could be some foundations willing to help retire the debt, particularly those where your trustees might have influence, but in my experience with such debt elimination campaigns, those funds came mostly from the trustees and others close to our organization.
Hard sell or easy sell, with your plan developed and packaged, prospects identified and rated, and all the usual, required elements in place—volunteer leadership and solicitation committee recruited, brochure ready, etc.—you are ready to go.
To help develop your total fund-raising campaign in order to succeed in the short term to eliminate your debt, and to demonstrate convincingly your ability to develop the sound financial future you promised for the longer term, my following articles may be of use: