Introduction to Borrowing: Know Your Repayment Source
October 9, 2012
Much of our work here at NFF focuses on easing nonprofits’ access to capital--both in sufficient quantities and the right kinds--for dealing with short- and long-term needs. Loans can be used to help meet such needs, but there are important distinctions between loans and other types of capital. What will a loan mean for your organization? How will you meet the terms of the loan once you’ve received one? With these questions in mind, NFF Associate Dana Britto assembled five introductory blog posts each providing a helpful tip that you should consider before applying for a loan.(All five tips will be available here)
Know your repayment source. This may seem
like an obvious request from a lender. But
nevertheless, the importance of knowing your source of repayment cannot be
emphasized enough. If you are seeking a
loan that will be paid off over a period of time through monthly debt service
payments, you should have at least some understanding of your cash flow trends
and capacity on a monthly and annual basis.
A preliminary financial
assessment from almost any lender can further determine and highlight an
organization’s debt service capacity based on trends in operating performance
and cash flows.
is coming from a specific grant, contract or pledge, be ready to verify that
this funding is confirmed, most often through official documentation, and don’t
be surprised if lenders want to contact the source of this funding to verify
the security of these funds. Under these
circumstances, many borrowers often fail to recognize that in the event that
this repayment source is ever unexpectedly reduced or significantly delayed,
operating cash flows essentially become the source of repayment. This is why many lenders cannot simply ignore
an organization’s overall financials even if they are bridging a specific
a to-be-raised or unconfirmed source to cover repayment can be extremely risky,
especially in the current economic environment.
Under these circumstances, be sure that a secondary source of repayment
is available, sufficient, reliable and/or confirmed.
We’re making it easier than ever to inquire about whether a loan from NFF is right for your organization. Please review the lending guidelines at our new loan inquiry form!