Managing to Repay Debt with Capital Funds

Managing to Repay Debt with Capital Funds

July 14th, 2010

by Meg Gammage – Tucker

Managing to Repay Debt with Capital Funds

“How can we move ahead and buy or build something and then have our clients repay the debt?”  We have historically, and still regularly do, advise strongly against this strategy. 

We have advised against this strategy for two very important reasons—

1.)     Donors often do not want to fund something that has already been built thus reducing both their financial and personal influence over its development.  This is also why we test the “preliminary” case for support.  And,

2.)    Given the recent recession and its fallout, funding activities through debt is considered by some to be a precarious strategy, at best.

Today, however, it is a reality and one that more and more clients are asking us to address.  It may not be the best way to do our work, but it is a reality with which we must deal and strategies must be devised.

Debt repayment through philanthropy is not easy, and it requires organizations to be extra thoughtful and strategic to make it possible.  It requires the following:

Mission and Program Impact

How has this investment made the world a better place? 

How has it helped achieve our mission? 

What programs have we developed or improved? 

Financial Justification

Clear and sound reasoning as to why the investment was necessary.

Why did you invest first and ask later?  Or, in other words, what did you save and how did the organization benefit financially by buying or building before the dollars were available?

Potential Donors

Knowledgeable and entrepreneurial donors –who are both already committed to your cause and who appreciate and understand that your organization can be entrepreneurial as well.

It is not an easy path—nor one we readily recommend.  But it is one that is part of our philanthropic world and one which requires both thoughtful consideration and action.

Let Meg know how helpful  Managing to Repay Debt with Capital Funds is for your organization and share your results by posting in the JGA comments section below.

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