SCO Family of Services, a nonprofit agency based on Long Island, started the year with a $25 million credit line at its bank, which it planned to use to pay its bills while awaiting government reimbursements and donations.
Nancy Biberman, president of Whedco, a housing group in the Bronx, wants Congress to create a $15 billion bridge loan program for nonprofits that cannot tap banks for short-term loans.
Now, after its bank has cut its credit line twice and withdrawn a promise to support a critical bond offering, the organization is worried about whether it can pay its employees this month.
“I spend a good part of my day every day just trying to manage cash flow,” said Johanna Richman, chief financial officer at SCO, which provides services to children with developmental disabilities.
SCO is one of hundreds of charities caught in the credit crunch as skittish banks reduce their lines of credit or cut them off entirely at a time when the need for their services is climbing sharply, nonprofit leaders say.
“While nonprofits are working feverishly to accommodate increased demand, they are facing severe financial constraints that are threatening their ability to go on, much less expand their services,” said Diana Aviv, president and chief executive of Independent Sector, a nonprofit trade association.
Almost three-quarters of nonprofits in the United States receive some type of government financing, according to new research by the School of Social Service Administration at the University of Chicago, and about half of those count on that aid for at least half of their budgets.
As a growing number of states delay payment, nonprofits must rely on lines of credit to help them get by. In Illinois, the state is running as much as 150 days late in making reimbursements, and California has told nonprofits to expect i.o.u.’s in lieu of payment starting next month.
“You can just imagine a nonprofit walking into a bank with this tattered envelope from Sacramento saying that some day the state government will pay it,” said Thomas Peters, chief executive of the Marin Community Foundation in Marin County, Calif. “How’s a bank to make a loan against that promise?”
The Marin foundation has been providing emergency and short-term grants to keep organizations like SCO alive, but Mr. Peters said it could not meet the demand for such money.
Independent Sector has asked Congress to have the federal government make payments for social services directly to nonprofits, rather than funneling the money through state governments, as is the current practice. It is also seeking a $15 billion bridge loan program for nonprofits that can no longer tap banks for short-term loans.
Nancy Biberman, president of the Women’s Housing and Economic Development Corporation, or Whedco, which provides services like child care and low-income housing in the Bronx, endorsed the idea of a bridge loan fund.
“We don’t see any economic recovery money that’s clearly flowing into poor communities,” Ms. Biberman said. “Infrastructure projects are not really where it’s at when basic survival is at stake for so many people.”
Whedco has just finished building what it calls the largest low-income “green” housing development in the country. The project was financed with a $39 million loan from a major bank.
Last summer, New York City committed to provide $2 million more to the organization to underwrite additional amenities at the site, but the bank’s risk managers turned down its request to increase the loan by that amount because Whedco did not yet have the money in hand.
“They were essentially challenging the full faith and credit of New York City,” Ms. Biberman said.
Moreover, in December the bank froze a $500,000 reserve fund held to guarantee interest payments, even though the project was 95 percent complete. “That’s our money,” Ms. Biberman said, adding that, at most, Whedco would owe the bank 10 percent of that amount when it completed the project in the next few weeks.
The inability to access the reserve fund has forced Whedco to ask some vendors to extend payment terms, a juggling act many nonprofit leaders are now performing.
Despite such complaints, Ms. Biberman and other nonprofit leaders declined to identify their banks for fear of further souring relations with them.
- 1
- 2
