Money for Capital Needs Is Often Scarce, Study Finds.

Navigation: Main page

Author: Lipman, Harvy

Nonprofit groups are having a difficult time coming up with the investment capital they need, according to a new study by the Johns Hopkins University.

Charities face trouble not only raising funds for traditional capital expenses, like buildings and computer equipment, but also for costs associated with program development and strategic planning, such as the hiring of consultants or additional staff, the study found.

The survey was conducted by the Center for Civil Society Studies at the Johns Hopkins Institute for Policy Studies. It gathered data from 291 organizations that focus on children and family services, community and economic development, and elderly housing and services, as well as museums and theaters.

Nearly all the nonprofit groups that responded to the survey -- 98 percent -- reported that they had sought some sort of investment capital in the past three years.

The biggest areas of need were for traditional capital expenditures such as buildings and equipment; 91 percent, for example, said they needed funds for technology. But large percentages also said they were looking for money to underwrite the costs of activities that did not involve their physical plants. Eighty percent said they needed capital for program development, 67 percent cited staff development, and 53 percent said they wanted funds for strategic planning.

The groups were not very successful at obtaining capital funds, however. Only 37 percent of those seeking money for technology were able to obtain it, for example, and just 25 percent of those hoping to pay for program development were able to find a source of funds.

Lester M. Salamon, director of the center, said the difficulties nonprofit organizations have raising capital stem from two related problems. First, charity officials are unfamiliar with many of the sources of funds commonly used by private business, such as investment pools formed by insurance companies, pension funds, and venture capitalists.

Indeed, most of the organizations surveyed said their officials would find it very useful to learn more about how to obtain capital from sources other than banks, foundations, government, and donors, with 87 percent citing that as a need.

Nearly all said they either found it extremely difficult or had no knowledge of how to obtain loans from pension funds, insurance companies, credit unions, and venture philanthropists.

Second, Mr. Salamon said, the managers of such financial institutions do not view investing in nonprofit groups as providing enough profit to make it worth their while.

"The incentives for lenders are not as good as they ought to be," he said.

While efforts to educate nonprofit officials about sources of capital funds can be easily pursued, Mr. Salamon said, the best way to pique the interest of financial institutions would be to offer them incentives, perhaps in the form of tax credits that would make loans to charities more profitable.

As an example of the kind of tax policy he said Congress could expand, he pointed to federal tax credits that encourage businesses to invest in low-cost housing.

Such credits, he said, have "had an enormous impact in channeling investment into low-income housing. The lender gets a tax credit so that making the loan is still profitable even with a lower return."

The housing credit has also helped overcome another problem facing nonprofit groups, Mr. Salamon added.

Most lenders do not want to deal with small, individual loans. Instead, they put their money into pooled investments, through which groups of small loans are bundled together into multimillion-dollar packages. As a result of the tax credit, he said, nonprofit organizations have been set up specifically to create those packages. A similar approach could work to find investment capital for charities, he said.

Copies of "Investment Capital: The New Challenge for American Nonprofits" can be downloaded free from the center's Web site at http://www.jhu.edu/listeningpost/news.

~~~~~~~~

By Harvy Lipman