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Friday, January 15, 2016

Funding Options: A Conversation with Chase Bank


At Armanino’s 2015 Nonprofit Symposium, Chase Bank’s Stu Bessieres, Vice President with JPMorgan Chase Bank’s Government and Not-For-Profit Banking Practice, shared insights into funding options for nonprofits seeking to grow, build and expand. I caught up with Stu on a recent trip into San Francisco, and he graciously agreed to continue the conversation with a few follow-up questions.

Armanino: Is the credit market for nonprofits healthy these days? Is there money to lend?
Stu: Going back to 2008 or so, the myth was that banks were somehow closing their doors to small business lending. That just has not been the case, particularly here in California. In the market that most nonprofits operate in—$25 million and less in revenue—Chase is always open to opportunities to deploy its funds. The nonprofit sector is a huge, vital industry. If an organization comes to us for a loan, we try to find a way to make that happen so long as it makes financial sense.

Armanino: Do banks consider nonprofits to be a good credit risk?
Stu: Chase looks at a nonprofit just like any other small business in need of financing—whether that’s a real estate loan, funding for a special purpose building, or even a working capital line of credit. However, there are unique risks inherent with lending to a nonprofit. With a for-profit business, the bank has the option of having owners personally guarantee the loan. With a nonprofit, there is no ownership for that kind of guarantee. So, it’s important for the nonprofit to be able to stand on its own from a financial perspective.

Armanino: What are some of the key factors that a bank looks at when qualifying a nonprofit borrower?
Stu: At a minimum, we want to see that a nonprofit is showing positive cash flow. Even though it is technically a nonprofit, the organization needs to be able to show that it is utilizing the revenue coming in and managing its expenses so that at the end of the day, it has the means to repay the loan. Also, we look at debt ratio. We want to make sure that all of the organization’s assets are not primarily supported by debt.

Armanino: Does having a well-functioning board play into the lending decision?
Stu: Certainly the quantitative factors within the financial statements are the most critical. But then we look at how strong an organization is. What is its history? Does it have good community support? Is there solid management in place? A big part of that comes down to the board. We do take a look at bios of the directors. We want to know who sits on the board and how engaged they are in their oversight role. We also want to know that there is a healthy working relationship between the board and executive management.

Armanino: What documents should a nonprofit be prepared to share?
Stu: Most lenders want to see three years of financials, as well as any interim financial statements. For loan amounts over $1 million, we definitely want to see audited financial statements. I tell my customers that if they are thinking about a high-dollar expenditure, such as buying a building, that they should go ahead and talk to a CPA about an audit or review.

Armanino: Is tax-exempt financing an option for larger projects?
Stu: Tax-exempt financing absolutely makes sense for major capital projects. With a tax-free loan, nonprofits can enjoy a lower interest rate compared to conventional debt. That said, it does take a more sophisticated borrower who is willing to assume the costs of the legal counsel and nonprofit financial advisors needed to guide them through the process. We normally recommend tax-exempt financing when project financing is going to be in the range of $3 million to $5 million or more.

Armanino: What happens if you can’t make conventional financing work?
Stu: No one likes to say no. But there are times when we look at the financials and realize that it’s just not a good fit for us. So I try to figure out a way to say yes—whether it’s involving another part of the bank to help facilitate the loan or even working with a partner such as the Northern California Community Loan Fund. I know that Chase is not afraid to help a nonprofit get funds from other organizations.

If you have additional questions, or would like to learn more about how the conversation above might affect your nonprofit, don’t hesitate to reach out to me or Stu (stuart.j.bessieres@chase.com or 415.615.2410).

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