3 May 2013
Propeller: A Force for Social Innovation is a New Orleans-based nonprofit whose mission is to tackle the city’s toughest challenges by supporting the creative solutions of its community members. Listed below are creative options to finance your non-profit.
Propeller’s Social Venture Accelerator emphasizes a double bottom-line—that is, social impact and financial sustainability. Whether you are a for-profit or non-profit, you must ask yourself, “What is my business model?” “What is the market demand for my product or service and how will I generate revenue?”
Almost all of the non-profits in Propeller’s Social Venture Accelerator have means of generating revenue. Here are a few examples:
- Smiles2Geaux, a mobile dental clinic, earns revenue through Medicaid reimbursements.
- VEGGI Farmers Cooperative earns revenue by selling produce to New Orleans’ restaurants.
- Youth Rebuilding New Orleans (YRNO) restores blighted houses and sells them at a profit.
- The New Orleans Master Crafts Guild sells membership in their Guild.
“Fundraise, fundraise, fundraise,” is often the go-to mantra for non-profits. Yes, donations and grants are important, but more creative financing options are also available if you have a revenue stream that will allow you to pay back certain types of investments and loans.
For small-scale financing under $10,000, consider crowdfunding or microfinance.
- Crowdfunding – A means of leveraging small contributions from many individuals in order to finance a particular project or venture. Successful crowdfunding campaigns offer gifts in exchange for donations. Crowdfunding platforms such as Kickstarter, Indiegogo, and Crowdfunder. Propeller alum Tippy Tippens raised almost $6,000 on Kickstarter to launch the BirdProject, for example, giving her supporters everything from mac-n-cheese to a soap and ceramic keepsake. Keep in mind there’s usually a charge of 4%-9% of total funds raised.
- Micro-Finance – These are perfect if you are considered low-income or don’t have access to typical banking services. Kiva New Orleans, for example, has 226 members who have loaned $27,025 across 930 projects since 2009. Keep in mind interest rates can still average 36% or higher. Interest rates can still average 36% or higher. Check out Accion and Kiva.
If your need is for Furniture, Fixtures & Equipment (FF&E) or real estate, you’ll want to explore large-scale financing options that typically range from $50,000 into the millions.
Program-related Investments (PRI): Usually large foundations such as the W.K. Kellogg Foundation, John D. and Catherine T. MacArthur Foundation, or the Ford Foundation offer loans or equity at very low interest rates. Available for both for-profits and non-profits.
- Traditional Loans – Contact your local bank(s) or credit union(s) to check your eligibility, interest rate, etc.
- Tax Credits – Usually for large real estate projects ($6mm+). Money is committed but not received until project completion. Consider bridge loans to fill capital gap. New Market Tax Credits is one source to explore. Individual states often offer their own tax credits for things like historic preservation, performing arts, film, and solar.
- CDBG (Community Development Block Grants) - The Housing and Urban Development’s (HUD) CDBG program allocates funds to states to support low-income housing developments and economic opportunity. Contact your local CDBG representative to find if your state or municipality has allocated funding.
It may take a concerted effort to sort through these various options, but that could mean time and money saved down the line. Propeller and the Propeller Accelerator Fellows have experienced success with each of the financing sources we’ve listed. With all this said, sometimes bootstrapping is the way to go. Before you determine that you need financing, make sure you actually have a capital gap to fill. If capital is what you need, make sure you have a strong operating model demonstrated through a business plan, or contracts secured with customers so you can pay back your loan.
Keep up to date with happenings at Propeller by following them on Twitter and Facebook. Feel free to also reach out to Julia if you have more questions about both small and large financing options: email@example.com.