Cynthia: Perhaps you can tell us a bit about this new fund, and how it will operate?
Marc: The Bridge to Bridge Fund is designed to help small to medium sized nonprofit organizations in the Bay Area with short-term cash flow loans. The loans are meant to support operations while the organization is waiting for a confirmed grant or late paying reimbursable contract. Initially, our loans will be up to $50,000, have a 12-month term, and carry a 6-8% fixed interest rate. There is also an application fee tied to the amount of the loan. One other point to make – the loans are unsecured! This means organizations don’t need collateral or a board guarantee to access this financing.
Each loan will be underwritten based on several factors, including: historical financials (typically 990s), 12-months of cash flow projections, recommendations from funders, and most importantly our unique risk factor algorithm. Our goal is to turn around each loan request within 30 days from completed application. Ultimately, we’re trying to build a model to create a same day approval process, but we’re not quite there yet.
In order to make the process as efficient as possible, we’re trying to leverage existing technology platforms. We’ll also be using ACH for loan payments.
Cynthia: Clearly you felt the need to establish a new loan fund for nonprofits. What were the big issues – the problems – you saw that made you want to create such a fund?
Marc: Most small to mid-sized nonprofits (less than $4 million of revenue) have a difficult time accessing credit from banks and community development financial institutions (CDFIs). This is mostly due to federal regulations placed on banks and other lenders. Furthermore, underwriting $50,000 loans is unprofitable for large institutions who don’t have a focus on this sector, thereby creating a disincentive to support this marketplace.
In order to survive, some organizations fund operations with high-priced credit cards or loans from board members. Even worse, the executive director may float the organization while not taking a salary. Clearly this is unsustainable.
Like the for-profit sector, nonprofits need access to affordable financing in order to maintain operations, achieve growth, and meet the growing demands on their mission. American Nonprofits is here to help nonprofits in the San Francisco Bay Area. We can also implement our program in other geographies, so please we encourage readers in other geographic areas to contact us for additional information.
Cynthia: It is unusual for one person to take on this kind of task. What compelled you, personally, to do this?
Marc: I’ve been a lender for twenty years; the past 15 years were spent focusing on the nonprofit sector. During this time, I’ve made many friends and had excellent mentors in the space, so I’m hardly alone. I also have a board of directors, to whom I report. But ultimately, my drive comes from seeking a solution to support nonprofits doing great work in so many critical areas including childcare, arts, health, environment, and affordable housing.
An April 2018 survey by Kathleen Janus, a lecturer at Stanford University showed that 81% of nonprofit leaders think access to credit is their greatest challenge. We all know the financial distress late payments and poorly understood contracts. Everyone talks about is, but no one was doing anything about it. Since there was no obvious solution, we created the Bridge to Bridge Fund. While this is not a panacea, we are working towards solution that is scalable.
I also need to point to the visionary who helped put me on this path, Pamela Davis, Founder, President and CEO of Nonprofits Insurance Alliance Group. She’s been my coach for years. Pamela and I first met around creating a nonprofit credit union, but that’s a story for another day.
Cynthia: Where do you get your capital?
Marc: We have been very fortunate to attract funding from a variety of sources. Our first visionary investor was Nonprofits Insurance Alliance of California (NAIC). They seeded our efforts early on and demonstrated this model several years ago through a $1.5 million loan fund similar to Bridge to Bridge. We also have loan capital from Santa Cruz County Bank (SCCB), a lead sponsor. Together, NIAC and SCCB have provided $1,000,000 in loan capital. Over the years, we have also received grant support from Comerica and Wells Fargo. We also hope to have some exciting news to announce this summer.
Cynthia: Can others invest in the Bridge to Bridge Fund?
Marc: Oh yes, yes indeed! While it’s great to have seed capital, we would like to expand our geographic reach and improve efficiencies. We’re always looking for the right philanthropic and banking partner, so please don’t hesitate to email. As we are a 501(c)(3), we can also receive support from private donors.
One other important point to make here, is we can replicate this model in any geography. If you’re a foundation and understand bridge financing is an issue in your community, please let us know how we can help create a fund in your area.
Cynthia: I know you are literally just ‘up and running’ but have you made any loans so far?
Marc: Through work with NIAC, we’ve successfully made more than $3 million in loans over the past several years; however, Bridge to Bridge is new. That said, we made our first Bridge to Bridge loan to an amazing organization called Place Lab. They created a new financing model to develop vibrant public spaces by bringing together the community and government.
Cynthia: Tell us a little bit about Place Lab – what’s their story?
Marc: Place Lab is a small San Francisco nonprofit whose mission is to apply the spirit of innovation to empower communities to create and sustain great public spaces. They’re a team of urban planners working at the intersection of community groups, city agencies and implementation partners (funders, designers, builders), bringing everyone together to create public spaces that are clean, safe and welcoming for all, for the long term. They’ve been around for 5 years now and are managing 9 major public space improvement projects throughout San Francisco. As is quite common, much of their funding comes from city grants that are often delayed, and often don’t allow for project management time — the most expensive part of a capital improvement project. This has led to extremely “lumpy” cash flow, and much stress for Place Lab’s Executive Director. Place Lab is thrilled to continue its mission focus on being a pioneer, by helping this great Bridge to Bridge loan program get up and running.