Buying real estate for any individual person or corporation starts with whether the buyer can afford the purchase or not. Businesses gain capital for these kinds of purchases over time, but can usually fund new buildings and real estate easily. Nonprofit organizations, their employees, and board of directors, have a fiduciary responsibility to ensure the long-term success of the organization through new buildings or real estate they invest in. Getting good real estate as a nonprofit can take some extra thought and funding, but the efforts are well worth it.
Ultimately, non-profits looking to borrow money need to start with a plan for repayment based on reasonable assumptions. Setting and following a budget, even before considering a loan, helps establish sound business practices, and ensures a positive cash flow. Borrowing money when an organization is running a deficit is a bad idea; one that could lead to bankruptcy.
Not only is cash-flow planning critical to the process, many lenders will want to review the budget as part of the application process. Organizations should set and follow a budget, track their spending against the budget during the current fiscal year, and plan a month-to-month budget for the following fiscal year. The budget should include all expense and revenue projects, categorized in a logical manner. Take time to set up and analyze your nonprofit’s budget and spending before making a plan for real estate funding.
Raising the Funds
For non-profits, there are a number of sources for raising money to purchase real estate. They may plan a capital campaign, asking board members or other prominent community members to help out. A capital campaign could be risky depending on the members. But it is usually a solid way to gain funds and start buying.
Some government agencies and corporations provide grants to non-profits. Grants have specific requirements when it comes to purchase of real estate, although funds received from grants can be used for other programming, freeing up resources for use with real estate.
In some areas, the government offers the ability for some nonprofits to use tax-exempt bonds to borrow money. Bonds, like mortgages, provide monthly payments to bondholders instead of a bank.
As a nonprofit, you also have the unique option to use fundraising to get more funds in the budget. Ask your donors for a bit extra, hold events or competitions, and use your past successes to gain some capital.
Finally, nonprofits should consider local banks or lenders. Most people are familiar with the mortgage process from purchasing a home, and this is no different. The banker or lender will want to review appropriate paperwork and talk with the officers and board members.
Regardless of the source(s) used, non-profit organizations need to have accurate financial data preferably in a standard form (balance sheet, profit/loss statement, etc.) as well as a formally adopted plan for both the use of the funds and the repayment of any borrowed money. To support the request for funds, organizations should prepare supporting material. This material may be history, purpose, and activities, cash flow, audits and budgets, etc. Finally, officers and board members should personally engage, ready and willing. They should also be ready to answer questions about the purchase.