Nonprofit finance terms and concepts
Money owed to an organization for goods and services it has sold or that has been committed to it as a grant or donation. Also called grants receivable.
An alternate name under which an individual or a legal entity may conduct business. Also known as a DBA or doing business as name.
Authorization of Borrowing
A resolution passed by a board of directors or trustees acknowledging and approving the incurrence of debt. Also known as a borrowing resolution. See officer’s certificate.
Final payment of a loan which is larger than the previous payments, arising when the amortization is longer than the maturity of the underlying note. See amortization.
A fraction of a percentage point, equal to one one-hundredth of a percent. Used to describe interest rates; i.e., 50 basis points is the same as ½%. See points.
The distribution, nature and magnitude of an organization’s assets, liabilities and net assets. Also known as capital structure.
- Extra-ordinary, and of limited duration: it is not meant to function as regular earned or contributed revenue.
- Flexible: how the organization chooses to spend the investment matters less than what it achieves.
- Understanding: the funds are meant to support periods when the organization is experiencing volatility in its pursuit of change. During these periods, organizations must take risk and have room in their budgets for trial and error. As a result, Change Capital can, on occasion, cover planned temporary operating deficits.
- Must support long-term sustainability: Once the capital is spent, the organization should be able to more fully cover costs using reliable revenue, until their next period of change.
Organizations use Change Capital for a variety of purposes, which include but are not limited to:
- Supporting projects (e.g., technology, facility, services) specifically intended to improve the efficiency or quality of its programs or operations
- Supporting growth, downsizing, or other adjustments to the size and scope of the organization.
Change Capital is not intended to be used as a substitute for revenue. For example, it cannot be used to cover structural or unplanned deficits, paying for an existing program, or cover ongoing, regularly-needed improvements (ie., facility maintenance). Instead, the spirit of Change Capital is to ensure that an organization emerges from a planned period of extra-ordinary change entirely stable and sustainable. Unfortunately, in our client work, NFF has often seen that change can actually negatively reverberate throughout an organization for many years after the period of change has ended. This is one of the reasons why NFF advocates that organizations pursuing Change Capital should conduct in-depth business planning to effectively tie its goals for change to financial models that ensure recurring revenue after the change is over.
NFF has written extensively about the need for change capital in a sector that rarely has the opportunity to pursue transformation with support that is patient, flexible, and well-planned. To read more about our ideas on Change Capital, visit these pages:
The fee is often paid partially at application, partially at the acceptance of the commitment and partially at closing. Also known as commitment fee and facility fee.
CDFIs finance nonprofits and community businesses that spark job growth and retention in underserved markets across the nation.
The excess of expenses over revenue during an accounting period. Deficits can be measured before or after depreciation and non-operating activities. See surplus.
Revenue or income received by an organization in exchange for its products or services, e.g., tuition or performance-based government contracts. See contributed revenue/income.
Letter of Intent
A non-binding proposal from a lender indicating under what terms it would consider lending a certain sum of money to a specific borrower. See commitment.
Can also include the unused amount from lines of credit that are available to the borrower.
While program-related investments (PRIs) are treated similarly to grants for tax purposes, an MRI is fundamentally a financial investment rather than a grant.
Net Fixed Assets, or Net Property & Equipment
Net worth of property and equipment after accumulated depreciation. See property & equipment.
Debt to support the organization’s main business or program activities, and day-to-day operations (e.g. line of credit).
The person designated as the official representative of the owner in connection with a project, especially in monitoring construction progress on-site. See project manager.
PRIs include loans, loan guarantees, linked deposits, and equity investments in nonprofits or social enterprises. PRIs come in many shapes and sizes, depending on what mission and financial goals the foundation is aiming to achieve. The return on investment is typically low, and capital is often recycled among charitable investments. For example, a foundation may create a low- or 0%-interest loan pool from which a group of their grantees borrow on an ongoing basis. PRIs are one set of investment options in a growing and evolving number of financial vehicles that seek to blend social and financial return. While the number of organizations making PRIs is still small, interest continues to rise in the US as institutions recognize the need for more creative approaches to achieving social outcomes.
The individual assigned or hired to manage and coordinate all aspects of the project. See construction manager and owner’s representative.
Property & Equipment (P&E)
The net worth of the physical items an organization owns (e.g., property, building, equipment, improvements), which cannot easily be converted to cash. Often called fixed assets.
It is an estimate of the amounts of earned and contributed revenue with a track record of recurrence. In the case of contributed support, reliable revenue typically requires a fully built development capacity with a history of bringing in institutional and individual support year after year.
The excess of revenue over expenses during an accounting period. Surpluses can be measured before or after depreciation and non-operating activities. See deficit
Months of Unrestricted Net Assets -
Unrestricted Liquid = (PPE* - PPE Debt)
Net Assets (Total Expenses / 12)
*PPE: Property, Plan & Equipment