Annual Letter 2019

The Human Side of Finance

When you’re sitting in an office, it’s easy to forget that loans aren’t just about money. Rev. Rubén Austria of Community Connections for Youth in the Bronx recently gave me a stark reminder.  

“We had unimaginable delays in reimbursement from government funders,” Rev. Rubén explained. “Our loan from NFF means I can talk with you about working together to end the incarceration of young people, instead of lying in bed with the sheets pulled over my eyes, ashamed to face my staff because I cannot pay them on time.”   

His words helped crystalize what NFF means to me: the human and emotional impact of financing and financial advice. Our clients come to us because financial issues are standing in the way of their community’s aspirations. These financial struggles are frequently caused by external, systemic forces and can be extremely demoralizing. This is especially true for leaders who come from and serve historically marginalized communities, where money is often a source of personal, institutional, and community trauma. But we know that nonprofits can succeed only if they face their financial challenges. Our job at NFF is to work with clients from a place of empathy and understanding and demonstrate how finance can be a source of power for their communities. NFF’s loan gave Rev. Rubén back some of the dignity and courage clients so often lose in our flawed funding system.

What did that mean in 2019? 

We ended the year with 100 active loans to 79 organizations and 21 active New Markets Tax Credit projects, all totaling over $338 million. In 2019 alone, we made $36.5 million in new loans to 16 organizations and $30 million in new NMTC allocations to three organizations.These funds allowed our borrowers to expand programs, reduce financing costs, and, like Rev. Rubén's CCFY, focus on serving their missionWe were particularly motivated by the opportunity to help respond to the homelessness crisis in Los Angeles. With support from three foundation partners, we created a new loan product that provides nonprofit housing developers rare flexible dollars they can invest in the crucial but underfunded pre-development phase—a key way to speed the creation of affordable housing units. Putting this type of flexible funding in the hands of local nonprofits exemplifies our core belief that social sector funding and financing is most effective when we trust investees to determine themselves how best to respond to opportunities and needs.  

Our consulting team worked closely with 136 nonprofits and 42 foundations and reached 2,816 nonprofit leaders across the country, providing advice that helped them to take control of their financial trajectory and expand their impact. This work is often focused on honest assessments of an organization’s financial needs and helping them communicate those needs to funders. Our Full Cost initiative in California brought nonprofit leaders and their funders together to have frank conversations about what it really takes to generate sustained progress. There is more work to do to build the mutual trust and understanding that can improve how money flows between them—but the conversations were an important start. We also launched the ARCH initiative, where we are supporting three networks of human services providers to negotiate fair partnerships with health insurers and hospital systems.  

Our financial performance ran into the realities of the business we’re in. Some of the major funding relationships that sustain our consulting work are taking longer to finalize than we had anticipated. The bankruptcy of a borrower in Los Angeles required us to absorb an unanticipated multi-million-dollar loan loss expense. As a result, for the first time in recent memory, we ran an operating deficit of $2.4 million on revenue of $17.2 million. We are well-positioned to cover this one-time loss, having raised our unrestricted net assets by $16.5 million over the last five years to more than $25 million.  

We recognize that occasional loan losses are an inevitable price when providing loan capital to mission-driven organizations grappling with a flawed funding system. We constantly assess our lending policies and procedures to keep balance between risk and impact. And we know that securing funding for consulting work that takes us in bold new directions takes time. We continue to benefit from the confidence that donors and investors have in us, including the US Treasury Department’s CDFI Fund who awarded us $899,000 in grant support and $55 million in New Markets Tax Credit allocation; the Department of Education who awarded us along with our partner, BlueHub Capital, $12 million in credit enhancement support; our bank partners who lent us an additional $30.75 million to enable us to expand our lending; and the 49 foundations and government agencies who funded our work. 

We’re also strengthening our focus on equity. Inspired by our clients’ aspirations and demands, and our own conviction about how we need to change, we are committing to applying a racial equity lens to all of our work. In 2019, we hosted a series of conversations with leaders of community-based organizations, many led by and serving people of color, and discussed how to remove structural barriers that limit their access to resources; we shared our learnings about equity, including why color-blind analysis doesn’t work in funding and financing practices. With support from the Kellogg Foundation, and in partnership with Capital Impact Partners, we began an initiative to explicitly consider how the community finance movement could better reconnect to its roots in the Civil Rights movement. This commitment to equity was a major component of our all-staff retreat, which we held this year in Memphis, Tennessee. We met NFF clients, such as Freedom Prep Academy and Collage Dance Collective, who we know through our work with the International Association of Blacks in Dance; visited the National Civil Rights Museum; and learned from diversity and inclusion leader Trabian Shorters about the imperative of asset framing—identifying people by their aspirations and talents, not, for instance, as “poor.”   

We brought on board nine new team members, ending the year with 81 colleagues. We also expanded the board’s range of expertise with the election of seven new members, who, together with long-serving board members, are pushing us to deepen our understanding of the communities NFF serves and the particular contribution we can make.  


What is in store for 2020?  

We are excited to strengthen our focus on a key guiding principle: Communities are best placed to address their own challenges, identify and reach their aspirations, and should control the resources and decisions to do so. We will increasingly focus on serving community-centered leaders; work with aligned funders to shift control of resources to the grassroots; create more space for us to listen to our nonprofit clients and for them to tell their stories; and live our value of Equity in Action in who we hire, how we work together, and how we serve our clients.  

We are also returning to a path of generating surpluses and anticipate recouping our 2019 losses over the next two years. Our borrowers are generally financially healthy and we have been increasingly successful in finalizing partnerships to fund our consulting work.  

Steered by our values, led by our tireless team and board members, fueled by our lenders and donors, we will do what we do best with our hearts and our heads, so that amazing community leaders like Rev. Rubén can focus on doing what they do best—build a just and vibrant society for all.