by Kerry Olitzky
Among the challenges that many nonprofits increasingly face are budget deficits and a rising amount of debt. This is especially true for membership institutions. To strengthen their financial position, many of these institutions mount campaigns as a way of mitigating their debt load.
There are usually two reasons why institutions undertake campaigns to reduce debt: a deficit budget that is hard to balance; and/or debt service (usually in the form of a mortgage).
In both cases, debt often overwhelms the operating budget and the ability to maintain vital programs and services. Not to mention the need to develop new programs as organizations evolve. If you are considering a fundraising campaign to reduce debt, here are some things to consider:
Cons (Common negative reactions to a campaign to reduce debt)
- Potential donors want to invest in a vision for the future, not just fix the past.
- Potential donors fear the slippery slope of debt (sometimes called “kicking the can down the road”) and may be reluctant to make an investment in an institution that is used to carrying debt.
- It is difficult to transform the goal of reducing debt into a strong case for giving.
- Supporting new buildings is more attractive to donors than paying off the debts on older ones.
- Donors don’t want their funds going to the bank—to affect debt reduction. They prefer that their funds support the good work of the institution.
Pros (Common positive reactions to a campaign to reduce debt)
- Potential donors want to free leadership of the burden of debt so that they may plan for the future.
- Campaigns are an efficient way to reduce or eliminate debt and strengthen the annual budget.
- Homeowners may appreciate a “burning the mortgage” campaign.
- Some potential donors, especially those with history with the institution, may be more interested in sustaining current facilities rather than raising funds for new buildings they see as unnecessary.
- Debt service is expensive with little to show for it at the end of a year. Donors want their funds to support the institution rather than service its debt. With that in mind, they may be willing to rid the institution of its debt.
If you choose to initiate a campaign to reduce or eliminate debt, we recommend that you do so alongside an endowment or capital campaign—in order to prevent future debt from accumulating. This will also demonstrate to loyalists and newcomers alike that you are fiscally responsible with plans in place for a secure and successful future.
We can help you navigate a campaign, plan for future building and security while, at the same, time reducing your debt. If you would like to speak to someone about how we can help your organization call us at 800.361.8689.