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Going beyond grants: Alternative financing for your cash flow crunch

By Rebecca Waterhouse and Beth Coates, Canadian Alternative Investment Foundation (CAIF)

Getting the credit you deserve as a nonprofit is not easy. Nonprofits have a hard time accessing the same financial tools that for-profit businesses routinely rely on to manage and scale operations. In 2019, the need for funds to stabilize cash flow is real; fundraising is increasingly precarious, grant funding can be piecemeal, and there can be lags in collecting funds from various levels of government forcing small organizations into various unsustainable strategies to meet cash needs.

In the Canadian nonprofit and charitable sector, there is an unmet need for access to debt financing, including operating lines of credit. This is coupled with a reluctance by nonprofits, especially small ones with limited financial expertise, to look to debt and loans to solve cyclical cash shortfalls. Yet there is real value to supportive credit and to considering debt as a useful tool to drive your organization forward.

These are some common scenarios that demonstrate the need for a line of credit designed for the needs of small charities. Maybe you see your organization in one of these?

  • Payroll is withdrawn on the last Thursday of the month; however, your municipal transfer does not come in until the 1st of the following month.
  • You have received Ontario Trillium Foundation funding for a project. Funding is 50% upfront and 50% on completion. You have completed the project, submitted your reporting and received approval for final payment, but are running low on cash. 
  • You have been given notice that you are eligible for a new stream of financing from the province. However, you will need to hire new staff and demonstrate that the program is up and running before the funding will start.
  • A disproportionate amount of your funding arrives in October due to your annual gala. In the months prior, you incur upfront preparation costs and need to run day-to-day operations with shrinking cash in the bank. 

For-profit organizations are generally able to access financing to bridge these gaps that nonprofits generally cannot. For nonprofits, a lack of cash means programs may be curtailed, or management staff must access personal assets to cover shortfalls. When nonprofits look for financing, there is less likelihood of securing a conventional loan or line of credit at a reasonable interest rate. This is because they seldom have the assets, capital or collateral, required to be deemed “creditworthy”. This inaccessibility often leaves nonprofits stressed and vulnerable to mission drift, which is unfair when we consider many of these organizations provide services that are essential for healthy communities.

Dependence on episodic funding is challenging as budgets fluctuate and priorities of funders and donors shift. The silver lining of this reliance on episodic funding is that it forces managers and directors to be astute forecasters who understand their operations and funding needs. This often develops tough, bootstrapping, and resilient leaders with the capacity to effectively manage a diversity of funding sources in support of their organizational mission. 

Credit can be a useful tool for stability and growth

Used effectively, supportive financing can be an essential component of your resiliency toolkit. As a manager or director, knowing you have access to an affordable tool that bridges cash flow gaps can reduce the stress of cash timing problems. As a borrower, learning to manage credit effectively in support of your mission will develop your financial literacy and enhance your capacity to plan. 

Demonstrating investment readiness is not as hard as it looks.
The difference between grant funding and loan funding is that grantors give with the expectation that a program will operate successfully, meeting all desired outcomes and impacts. Lenders, on the other hand, need to know that the investment is in good hands and that there is a reasonable expectation of repayment. 

In making investments, lenders look for organizations that understand their operating models. 

By demonstrating a clear understanding of how your organization functions financially, you will be able to show how you will use debt more effectively to manage your operations. 

Ask yourself: How much does it cost for us to deliver our mission? What is the cost of delivering our programs? What overheads do we have? Where do cash crunches arise? 

Once you know your costs and related cash flows patterns, you will be able to show how a line of credit can help. This understanding is key as lenders need evidence that credit or debt will strengthen, not hinder your organization, as you use it to better achieve your goals. 

Other supportive debt tools are available

Lines of credit are not the only debt tool available to you to assist in operations. Cash flow crunches indicate a need for working capital and potentially a line of credit. An organization scaling up its operations and needing additional space and staff might look to a term loan. Here, mortgages can be effective when an organization is considering a real estate purchase.

How to assess creditworthiness in the absence of assets, collateral and capital

We have found that these indicators of credit worthiness have been an excellent indicator of the types of organizations that have been good investments:


  • Committed Management 
  • Strongly engaged key players 
  • Commitment to making the operation a success 

Entrepreneurial skills 

Demonstrated capacity to anticipate and adapt to changing operating environments and develop strategies to make the organization successful

Financial skills

Demonstration of accounting, data management and other financial management skills that promote effective operations. This is demonstrated through

  • Financial planning: Short and long-term financial planning structures, reporting and control procedures
  • Organizational resources: Financial management capacity to oversee operations
  • Financial operating systems that ensure effective control over the organization’s financial activities such as: 
    • A budget and budgeting system 
    • A set of accounts which are kept on a timely basis 
    • A reporting system which includes a regular review of results and comparisons to budget 
    • An annual review of results preferably by an independent auditor 
  • Financial soundness: A strong operating track record and secure economic prospects
  • Credit history: Any current debt load, your history with debt and any other lenders approached or offers received
  • Manageable loans: Current and projected operations generate enough cash flow to cover loan payments


Strong community support 

  • Strong volunteer and broad community support (i.e. financial and broader network)
  • Board of director’s skill set to effectively oversee operations
  • Recommended and supported: Endorsement from CAIF members, directors or collaborators

A Good Track Record 

  • Experience in your sector and demonstrated ability to deal with difficulties and solve problems creatively. 


Multiple sources of income: A mix of grants, donations and earned revenue

Earned revenue or social enterprise income: Established fee-for-service contracts 

Opportunities for additional revenues: Leveraging current operations to seek new revenue opportunities

Let’s be candid about risk

Our experience has shown us that stable nonprofits are a low risk investment and unlikely to default. In many cases, a well-run charity can be a less risky investment than some for profit organizations. Financing, however, is not a solution for all organizations and all situations. Through the years, we have seen a very low default rate in large part because successful organizations have demonstrated the characteristics of capacity, character, and conditions, and have proven to be sound investments.   

Moreover, these organizations have been able to leverage these loans to achieve even greater impact in their communities. 

However, as a borrower there are always risks to your organization you must consider. Borrowing cannot be treated as a quick fix; nor can a loan can solve an organization’s issue with sustainability. 

Sometimes things do not work out as planned and organizations are unable to effectively use debt to meet their goals. In these situations, the debt can weaken an organization instead of strengthening in. We recognize this potential exists and are therefore committed to working with our borrowers to get the best outcomes.

A line of credit program for registered Canadian charities 

CAIF is a charity, too, and we believe if you’re making the world better you deserve credit. Our aim is to level the financing playing field by making loans accessible to registered charities that are often unable to meet the capital or collateral requirements of conventional lenders. We understand the unique characteristics of the nonprofit sector, and its community-governed structures. 

At a time when the funding and policy landscape is changing dramatically for the sector, we want nonprofits to be empowered to use all the financial tools at their disposal so they can continue to meet their missions and build thriving communities.

About the authors

Rebecca Waterhouse is CAIF’s Impact Investment Associate. Her experience includes being a front-line worker, data analyst and consultant for nonprofits and social enterprises. Rebecca holds a Masters, Philanthropy and nonprofit Leadership from Carleton University (Ottawa, ON) and is currently pursuing her Sustainable Investment Professional Certification (Concordia, QC). 

Beth Coates (CPA, CA) is CAIF’s Financial Manager. Beth has twenty-five years’ experience as the Financial Manager of CAIF and CAIC (Canadian Alternative Investment Foundation and Cooperative), investment funds that have been providing financing to the cooperative, nonprofit and charitable sectors across Canada for over 30 years. 

The Canadian Alternative Investment Foundation (CAIF) is a registered charity established with the sole mission to offer low cost flexible financing to help other charities operate more effectively and meet their mission. Established in 2012 with $4 million in assets, CAIF builds on 35 years of experience of the Canadian Alternative Investment Cooperative, a social lending pioneer. Check out CAIF’s new guaranteed line of credit program at https://caifoundation.ca.

Also: Review our recent webinar on alternative financing for nonprofits here.


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