An Atlanta Community Fund Lends a Hand to Credit-Deprived Charities

Painful budget cuts aren’t the only challenge charities that rely on government contracts have had to contend with during the downturn. For many organizations, the length of time between providing services and receiving government reimbursement has increased.

To help charities weather the cash-flow crunches that result, the Community Foundation for Greater Atlanta has taken $320,000 from its endowment to create a fund to provide short-term loans to small organizations with annual budgets of $250,000 to $3-million.

The length of the loans is typically six months but can be as long as a year, depending on the schedule of the grant or contract that will be the source of repayment. Loan sizes range from $10,000 to $50,000.

Providing financing that allows charities to maintain regular operations while they wait for government money to arrive is important, but the fund also aims to help the organizations gain better access to traditional banking services, says Alicia Philipp, president of the Community Foundation for Greater Atlanta.

“The goal is not to make them dependent on this loan fund but to help them make that bridge to having healthy banking relationships,” she says.

The person hired to administer the loan fund has a banking background, and she seeks to act as a matchmaker between organizations and financial institutions. Six banks—Bank of America, BB&T, Citizens Trust Bank, State Bank & Trust, SunTrust, and Wells Fargo—have contributed $60,000 toward the operation of the fund, and information meetings are held at the banks’ offices.

Sparing Services

Without a loan from the fund, Living Room, the largest provider of housing and housing services to people with HIV/AIDS in the Atlanta area, would have had to cut programs or put staff members on furloughs.

Every two years, the nonprofit’s federal contract comes up for renewal. While the contract was renewed this past summer, payments were not expected to resume until the fall. In the past, the charity turned to its $100,000 line of credit with a national bank to make it through the cyclical gap in payments.

But two months before the delay was set to start, the bank decided not to renew the organization’s line of credit, despite Living Room’s record of on-time payments. The bank cited the organization’s 3-percent deficit in 2009 and overall tightening of the credit market.

With a $39,000 loan from the community foundation, Living Room was able to avoid making cuts in its services, and in late September the group paid off the loan early, using a new $100,000 line of credit it secured from a local bank.

The community fund loan strengthened Living Room’s hand when it applied for the new line of credit, says Dolph Ward Goldenburg, the group’s leader. “Instead of us going as an agency that did not appear to be able to secure financing, we went as an agency that was able to secure financing,” he says. “That made a tremendous difference.”