April 15, 2007 | Read Time: 1 minute
As more charities attempt to tap into the money and expertise of hedge-fund managers by recruiting them as board members and donors, Jack Siegel, a lawyer in Chicago, cautions nonprofit groups to make sure they also hold on to their traditional values.
Writing on his blog, Charity Governance, Mr. Siegel points to a recent situation in which a hedge-fund manager advised a private school in New Hampshire to take on debt to finance a new project.
While not dismissing the idea of borrowing, Mr. Siegel says nonprofit groups need to get advice from experts who can analyze what that debt will mean in their long-term financial picture.
“Smaller charities must exercise more care,” he writes. “As all too many consumers, homeowners, and small businesses have learned that debt provides a source for easy money, but the funds to repay it can be much harder to come by.”
Before taking on a loan, board members need to consider whether the nonprofit group will have the revenues to repay the money later, what assets will be used to secure the debt, and whether that debt will put other pressures on the organization’s finances.
“The most valuable members of nonprofit boards may be those who come with conservative outlooks rather than easy money,” Mr. Siegel writes. “Boards who vote to incur debt had better have realistic assumptions about how the institution plans to repay the debt.”
(To read more about the growing involvement of hedge-fund managers in charities, see The Chronicle’s “article.” http://philanthropy.com/premium/articles/v19/i07/07000701.htm
Has your nonprofit organization taken on debt to finance a new project? If so, has the debt helped the organization grow — or has it caused additional problems? Click on the comments link just below this posting to share your thoughts.
