Eliminating Debt

Unfortunately, a growing number of non–profit organizations are finding themselves burdened financially with debt repayment. When our firm's clients are faced with the challenge of attempting to persuade major donors to make gifts to help eliminate debt we often make the following suggestions.

Balance Sheet Initiative

Focus on the fundraising theme of a Balance Sheet Initiative, asking potential major donors to aid in securing "free and clear" on the organization's balance sheet all buildings and grounds thus enabling the organization to redirect related annual principal and interest expenditures to its fundamental mission: serving people and the community.

Equivalent Endowment Gift

Illustrate for a potential major donor that a gift to the Balance Sheet Initiative is essentially equivalent to a gift to endowment; for example:

• Debt Principal and Interest: An organization currently carries external debt of $5 million toward which annual principal and interest payments total $500,000.
• Equivalent Endowment Donation: A gift of $5 million to pay in full this external debt would relieve the organization of $500,000 in annual principal and interest payments, those monies to be redirected for undesignated or donor designated purposes within the organization's annual operating budget. Such a gift represents the equivalent of a $10 million gift to Permanent Endowment which would generate at a 5% rate of return $500,000 for the organization's operating budget.
• Special Donor Recognition: A donor of an Equivalent Endowment Gift could be recognized both annually at the level of his/her/their pledge payments as well as permanently as an Endower of the organization.

How is your organization handling its debt financing?