Are You Ready?

Before considering Community Bonds, you need to be confident that your enterprise will be viable and you need a clear understanding of what this investment will do for your organization. Offering a Community Bond takes a lot of hard work, and it’s only suitable for a certain subset of nonprofits. The ultimate decision isn’t based on whether your organization is large or small, or if your idea is fabulous or flawed — it depends entirely on your capacity to effectively raise, manage and repay loans.

How do you know if you are ready? Well, it’s just like any other risk in business: you will never really feel completely ready. Sometimes you just have to jump in with both feet. But before you do, make sure you…

  • Consider traditional forms of funding. Capital campaigns and grants are obvious ways to raise money that you don’t have to pay back. For certain projects, this may be the best avenue. Discuss the advantages and disadvantages of various types of funding before you consider a Community Bond.
  • Speak to banks about a loan/mortgage. Sometimes a conventional loan or mortgage is the best option. Your financial institution may be able to invest in your project if it’s clear you have the revenues to repay the loan. You may also want to consider a blended approach that balances an institutional loan with Community Bonds. Community Bonds don’t always replace conventional loans; they can supplement them too, filling the gap between the loan and your goal.  In any case, building a strong relationship with a financial institution is vitally important for a growing nonprofit. Whether you need a loan or a line of credit, a payment processed or some expert advice, it pays to strengthen your relationship with your bank. Start early and stay in touch. Don’t be afraid to ask questions and learn what’s available.
  • Can create a robust and reliable revenue stream. Remember that a Community Bond is a loan, not a donation. You’ll need both reliable and increased revenue to run your new project and repay the loan with interest. Ideally the loan will pay for a project that helps secure this increased revenue.
  • Have a supportive board of directors. More than ever, a Board becomes a critical partner to make a project like this come together. Make sure that your Board is fully aligned with the goals of the project. Trust us – you are going to need them!
  • Can create organizational capacity. Any organization interested in taking on a Community Bond project faces two capacity challenges: first, to ensure your team has the skills necessary to properly develop, launch and manage the bond offering; second, to appropriately manage the resulting organizational growth. This may mean new staff, new training, new external support or any other number of increases to your organizational capacity.
  • Have the capital funds (cash) to cover the project fees.
  • Get ready to start knocking on doors. You need charisma and confidence for a project like this. Ultimately, people are investing in the person (or team) who holds the vision just as much as the business proposition. Be ready to be charming, convincing – and busy! Sales are not easy and it will take a ton of connections and near boundless energy to keep trying and trying until you reach your goal.
  • Assemble the right team. Your capacity to create and launch a successful Community Bond is a direct function of the team that is doing the work. While the Community Bond is a straightforward investment concept, the devil, as they say, is in the details. You’ll need a knowledgeable lawyer, a financial expert who can assemble masterful projections and budget documents, as well as the usual cast of characters necessary for any substantive project: communication staff, project managers, a bookkeeper and more.
  • Have a demonstrable track record. Investors, the bank and your community will only get behind you if you have a solid track record. All the dreams in the world can’t override the need for reliability, competence and experience. Your reputation is what will spell the difference between success and failure. And you can never start too early. All nonprofits should be working to capture data and document their work so they can prove their impact. Proof is what investors are looking for if they’re going to take a chance with their investment dollars.
  • Have healthy networks to rely on. Even if all of the other elements are in place, your Community Bond offer won’t be successful if you can’t find investors. This means leveraging your reputation and translating your social capital into financial capital. If you are a start-up organization, it won’t be easy to find investors. Your best chance of success lies in a proven track record and a community of eager supporters and advocates. Again, you need to start early.