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New Line of Credit Guarantee Program

CFHZ’s Line of Credit Guarantee Program is Now Open through April 24, 2020!

The Community Foundation of the Holland/Zeeland Area’s (CFHZ’s) Line of Credit (LOC) Guarantee Program allows nonprofit organizations that are tax exempt under Section 501(c)(3) of the Internal Revenue Code, are serving a charitable purpose in the greater Holland/Zeeland area, and had a 2019 operating budget in excess of $500,000 to apply to have a CFHZ guaranteed line of credit established through West Michigan Community Bank.   

Guaranteed Line of credit approved limits are as follows:

  • Nonprofit organizations with a 2019 operating budget in excess of $1 million can apply for a line of credit of up to $200,000. 
  • Nonprofit organizations with a 2019 operating budget of $500,000 - $1 million can apply for a line of credit of up to $100,000.  

CFHZ’s Line of Credit Guarantee Program has a total cap of $2 million, so we anticipate being able to partner with 10-15 nonprofits through this program. Please note – as with CFHZ’s competitive grantmaking program, religious organizations that advocate specific religious doctrines through their programs, or do not serve the broader community, are not eligible.

Those nonprofit organizations accepted into this program by CFHZ will then be connected to West Michigan Community Bank (WMCB) to establish their line of credit account.  Since CFHZ is guaranteeing this line of credit, the nonprofit will not have to put forward any collateral, nor will the nonprofit go through a traditional underwriting process.  

Additional specifications of the Line of Credit through WMCB: 

  • It is a 3-year, interest only LOC meaning that the nonprofit only has to pay interest during the three-year term, but the full amount of principal and interest must be paid off by the nonprofit by the end of the third year.
  • The LOC has a floating interest rate of the current Prime rate with a floor of 4%. This means that the interest rate will be 4% unless the prime interest rate goes above 4% (it is currently at 3.25%).
  • WMCB has waived all loan origination and closing fees.
  • The nonprofit can draw on the LOC throughout the first two years, but the third year of the LOC is for repayment only.
  •  The dollars from the LOC can be used for any operational expenses, but the dollars cannot be used for capital related expenses such as facility improvement. Please check with CFHZ if you are unsure if a specific expense is considered a “capital” expense.

In addition to guaranteeing the LOC, CFHZ will provide reimbursement to the nonprofit for all interest that the nonprofit has paid on the LOC during the first 2 years, up to 4% per year.  During the third year that the LOC is open (third year is open for repayment only), CFHZ will not be reimbursing interest costs paid by the nonprofit. Here are some additional details on how the interest reimbursement will work:

  • The nonprofit will pay WMCB the monthly interest owed and then after 12 months CFHZ will reimburse the nonprofit for how much interest they have paid. The same process will happen for months 13-24. 
  • The reason for structuring this as a reimbursement model is that the actual interest paid in the year will depend on how much of the LOC the nonprofit has drawn throughout the year. 
  • The reason for a cap on CFHZ reimbursement at 4% per year is that technically, although unlikely, the prime interest rate could rise rapidly and CFHZ wants to cap how much of their resources are spent reimbursing interest on the total $2 million LOC guarantee pool.

Why CFHZ is establishing this program:

CFHZ has been listening to our partners as they describe the significant cash flow challenges being experienced so suddenly due to loss of revenue and increased demand for services during this pandemic crisis. We have heard that significant decisions need to be made quickly, and without a lot of clarity as to what the next 3-12 months are going to look like.

In response, we are launching this new program as a way to further leverage our Community’s Endowment assets to support some of our mid-to-large nonprofit partners and preserve critical community capacity in this time of extraordinary need.

Here is what we hope the program will accomplish:

  • Give our nonprofit partners quick access to capital without the need to go through the traditional underwriting process or use their own collateral for a line of credit or loan.
  • Provide flexible working capital to allow our nonprofit partners time and flexibility to function at higher capacity as they navigate loss of revenue and/or increased need.  We hope this flexibility is particularly helpful as many organizations are re-working how they deliver services, embracing new service roles they haven’t had to in the past, and need time to gain a better sense of their financial picture in the coming months.
  • Ease the burden on our nonprofit partners to access this kind of tool as the process with WMCB will be turnkey if an organization is selected for participation by CFHZ.

We understand that this is likely not going to prevent nonprofits from having to make tough choices down the road, as this isn’t grant money, but it will hopefully provide nonprofits the gift of time to make those choices and the option of choosing to spread the difficult decisions out over a multi-year period. 

We also acknowledge that by only allowing nonprofit organizations with budgets over $500,000 to apply for this program that this tool is for a limited portion of our nonprofit sector.  We recognize that many of our smaller nonprofit organizations are doing very important and critical work as well and want to be clear that this particular program is only one tool in our toolbox.  

In addition to this LOC guarantee program, we are utilizing the Emergency Human Needs Fund to deploy capital over a six-week period to organizations providing emergency basic needs services, and we will be re-working our competitive grantmaking strategy for the remainder of 2020. We anticipate our new competitive grantmaking framework and process to be announced in June when we have a better sense of how the federal stimulus funds have supported our community members in need and our nonprofit partners.

Please note – participating in this Line of Credit Guarantee program does not preclude an organization from receiving a grant from CFHZ. This is an entirely different process and tool.

 

CFHZ Selection Criteria and Process:

Applications will be reviewed by a joint taskforce of CFHZ Distribution Committee and Program Related Investment (PRI) Committee members with support from CFHZ staff.  The review committee will be choosing organizations based on the following priorities:

  • Organizations that have been significantly impacted by loss of revenue and/or increase in service need that has caused a short-term financial need.
  • Organizations that have a strong financial track record coming into this crisis.
  • Organizations that are providing key services to our community that would be difficult to replace if the specific organization lost capacity in the near or long term.
  • Organizations with demonstrated high impact from their core programs/services. 
  • Organizations demonstrating their ability to innovate / adapt / make hard choices during these uncertain times
  • Organizations with strong overall organizational capacity 

Nonprofit Application Process:

Step 1: Submit your CFHZ line of credit guarantee program application via the following link by April 24, 2020:  

You can use this PDF as a worksheet to view all questions in preparation for submitting the application form online. 

The PDF worksheet shows you the “word count” limits for each question, but you do not need to use all the words, and lists are fine. In addition to the PDF worksheet that shows the “open ended” questions in the application, you will also be asked to submit attachments as follows:

  1. Please provide a list of key programs you offer, information about the number of people served, priority populations you target, and any general measurable outcomes from these programs.  We encourage you to pull this information from other grant applications or existing organizational materials.  There is no need to create something new specifically for this application.
  2. Please attach Audited Financial Statements from your most recent fiscal year available
  3. Annual organization budget for current fiscal year (prior to COVID-19 crisis)

LOC GUARANTEE PROGRAM APPLICATION

 

Step 2:  CFHZ will reach out to the contact listed for your organization as close to May 4 as possible with our final decision as to whether your nonprofit has been accepted into the program.  We may reach out to you ahead of this date if additional information is needed alongside your application.

Step 3: If your nonprofit is approved to be included in this program, CFHZ will provide your organization it’s Line of Credit dollar approval limit, and will connect you to West Michigan Community Bank in order to establish your line of credit account via a separate application (which will NOT involve collateral or underwriting).

Step 4: At that point, any ongoing communication and reporting requirements will be between the nonprofit organization and their assigned contact at West Michigan Community Bank, with CFHZ being involved only in reimbursing interest every 12 months for the first two years.

 

Unlike our competitive grant program, you do not need to contact CFHZ prior to completing this Line of Credit Guarantee application.  However, if you do have additional questions about the program or application, please contact Mike Goorhouse at mgoorhouse@cfhz.org or 616-994-8855.



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85 East 8th Street, Suite 110, Holland, MI 49423   (616) 396-6590   Email us