In this episode, we discuss loan requirements, tracking, and different loan repayment plans foundations have for their students.

Topics:

1. What the foundations loan requirements are.
2. How loans are tracked.
3. What loan repayments look like for the foundations.

Connect with other members of the philanthropic community at Community.foundant.com

Welcome to Connected Philanthropy and today's Coffee Talk. We discuss loan requirements loan tracking and different loan repayment plans foundations have for their students. The first voice we hear is Rosie Spranger's. Let's join the discussion So introductions.

My name is Rosie Spranger's. I am a solutions engineer for Fountain Technologies. I've been here for about two and a half years now, and I will have Laura introduce herself.

Laura Kruse, I'm a functional consultant with Foundant and I have been here a little over three years now.

Today's conversation is going to focus on loaning out to different non-profits in your area or making those loans. And if you're a fund holders can really engage in that impact, investing with you and how you're tracking it. So you can see we're going to break this down into these.

Three.

Big topic areas. So do you have a loan program with requirements attached to that loan program? Are you tracking and recording the loans? How are you doing that? What are the tools that you need in order to be able to do that? And how are you reporting on the loans both to your internal stakeholders? And your external stakeholders?

This is Megan Warwick. I'm the CFO at Central Florida Foundation in Orlando, Florida. We are actually just starting our first loan program and so we are allowing fund holders to opt in at a $100,000 grant minimum. So they would make a grant from their donor baseline, what we call a signature fund. And right now, that loan is directed only for one particular organization, and it's a nonprofit organization that has some expansion parameters, but just needs the upfront capital to make that expansion work for them.

And we're at this point, we're negotiating time commitments. So we have we have kind of an idea it's pretty low interest to about 2% interest rate and a four year repayment schedule with payments every six months. So they don't have to pay us every month. I'm not going to be a mortgage servicer. But, you know, it's something interesting that we're just starting to get into and I've played with the loan features in my sandbox, and I think that'll be very helpful once we get things finalized and nailed down.

So I'm interested to learn what others have and I'm sure just like community foundations, you know, once you've seen one loan program, you've seen one loan program, they're all going to be different and for different purposes. So know, I'd love to hear from others what they're doing and what they're thinking and what's really driving and what's causing the, you know, the foundations to start a loan program.

And Megan, did I hear you correctly? That if I, as a fund holder, opt in my my section of money goes to one organization. So it is that one to one relationship.

Essentially, yes, but only because right now this one loan is for one particular organization. So we don't have a loan pool yet. But I anticipate that we'll we'll end up in that in that seat.

I'm Susan Auchterlonie and I'm with the Comox Valley Community Foundation in British Columbia, Canada. We've just started our Impact Impact Investment program as well.

But we're doing it a bit differently. We don't have a lot of donor advised funds, so we have community funds. And so we are using community funds holistically to actually fund the investment impact investment. So a bit different so our board has established our kind of dollar amounts that they will be investing, and we've agreed to invest 5% of our assets, which is about 600 or $700,000 towards the program.

We we said our time commitments and our and paybacks schedules essentially with the people that we are investing with, the organizations that we're investing in. And thus far we've only done one relatively small $75,000 last September and they've already paid us back 40,000. So it was a fairly low risk. We knew them very well going in. We set out a repayment schedule of seven years, but they've already considerably shortened that.

So and we are using we are using the loans function within, within the community suite to actually track the loan. So yeah, it's going well.

Did you receive any pushback from the local banks concerning the Community Foundation making loans out to the community?

No, actually we were encouraged. We, the organization we invested in uses use the credit used to be the credit union to do their first hold their first mortgage. And we were actually, they actually encouraged us to participate alongside with them. They couldn't go any further, but they felt that it was a fairly low risk loan. We have a great relationship with the credit union and they were very encouraging and they actually did that due diligence on our behalf.

So a lot of the work that had we had, you know, the due diligence work that should have been done or could have been done up front was actually done by the credit union on our behalf.

So does anyone else have program requirements that they would like to share?

Megan, did you have something else to add?

Yeah, we we kind of look at it a little bit differently because we are focused on nonprofits for our loan program. And particularly with this first one, the specific nonprofit but we also run a social enterprise accelerator. So if there are organizations, whether they're organized as for profit or nonprofit, we want them to go through that accelerator first.

And actually this nonprofit that we're working on this loan program with they went through the accelerator a couple of years ago. And so we understand their business are our serial entrepreneurs who make up the advisors for the accelerator, and they really understand how this business works and how this entity works. And so they've been able to provide good input on, you know, how this organization will operate and how it will easily expand with this capital investment.

So, you know, we kind of run things through the social enterprise accelerator first, whether it's a nonprofit or for profit. And then I anticipate we'll expand the loan program to nonprofits and certainly nonprofits that come out of that accelerator.

That's great. Yeah, that makes sense.

Yeah. I love that idea. I hadn't heard about having an accelerator program before to kind of have them go through and to really get to know that organization ahead of time before giving the loan. So I love that.

All right, let's jump to how to track and record the loans. I heard a couple of people mention community SWE, and that is Foundant for anyone who might not be familiar. That is Foundant's product which is a CRM and fund accounting all for community foundation. So we do have loan functionality in communities, and it is to say this one fund is loaning to this one organization.

So not that model of being able to say all of these people are loaning to this one organization. So we're kind of in discovery mode to say what tools would make tracking easier for some of these loans, especially if it's coming from the loans are coming from multiple funds. But just how is it set up on your financials?

Are you keeping the interest receivable on your financials? Are you keeping the different if you do need to allocate interest received from the people you're making loans to, do you how do you allocate that out to the different participants in the impact investing program? So really very open ended here. And sometimes this is simpler if just the one fund is making the loan and you're just tracking that in community suite, the tools are already there.

But are there other complications that you're running into as you're trying to track this in your system in an Excel doc? What are the what are the needs what are the desires in this area?

We are all over the map. And we have such a mix of approaches.

Our we have we have heard that.

So we we really only had a couple of direct loans. They all pieced together small amounts of money from multiple funds it was such a short term that it was and there was no interest. So it just still made it work for tracking. We have one that has quarterly interest comes in and we just had to assign, you know, that just all lives within one fund just to make that easier.

Most of what we have our loan guarantees, so we're guaranteeing quite a few, I think. Well, now it's for profit and nonprofit loans in order for them to get lower interest rates. And for us that's been the super challenging thing to track because we have all of this restricted money that's sitting there technically guaranteeing these loans. And so we have notes all over the place and community suite to remind us not to grant out that money.

And then we're tracking it in Excel. I mean, so what we're trying to.

Even think about that. So that's just the nice part about having cash on hand. You're able to guarantee that?

Yeah, and we have a few that are guaranteed actually with our invested funds. So as we've been doing more of those, it's just getting trickier to track and keep track of which funds are committed already and which ones are actually available for either grants or potential future impact investing I'm hoping that eventually we will have an actual impact investing pool.

So make that tracking easier. But right now we're just pulling it from a variety of support, direct IT assets.

OK.

OK.

And donor advised funds.

I could get into a million questions with the impact investing pool as well.

Same

but I have I've spent a lot of time having these conversations and it is definitely, though you've seen one community foundation, you've seen one community foundation aspect to it all, but it just gets more and more complicated as we start to talk.

About.

Allocating and what time did they get into the loan program and so then allocate their fair share based on that time, somewhat similar to just being able to track it, but how are you reporting on the loans both internally and externally? And we have this broken down into categories to say, are you showing an impact investing loan on your fund statements?

So that is more specific to things like a donor advised fund, or if you let the agencies borrow from their agency funds and how our impact investing loans reported to your board of directors, are they expecting certain metrics? Are they monitoring that program? It sounds like there were some impact investing committees. So what are you reporting to those committees?

And then do you collect outcome information from those grantees? Are the people that you're making the loans to? So any kind of due diligence there or follow up information that you're collecting from the folks that you're grantee or that you're loaning money to? So does anyone want to touch on the report today? Their internal external both.

This is Megan again, we haven't made our loan yet, so I'm kind of eager to learn, but others actually do. I anticipate that will certainly be in discussions with the the donor advisors that put money into the loan fund, you know, certainly more frequently than than just our normal internal review I'm curious to see from a governance perspective where that reporting is going to lie.

Is that more for us the audit committee we don't have a a impact assessment committee yet, but maybe that'll come through our investment committee. And yeah, we do expect to collect outcome information from this particular borrower. The the loan is helping them expand employment opportunities for visually impaired people across the country. And so, you know, we want to know based on the loan that we were able to provide them, how much more in contracts could they earn and how many more people could they employ?

So that's great. And is there any kind of contingency on next steps based on the outcomes?

Not at this point. But again, that will you know, it will certainly still certainly be part of the conversation.

I don't know about you, Rosie, but I am hearing from some of the foundations I've been talking to in inclination to setting up like this impact investing or loan program that way as making it just part of the overall portfolio. It's not broken out separately. And so for everybody that's setting this up as just part of the portfolio, is that like the loan receivable is just part of the portfolio and the interest as included in that to where do you have that separate or from your purposes?

It's just all together. I mean, most of our questions today just came out of servicing and I talking things. We know we have questions on about these loan or impact investing loan programs. So does anyone else have something maybe you want to ask the bigger group here so you can see what else the other foundations are doing.

There's the Impact Investment Committee set the interest rate. If so, how often for an Impact Investment Committee or anyone who is really in control or the governance over these.

This is Andrea I I'm just now looking through our apps for impact investment. Like I'm pretty new at all this all these questions are really helpful and and so what I'm reading on on ours it's showing an annual average investment return of 1.5 to 3% for the impact investment portfolio and how it's been I believe this goes through the board or excuse me the investment committee to to you get approved and then sent to the board for their approval.

So is that for every individual loan you mean it gets sent to the board?

Not every single loan. No. So I don't believe this IPA. It just said it was updated in 2020. So I don't believe this is something that is like annually updated. I don't know if it's case by case or I mean if the amount changes and, and, but I know definitely has to go through the committee approval for it to be changed again.

And then in terms of recording and tracking. So I don't do a lot of that financial stuff. So I'm more of the person that does the presentations and the meeting minutes and all of that. So that's how this is all really new to me. I'm just now getting introduced to helping out with Foundant and I do see that the particular loans are listed.

I think like as our own funds. So it's definitely recognizable when it's presented to the board and to our investment committee of like the payment dates, even the interest amount balance. And, and to the last question, we, we did have a success story of our loan getting paid off in full early. And we did a exit interview to understand the impact of what worked, what didn't work so that we can definitely assess the next particular organization that we will be working with.

And so we did an exit interview, which was very helpful. And so there the company is called Palmetto Project. And basically they said they didn't have to take out any more loans because they were self sufficient after this. So it was a really success story showing that they were able to stand alone now and grow their business and add staff.

And it was just really great to see the impact that it has done and grown. So the exit interview is really helpful to understand the overall impact.

So yeah, is that something then that you publish out to like in an annual report or is it something that you then keep as like? Yeah.

It's reported in board. Yes, it's recorded in the meeting minutes and that that's in the consent agenda that does get sent to the board.

OK, that's awesome. That's a success story. Definitely.

Uh-huh

OK. So Marsha also has in chat. I don't even know what CDF Eye is. What is that? She said that they work with CDV of ISE to help set the long term interest amount.

It's a community development finance institution.

Oh, ok. OK.

Google just told me that too.

Yeah.

That's great. OK, so then that takes kind of that governance or it's more a kind of ability or someone who's naturally used to kind of setting those things without having to spin up a committee to make those determinations. That's a great idea. So it is what I'm hearing which I had not heard before, are some of these different partners throughout the community.

So getting to know which organization may be in need, having the CDF eye set the terms or maybe help with the risk, I'm guessing. So all of that is really interesting. A lot of partners throughout the communities. Does anyone else want to share some of their experiences? What about are there any things that you've tried and you decided that that was not working?

So any kind of missteps or stumbles along the way that you would like to share as learning experiences with the attendees? Sometimes this is new. It's like a trend that's popping up in community foundations, and sometimes it's so new that people are not quite sure of what's going to work and what's not going to work.

Yeah, and it looks like Terry had a good little tidbit there. Many areas don't have a codify that serves their geographic area, but a willing bank or credit union could service one.

That's helpful information.

That is, Kay Riley said. Can you put the loans in your system fund and feed the interest through the revenue share? How do most people set this up and CSuite great question.

It is.

The interest fees through revenue.

Share.

And certainly revenue share is a great tool for allocating our it's just helpful to know that the revenue share base of the calculation would be what that fund had in that account. So when we think about the loan amounts changing, this is where I get really confused about the best way to do it. When we talk about the loan balance changing and we talk about the fund balance changing, which has a piece of that loan, that's when I get very confused about the best way to track it.

So I would open that up to everyone else. Unless you have better advice to offer oh no.

I mean, it really depends to case point. If she just wanted the the operating fund, I'm not I'm not sure what you mean by system fund. C-suite doesn't really have like a default loan system fund but if you wanted like a fund, just hold the loan that could be done. Interest and fees could be run through revenue share.

But remember, revenue share is done on an asset account. So if every single fund should get a percent of that interest and it should be allocated. So if all of your funds are in one large pool and there aren't multiple pools, then yeah, you could definitely do that. Or if the interest and fees should just be allocated over your endowment pool or your high risk pool, or if you had if as long as there is a specific pool you wanted to share it over, it could be done that way.

It gets tricky if you're trying to share that interest fee across multiple pool pools in C suite, that would be multiple statement vouchers. You need to have to figure out how to split it up among some other.

Other foundations have said we allow people to jump in to this impact investing loan program at different dollar amounts. Right. So that also gets a little tricky. If Laura said, take my $1 million fund and I'll jump into impact investing at $100,000, Rosie has a fund of $100,000 and says, go in at $100,000. Like those allocations get super tricky when I don't know that revenue share can handle that.

So those are some complexities. So ideally, revenue share works for saying, I received interest income of this amount and I can spread that out to everyone who is in my endowment pool because I take a portion of my endowment pool and I use that for impact investing. Everyone gets still their pro rata share of that interest coming back but yeah, that's not always the way that foundations are setting it up.

OK, well, it seems like things have slowed in the chat.

Yes. And thank you to everyone for sharing your experiences. Thank you for letting us know what you're doing, letting us know your complex ideas. We appreciate learning. I learned more today than I've learned in a long time, but my brain feels fried after I spend enough time in this topic. We hope that you learned as much as we did.

Thank you for joining and we'll see you again at a future coffee talk.

Thank you, everyone.

And that was our discussion. New episodes of Connected Philanthropy released every other Monday, so be sure to subscribe if you want to hear more conversations like this. Join with other members of the philanthropic community, a community.foundant.com from all of us here Foundant. Thank you for listening.