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Charities Face Major Challenges in Finding Funds for Capital Projects

(May 15, 2006) A new survey has found that while numerous charities have significant investment capital needs, including technology, program development and strategic planning, they face substantial challenges in accessing that capital.

The latest in a series of surveys by the Johns Hopkins Nonprofit Listening Post Project, Investment Capital: The New Challenge for American Nonprofits, used a sample of U.S. nonprofits from five major areas: children and family services, community and economic development, elderly housing and services, museums and theaters. The organizations were asked what categories of capital needs they had and how successful they had been in obtaining that capital.

Overall, 98 percent of respondents indicated at least one capital need during the past three years. In particular, 91 percent of charities cited technology needs, but only 37 percent indicated they were successful in raising the capital they needed. Program development (80 percent indicated a need, but only 25 percent raised the appropriate capital) and acquisition and renovation of buildings/land needs (77 percent reported a need; 39 percent obtained the capital) saw equally difficult challenges.

The easiest area to generate capital was in vehicles and equipment, where 52 percent of respondents said they had a need, and 42 percent raised the necessary capital.

The survey notes that, in general, success levels were significantly higher for the "hard" capital needs, such as buildings and vehicles, than the “soft" capital needs related to strategic planning, staff development and program development.

Another key factor of success was the type of charity. For example, elderly housing and services organizations tended to be especially successful, while children and family services were not. Larger organizations were more successful in obtaining capital for property acquisition and program development, while smaller organizations saw better success raising capital for equipment purchase and technology.

Searching for Solutions

Seven out of 10 respondents said that limited access to investment capital is a “significant barrier” to charitable organizations. Only 40 percent feel that their nonprofit is on equal footing with for-profit organizations with regard to investment capital.

According to the survey, many nonprofits have very limited knowledge of how to go about obtaining capital funds. Many traditional types of charity supporters (commercial banks, government, foundations and individual donors) either make it difficult to access such funds or have very limited areas of interest.

While not claming to have comprehensive answer, the survey presents four ideas that may be appropriate for follow-up by the nonprofit sector:

  1. Assemble additional information about nonprofit experiences and challenges with raising capital investment funds.
  2. Launch educational efforts aimed at nonprofits and investors. Nonprofit leaders seem quite unaware of capital funds resources that are available, and investors seem equally ignorant of the capital needs of charities.
  3. Foster financial intermediaries for the sector—organizations and mechanisms that can link pools of capital funds to nonprofits that need them.
  4. Create a nonprofit investment tax credit to encourage investors to fund appropriate capital projects.

About the Survey

The Johns Hopkins Nonprofit Listening Post Project is a series of surveys of nonprofit organizations that serve as “listening posts” on a wide variety of trends and issues affecting the charitable sector. The project is a program of the Johns Hopkins Center for Civil Society Studies in Baltimore, Md.

Participating in the survey were 291 charitable organizations across the United States.

A copy of Investment Capital: The New Challenge for American Nonprofits, including an executive summary, is available on the Johns Hopkins Nonprofit Listening Post Project website.

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