LEVERAGE
Redefined
The word leverage, has become an unsavory Wall Street word that nonprofits avoid using because most people in finance associate the word with taking on a pile of debt to expand a limited amount of core capital. Merriam Webster defines leverage as “the use of credit to enhance one’s speculative capacity”.
NONPROFIT FINANCE
In the nonprofit world the word “donation” trumps the word “debt” every time. The concept of leverage is rarely even entertained. Mission-centric nonprofits cannot properly utilize debt to fund philanthropy and so traditional fundraisers avoid even thinking about how to leverage their enterprise. They focus, rather, on up-to-date fund raising methodology and the use of technology to expand reach to individual donors.
NONPROFIT LEVERAGE
Savvy nonprofit fundraisers, however, have redefined the concept of leverage as - using one source of funds to get a commitment from another funding source.
Nothing brings a smile to a potential funding source’s face like the phrase: “Your dollars will be matched dollar for dollar by somebody else.”
Leveraging is attractive to funding sources because:
- It shows that others believe in the project
- Addresses the issue of sustainability
- Adds stakeholders to the project
USE CAUTION WHEN LEVERAGING FUNDING SOURCES
If done correctly, using one source of funds to get a commitment from another funding source is a logical and effective way to expand the fundraising power of a small nonprofit. However, leverage in nonprofits must be applied with care.
- Before assuring Funder B that Funder A will match their funds, be sure you have a signed letter of commitment.
- Be sure, also, that all leveraged commitments are hard cash commitments. No cash funder wants to discover that he was the only one who contributed hard currency.
- All leveraged funds, whether in cash or in kind, must be documented; volunteers must sign in and out; goods and supplies must be valued at fair market rates; space must be donated at a per square foot rate.
DON’T LEAVE HOME WITHOUT IT
When properly applied, leverage can become an elixir of the gods to a small nonprofit. Every time fundraisers receive a firm commitment from an important funding source the news must be broadcast across the entire nonprofit landscape. Never miss a chance to brag about the company you are keeping. You will be amazed at the algebraic effect the news will have on your funding.
