How Can Fed-Funded Nonprofits Survive the Government Shutdown?

One of the lead stories on CNN Headline News this week was captioned “Domestic violence shelters scramble to keep doors open.” According to Cindy Southworth, Executive VP of National Network to End Domestic Violence, 41,195 people seek help at these shelters every day in the U.S. There are a lot of moving parts involved in making beds available, and it takes a lot of money.

Why would the government shutdown cause a scramble for funds? Because social service nonprofit organizations that serve clients in categories such as domestic violence, mental health and persons with disabilities are the types of agencies most likely to have the federal government as their main source of funding. If this is the disbursement period for a lump-sum grant, that check will not be sent. If the nonprofit has federal grants that pay on a reimbursement basis, the reimbursements for money already spent on service delivery will not be forthcoming. What is a charity to do?

Operating Reserves

If its operating reserves have been a strategic priority and are in good shape, as is described in “An Executive Director’s Guide to Financial Leadership,” then hopefully the organization can make it through a few months if necessary. Wait a minute… what’s the old saying? “Hope is not a strategy.”

Let me change my assessment of the situation then. If an organization has not been making its reserve funds a strategic priority long enough to have a helpful cushion, then they likely now are entering panic mode about the federal distributions.

Depending on the amount of money needed, there are different avenues which nonprofit organizations can explore.

Foundations

Some community foundations have emergency funds that may be accessible if the nonprofit in question meets specific conditions. Other community foundations may have certain donors or giving circles who are willing to make a short-term loan to a nonprofit that has proof of federal dollars coming in. Let me say here that, if your nonprofit can get by without attempting to tap these resources, you should make every effort to do so. Leave these particular resources to agencies that are in dire straits for emergency funding, which could make the difference between keeping a mom safe from her abuser for one night... or not.

Emergency Bank Loans

There are banks that will work with organizations on short-term accounts receivable loans. They use the federal grant award as proof that the nonprofit has secured dollars coming in and just needs to bridge the gap in time until the federal money is released.

Nonprofit Financiers

There are also groups like the Nonprofit Finance Fund that exist to fund or loan to nonprofit organizations or social enterprises that serve low or middle-income areas. Now, don’t call the Nonprofit Finance Fund and tell them that Tracy from Phil-Com told you that they’d give you a loan against your federal grant; I don’t want them to hate me before they even know me! What you can do is research companies that operate in this space to see if there is one that will entertain your request.

Crowdfunding

This is a less traditional option, but it could be a good one for a smaller nonprofit that doesn’t need a large sum to be able to wait out the shutdown. If you go this route, it will be necessary to strike a good balance in your messaging between telling your mission story and explaining why the agency is short on the funds. Just saying, “We need money because of the government shutdown,” isn’t enough. Potential donors will still need to understand your mission and be moved to give.

No one wants the government shutdown to last. The more people who are not receiving paychecks, the more people that will end up needing assistance from the very nonprofits I’m writing about here. Large craters of need are opening up across industries—aviation, national parks, prison systems and many others. As nonprofit professionals, we cannot control the status of the shutdown, but the lion’s share of the resulting devastation will be ours to clean up. I know I said, “hope is not a strategy,” but I still hope the few ideas outlined in this article can help with the work.

Disclaimer: The author does not endorse any products or services mentioned in this article. The author is not a lawyer or a CPA, and this article should not be considered legal or financial advice.