THE TIME IS RIGHT FOR A NONPROFIT FEDERAL CREDIT UNION
The Problem: Banks fail to serve the nonprofit market because they do not understand the nonprofit financial model. This damages society by sharply limiting the social sector’s ability to operate efficiently. In addition, the current form of transactional and fee based banking services drains precious resources each year from nonprofits and their missions in the form of bank fees, interest and ultimately profits. A tried and true team is now seeking to significantly increase the efficiency and impact of the entire 50l(c)(3) nonprofit sector.
The Successful Model: In the late 1980s, a cooperative insurance company was created for 50l(c)(3) tax exempt nonprofits because commercial insurance companies believed a large segment of the nonprofit sector to be uninsurable. That company started with $1.3 million in subordinated loans and now is the Nonprofits’ Insurance Alliance Group, insuring 11,000 nonprofits in 30 states. It has generated earned capital of $150 million and assets of $300 million and is rated A VIII by AM Best. This self sustaining model generating a 1OOx return on investment is now a primary example of efficient utilization of resources and helping mission oriented organizations stay on mission. We now want to create a similar model for another financial service-banking.
The Solution: A credit union specializing in the needs of nonprofits. This credit union will provide financial options for creditworthy nonprofits through a process that offers credit based on a deep understanding of nonprofit financial models and on true ability to repay, rather than on charitable worthiness. It offers a renewable, revolving, long-term mechanism for both deposits and loans using funds that are already held by nonprofits and individuals who support them.
The members of this proposed credit union will be 50l(c)(3) nonprofit organizations and their staff, stakeholders and volunteers. This credit union will use efficient internet based delivery models to provide deposits, payments, loan and loan payments, using industry standard, secure software and protocols.
Creditworthy nonprofits would benefit from the following services:
- Credit cards
- Lines of credit secured by contractual payments from government
- Bridge loans
- Cash flow lines
- Equipment, facility, and vehicle loans
- Start-up earned revenue ventures
Similar products, designed for consumer needs, would be available to employees, stakeholders, and volunteers.
Discussions with the National Credit Union Administration (NCUA) about the credit union to be sponsored by a recently formed association, American Nonprofits, have been very encouraging. We are pleased to report that we have received preliminary approval for our Field of Membership from NCUA. Work is already well underway on the required Field of Membership survey and business plan.
We need a modest amount of philanthropic capital estimated at $10.5 million. ($10 million as capital to support the operating and lending activities of the credit union and $500,000 for the founding and organizational costs). Once the credit union is established we expect this capital investment will have similar returns to those we have experienced on the insurance side. This investment will inure to the benefit of the nonprofit sector nationwide and create a legacy for the founding investors. For more information and opportunities for involvement:
Pamela Davis CEO and Founder
Nonprofits Insurance Alliance Group
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