Widening the Circle

Most nonprofit leaders carry a mental map of money with two roads on it: money you raise (gifts, grants, the year-end appeal) and money you earn (fees, tickets, contracts, the thrift-store till). Every budget meeting runs along one of those two roads.

Here is what the map leaves out. There is a third kind of money, and the most resilient nonprofits use it on purpose: capital.

Not raised and not earned — money you borrow against a commitment you've already secured, money a funder lends instead of grants so it can be lent again, and money your own community invests in you and gets back with interest.

You may think this sort of capital should be avoided. Borrowing feels like weakness, like admitting you couldn't raise enough — and that reflex is expensive.

When a signed government contract is approved but the payment freezes (a situation thousands of nonprofits hit in 2025), the organization that arranged a line of credit keeps its staff; the one that treats debt as failure starts writing layoff notices against money it's legally owed.

The three stories here show the three forms. Lenders built for nonprofits are bridging the gap between work performed and dollars received. Funders are turning grants into recoverable loans that recycle the same dollar through one organization after another. And ordinary community members are lending their own savings to local nonprofits at a modest return.

Three instruments — borrowed, recovered, invested. One idea: capital isn't a confession that fundraising failed. Used with discipline, it's the difference between a delayed check and a layoff, and between a good idea that waits five years and one that launches this year.

A portion of what you pay for this subscription goes to Rooted, a Madison-based nonprofit growing food access and land stewardship across Dane County — the kind of patient, mission-first work the right capital, handled carefully, helps a small organization sustain when grant timing turns against it. Thank you for making it possible.

When Washington Froze the Money It Already Owed Them, These Nonprofits Borrowed Against the Contract — And Kept Their Doors Open

In early 2025, a federal funding freeze put thousands of nonprofits in an impossible bind. They held signed government contracts, they'd done the work, and the reimbursement simply stopped arriving.

Some began drafting layoff notices against money they were legally owed. Others borrowed against the contract and kept paying their people.

The lenders who make that possible are community development financial institutions, or CDFIs — mission-driven loan funds and credit unions that lend to organizations a commercial bank often won't touch.

In Colorado, the Denver Foundation and First Southwest Bank, a CDFI, launched a Nonprofit Bridge Loan Fund to advance cash to nonprofits with approved-but-stalled government grants and contracts.

It's not a one-state story: the Nonprofit Finance Fund, a CDFI that has invested more than $1.7 billion in the sector since 1980, and regional lenders like Propel Nonprofits and Wisconsin's Forward Community Investments do this every day. There's a CDFI serving nearly every part of the country — most created precisely because banks underwrite collateral and credit scores while nonprofits run on mission and cash flow.

The gap between doing the work and getting paid is one of the most dangerous numbers on a nonprofit balance sheet, and it's only grown as government and foundation payment timelines stretch.

A line of credit arranged before the crisis turns a frozen payment from an existential threat into a financing question — you can draw on a line already in place the day a payment freezes, while starting the search that week means cold underwriting exactly when your numbers look most distressed.

Here is what makes it replicable. A CDFI underwrites your mission and cash flow, not just your collateral, so a nonprofit a bank would decline can often qualify; the cheapest time to arrange capital is when you don't need it; and you don't have to find these lenders cold — the Opportunity Finance Network maintains a public CDFI locator by state and focus.

Find two or three that lend to nonprofits in your state and call one now, while you're not under pressure, so the credit exists later.

Debt is not the opposite of good stewardship. Refusing to arrange capital and then laying off staff against money you're owed is.

Sources: The Denver Foundation — Colorado Nonprofit Bridge Loan Fund; Nonprofit Finance Fund — Financing; LISC — "CDFI Lending Drives Growth and Resilience for Community-Based Organizations".

A Foundation Gave This Nonprofit the Money on One Condition: Pay It Back So We Can Give It to Someone Else

RE-volv, a national nonprofit that finances solar for other nonprofits, runs on money most organizations have never been offered. When a donor backs its work through a recoverable grant, the dollars do double duty: RE-volv builds the solar, the projects generate repayments, and the money cycles back to fund the next nonprofit's panels.

That mechanism has a name. A recoverable grant is philanthropic capital structured like a zero-interest loan: a donor — usually through a donor-advised fund or private foundation — grants the money with a shared understanding that if the nonprofit hits agreed milestones, it returns some or all of it to the donor's charitable account, to be granted again. The same dollar does charitable work two, three, or four times.

This is no longer fringe: Fidelity Charitable, Vanguard Charitable, and Morgan Stanley GIFT now run formal recoverable-grant programs, at a moment when donor-advised funds hold record charitable assets. The money is sitting there; recoverable grants get it moving faster.

Recoverable grants fit a specific, common shape of need: a project that will eventually pay for itself — an earned-revenue line, equipment that cuts a recurring bill, a pilot that unlocks reimbursement, a building that lowers your rent.

For work like that, a recoverable grant funds the launch without permanently spending a donor's gift — exactly the project a cautious donor hesitates to fund one-way.

Here is what makes it replicable. The project needs a credible repayment source — a real plan, not a guarantee; the ask goes to a donor who already gives through a donor-advised fund or private foundation, since that's the structure these run through; and you're not on the hook the way a bank loan puts you on the hook — for tax and accounting these are grants, recovery is best-efforts, and there's no legal debt if milestones slip. The burden is on you to make the plan honest, because the donor takes the downside.

Identify one project that would eventually recover its cost, write a paragraph naming what it launches and when you'd return the money, and take it to a major donor who gives through a fund or family foundation.

Some of your donors would give more if they knew they might get the money back to give again. Most have never been asked.

Sources: Fidelity Charitable — "Multiplying Support for Nonprofits With Recoverable Grants"; CapShift — "How Recoverable Grants Enable Clients to Give Today — and Tomorrow"; RE-volv — Recoverable Grant.

Their Supporters Stopped Just Donating — And Started Lending the Organization Money at Interest

When a nonprofit needs to buy a building, expand a clinic, or seed a loan pool, it usually sees two options: wait years for a capital campaign, or borrow from a bank on the bank's terms. A growing number have found a third — they ask their own community to invest.

Homewise, a New Mexico nonprofit that helps families become homeowners, has raised millions this way, offering a community investment note that lets ordinary supporters lend the organization money and earn a modest, fixed return.

A community investment note — sometimes structured as a community bond — is a debt instrument a nonprofit issues to its own supporters: an investor lends $1,000 or more, and the organization pays interest over a set term and returns the principal at the end. It sits between a donation and a bank loan.

It scales through intermediaries that handle the legal machinery. Capital Impact Partners, a national CDFI, has run a Community Investment Note offering of up to $100 million, open to anyone in most of the country who can invest as little as $1,000; Calvert Impact Capital, itself a nonprofit, has operated one for decades. People who believe in the work will lend, not only give.

A donation is spent once. An investment can be repaid and reinvested, and it converts a supporter into a stakeholder with money on the line — a deeper commitment than an annual gift.

For a tangible, income-producing asset, community capital can fill the gap between what you can raise and what a bank will lend.

Here is what makes it replicable — with real caution. This is genuine debt with real securities-law obligations, so most small nonprofits should start by investing through or partnering with an established intermediary — a CDFI or community-bond platform — rather than issuing a note themselves; it works best for a specific, income-producing project, not general operating costs; and the people most likely to invest are the supporters who already believe in you, which is exactly why the duty to repay must be taken seriously.

Issuing a community note is not a bake sale — it means legal structuring, disclosure, and a real obligation to repay people who trusted you with their savings. Start small, get securities counsel, or invest through a platform that has already built the guardrails.

The simplest entry point is the investor's seat, not the issuer's: ask whether your reserves, or a board member's, could go into an existing CDFI community note that funds nonprofits like yours. The larger move — a note for a capital project of your own — is a multi-month effort worth scoping before you need the money.

Even if you never issue one, the insight holds: your most committed supporters may have more to offer than a gift — savings they'd lend you, at a fair return, if you gave them the chance.

Sources: Nonprofit Quarterly — "National CDFI Launches $100M Community Investment Note Offering"; Calvert Impact — Community Investment Note; Homewise — Community Investment Note Prospectus.

Find Your CDFI Before You Need It

The worst time to look for a loan is the week you can't make payroll — your numbers look desperate and your options shrink. Build the relationship now, while your finances look healthy, so the credit is there if a payment freezes or a grant lands late.

Action: Go to the Opportunity Finance Network's CDFI Locator and find the two or three CDFIs that lend to nonprofits in your state. Call one and ask what it would take to qualify for a working-capital line of credit or a bridge loan against your grants and contracts — what financials they need, how they underwrite a nonprofit, how long approval takes. You're not applying under pressure; you're opening a door so it's already open the day you need it.

ROI: A pre-arranged line can be the difference between bridging a delayed government payment and laying off staff against money you're owed — a swing easily worth tens of thousands. The call costs nothing.

Time: 30 minutes to find your CDFIs. One call to open the conversation.

Turn One Self-Funding Project Into a Recoverable-Grant Ask

Most major donors think there are two things they can do with money: give it away or invest it for themselves. A recoverable grant is a third option many have never been offered — and for the right project, some would say yes.

Action: Identify one project that would eventually pay for itself — an earned-revenue program, equipment that cuts a recurring bill, a pilot that unlocks reimbursement. Write a single paragraph: what the money launches, the milestone that would let you return it, and roughly when. Take it to one major donor who gives through a donor-advised fund or family foundation, or to your community foundation, and ask whether they'd structure part of their gift as a recoverable grant.

ROI: A recoverable grant lets one donor fund a project now and still keep the money to give again — which can move a hesitant donor from a small gift to a much larger one. Framing a $25,000 ask as recoverable can unlock capital a straight donation never would.

Time: 90 minutes to choose the project and draft the ask. One conversation to float it.

Assemble the Lender Packet Every Capital Source Will Ask For

Approach a CDFI, a bank, or a foundation offering a recoverable grant, and they all open with the same request: show us your numbers. The nonprofits with the packet ready move in days; the ones assembling it from scratch lose weeks — sometimes the weeks they didn't have.

Action: Build one folder (digital is fine) with four items: your most recent audited or reviewed financial statements, your year-to-date budget-versus-actual, a one-page list of committed grants and contracts with expected payment dates, and your board roster. That's the core of what any lender asks for first. Keep it current and you can answer a financing opportunity — or a cash emergency — the same day instead of next month.

ROI: A ready packet can cut weeks off a loan or recoverable-grant approval and signals a disciplined organization, which tends to improve your terms. The cost is one afternoon gathering documents you already have.

Time: Two hours to assemble. Fifteen minutes a quarter to keep it current.

Draft a Working-Capital Loan Request a CDFI Loan Officer Will Take Seriously

Nonprofit leaders are fluent in grant proposals and lost in the language of loans. A funder wants impact and need; a lender wants use of funds, repayment source, and risk.

Most first-time borrowers bury the three things an underwriter is actually reading for, and the request stalls. This prompt drafts it in the lender's language, which you then make true to your numbers. Run it before you sit down with a CDFI, so you arrive sounding like an organization that knows how borrowing works.

Build a "Which Financing Fits This Need" Decision Matrix

A nonprofit with a funding gap usually reaches for the first instrument that comes to mind — almost always another grant — without weighing whether a loan, a recoverable grant, earned revenue, or simply waiting would serve the same need at lower cost or risk.

The wrong instrument is how organizations end up paying interest on something a grant would have covered, or chasing a grant for something they could have financed in a week. Run this when you have a specific need and want to compare your real options side by side before you commit.

Prepare for the CDFI Loan-Officer Conversation — the Questions They'll Ask and the Ones You Should

A first meeting with a lender intimidates people who run nonprofits brilliantly, because it is unfamiliar ground. You can walk in either reacting to their questions or steering the conversation — the difference is knowing what they will probe and the handful of questions that tell you whether this loan is actually a good deal.

Run this the week before the meeting, so nothing in the room is a surprise.

The Borrowing Readiness Review — A 30-Minute Board Exercise to Decide, Before a Crisis, Whether and When Your Organization Would Use Debt

What makes it worth trying: Most nonprofit boards have an unspoken policy on debt: never. No one voted on it, no one wrote it down, and it has never been tested against a real situation. Then a payment freezes, an opportunity appears with a deadline, or a building comes up for sale, and the board is forced to make a high-stakes financing decision under pressure, with no shared framework and no lender relationship in place. This exercise moves that decision out of the crisis and into a calm 30 minutes, so the board knows in advance where it stands.

It works because it replaces a reflex ("we don't borrow") with a deliberate position — what we would borrow for, what we would never borrow for, and the guardrails that would make a yes responsible.

How to run it (30 minutes):

1. Setup (before the meeting, by the treasurer or ED): Share one page with the organization's current reality — cash on hand, any existing debt, the largest gaps between when you do work and when you get paid, and whether any borrowing relationship exists today. Members arrive informed, not guessing.
2. Round 1 — name the current stance (7 minutes): Ask the board to say out loud what the organization's actual position on debt is right now. Almost always it is an unexamined "we don't do that." Name it, so the rest of the conversation is a choice rather than a default.
3. Round 2 — sort the situations (13 minutes): Put four situations on the table and decide, as a board, which would justify borrowing and which would not: bridging an approved-but-delayed government payment; funding a project that will pay for itself; covering a recurring operating shortfall; seizing a time-limited opportunity like a property or a match. The goal is a shared line between wise debt and dangerous debt.
4. Round 3 — set two guardrails and one relationship (10 minutes): Agree on two simple guardrails — for example, a ceiling on total debt service as a share of the annual budget, and a rule that any borrowing above a set amount requires full board approval. Then assign one person to open a relationship with a CDFI or lender in the next 60 days, so the option exists before it is ever needed.

In-person: A single printed page with the four situations and room to mark each "would borrow / would not," plus a flip chart to capture the two guardrails and the named relationship owner.

Virtual: A shared document with the four situations and a simple poll for each, then a visible space to record the guardrails and the assignment.

Watch out for: The board that treats the whole topic as taboo and shuts it down with "we should just raise more." That instinct is how organizations end up laying off staff against contracts they have already earned. Keep the conversation concrete and bounded — this is not a vote to take on debt today; it is a decision about the conditions under which debt would be the responsible choice. (Readers of Managing Your Nonprofit for Resilience will recognize this as naming a risk and assigning ownership before it becomes a crisis, rather than improvising a response in the middle of one.)

You'll know it worked when: The board can answer, in one sentence, what it would and would not borrow for — and someone has been assigned to build a lender relationship before the organization needs it. The deeper signal is whether a future cash crunch produces a calm financing conversation instead of a panic.

There is a pattern in the nonprofits that hold steady when a payment freezes or an opportunity arrives with a deadline. Their leaders stopped treating capital as a confession of failure, learned the three forms it takes — borrowed, recovered, invested — and built the relationships before the need was urgent. They did not raise more money than everyone else. They understood more kinds of it.

If a government payment you were owed froze tomorrow, or the perfect building came up for sale next month, do you already know who you would call — or would you be starting from scratch?

See you next week.

— Ted

P.S. Thanks again for supporting Rooted with your subscription.

Founder and CEO Risk Alternatives, LLC 202.758.7572 (cell) ​Website​ Author of ​​Managing Your Nonprofit for Resilience​​​ I help nonprofits thrive by providing practical tools and support to address uncertainty and improve resilience.

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