The Equity Builder Loan Program

Over the course of decades of working with nonprofits, particularly arts- and community-based organizations, we’ve seen an unfortunate pattern emerge. With the regularity of waves, many nonprofits move in and out of cycles of fiscal instability. The factors are familiar and well-known: drops in earned revenue for various reasons, often out of leaders’ control; shifts in the priorities of donors; turmoil in staffing and leadership; and restrictions placed on funds.

We see these cycles of financial crisis, and we take what steps we can to respond to them. But we also know our tactics are reactive, and at times it feels as though we’re plugging one hole in anticipation of another opening.

In 2015, Propel Nonprofits began a program designed to address the cycle of crisis by incentivizing cash savings and the possibilities for stability that we believe spring from fiscal reserves. The Equity Builder loan program was a three-year collaborative partnership, which enjoyed the participation of 21 nonprofit arts organizations in Minnesota, with the ultimate goal of contributing to their autonomy and service to their communities.

This experiment was intended to be targeted toward finding solutions for long-term problems. Along the way, the unexpected calamity of the Covid-19 pandemic also brought into stark focus the immediacy of unpredictable and unprecedented challenges for nonprofits. We find evidence that savings, practices, and tools make a difference in the face of short-term shocks as well as long-range stability.

Along with fiscal health, Equity Builder sought to strengthen fiscal management and leadership practices for the participating nonprofits, as well as increase their capacity for adaptation and risk. Along with opportunity for stabilizing internal structures, financial strength also enables the vigor of these organizations as community anchors.

Ultimately, the word equity has two vital meanings, both important and, in this case, intrinsically connected to one another. Fiscal health in the form of equity and cash reserves is crucial to culturally explicit arts nonprofits. And, social equity is at the core of what these organizations are pursuing in this moment — which is vital to the health of all communities.

The question we ask is: can we help advance the latter by way of the former?

The Genesis of Equity Builder

The conceptual roots of Equity Builder extend back to the seminal work on capitalization done by Grantmakers in the Arts.¹ These ideas came to the fore with the 2015 report from the DeVos Institute on Arts Management, which evaluated the finances of a range of culturally specific nonprofits from around the country and compared them to their larger institutional counterparts. The BIPOC-led nonprofits in the study were found to have smaller budgets, with more precarious finances prone to cycles of crisis, and a much smaller share of revenue and income from the kind of unrestricted funds associated with individual donors.

There wasn’t much to dispute. These findings were in line with observations made for decades across the nonprofit funding community. But the report went on to make recommendations that sparked a less affirmative reaction.

The report recommended to grantmakers that they consolidate their giving and fund allocation to a smaller number of culturally explicit organizations deemed stronger and more likely to endure. This felt like advice — pick winners, basically — that we disagreed with. It meant putting a finger on the scales, promoting the fortunes of those deemed likely to survive while forcing others to find new funding models, by necessity, or disappear altogether. It also largely overlooked the intrinsic and distinct value of organizations based in their communities.

A gathering of Equity Builder Loan Program participants, of diverse sizes, programs, and geographies, discussing how to shift approaches to their financial operations. Photo courtesy of Propel Nonprofits.

It didn’t feel right. To help formulate a reply, the next year Propel asked the National Center for Arts Research (NCAR) to produce a report specifically on Minnesota’s community-based arts nonprofits. The report concluded that nonprofits serving constituencies of color tend to be younger in institutional age, and that they operate with lower revenue and budgets. Propel built on these insights in our own report incorporating NCAR’s findings.

A crucial insight emerged from this data: many of these nonprofits could be viewed holistically as part of the larger ecosystem. From this vantage, they are, in some cases, existing in an earlier stage of their life cycle than their non-BIPOC peers. And with the realities of funding disparities, BIPOC organizations are historically undercapitalized as a result of systemic funding models.

This viewpoint leads to the conclusion that it’s unfounded, as well as premature, to regard these organizations as expendable on the basis of fiscal instability. And that this disregard also fails to account for the historical and contem-porary factors of inequity and exclusion that are inseparable from their fiscal conditions — as well as their very reason for being.

Again, in this case it seems to be no accident of language that “equity” describes strength and stability, adaptability and possibility, and better fortune for our society.

How It Worked

We understood that any initiative aiming to bolster fiscal resilience for culturally explicit arts nonprofits would have to be holistic and collaborative in its programmatic basis. And these qualities don’t happen overnight.

In order to understand, and be able to share, our successes and failures, the process would have to have guidelines as well as a defined beginning and end. From this, the three-year scope of Equity Builder emerged.

The foundational structure of the program was based on flexible-use loans of $50,000 to $200,000, structured based on unique factors within each particular organization and repayable over three years. The second brick in the foundation: 20–30% of these loans was directly convertible to grants that produced cash savings in the form of long-term strategic fiscal reserves. Here, loan forgiveness contributing to long-term financial equity was directly tied to organizations developing their own culture of monthly savings.

The major funders who embarked on this adventure with us were the Kresge Foundation, Bush Foundation, Surdna Foundation, and the Patrick and Aimee Butler Family Foundation.

This was also an opportunity to deepen our reciprocal relationships with each of the 21 participants. One of the criteria for selecting potential participants was a sense that their undercapitalization was impeding their capacity to fully deliver on their missions and community leadership. Strong capitalization thus was seen as connecting the dots between fiscal stability and governance and realization of vision.

Along with cash benefits, Propel worked in a customized manner with each on fiscal management tools including training and support, guidance with budgets and planning, peer learning through cohort events, and strategies geared toward savings and fiscal stability from staff to leadership to the board level.

There was a lot of excitement from Propel staff in the planning stages onward. This was an opportunity for benefits to accrue in both directions. Along with exploring a new approach to funding and investment, we wanted to encourage a new way of thinking about the inexorable connection between fiscal and organizational stability and solidity.

The Process

The incentivized, loan-to-grant structure of Equity Builder led to organizations beginning to set aside monthly sums from the earliest months. In conversations and reviews including the use of an outside consultant, Propel learned that some leaders were connecting this growing cash reserve to building confidence in their own leadership, as well as beginning to envision the possibility of taking greater risks from a position of financial stability.

“The part of the agreement that required us to put some of our own money into the savings account seems like such a simple idea,” says Betsy Roder, executive director of the New York Mills Cultural Center, located in a small community in western Minnesota. “But we weren’t doing that in practice. It really did build the habit of saving.”

Roder also relates what several leaders describe as a “too good to be true” reaction when first hearing of the terms of Equity Builder, particularly in conversations with their boards. This was to be expected — especially with board members who operate under the assumption that nonprofits should “zero out” their finances each year (a mentality that can come from both the nonprofit as well as the private sectors, and one that needs to be met with careful explanation of the power of cash reserves and equity).

Propel also made $13,000 infrastructure grants to each of the participating Equity Builder organizations — a one-time operating gift applied equally and noncompetitively, disbursed automatically without application process or review. These funds were put to a variety of uses, including office furniture and equipment, ticketing and patron service systems, entertainment items for fundraising and development, and sound and technical equipment.

As the program moved forward, relationships between Propel and the participants, some already decades in the making, deepened even more. With the beginnings of a paradigm shift toward cash savings also came opportunities for shifting some internal practices.

“I would meet once a week with Propel,” says David Hamilton, executive director of the Minneapolis multicultural performance venue Cedar Cultural Center. “They would help me understand how our financial statements worked, and they gave advice on some processes and some challenges I was having with the structure of our board. Having that support was like a validation for me to do what I needed.”

This lattice of deepening trust and mutual learning was also enhanced through the development of peer cohorts, where some relationships developed between participating members’ leadership. Along the way, it became important to keep in mind the necessity of meeting each organization where it happened to be at that moment in time, because change inevitably occurred on a number of levels.

Adaptation and Evolution

If change is the only constant, the nonprofit world is a place to find ample evidence. Many things were not the same from the beginning of the three-plus-year Equity Builder term to its conclusion. Fifteen of the 21 participating organizations underwent major organizational events or crises during this time including: serious financial challenges, leadership changes, issues around the #MeToo movement, and impactful shifts in staffing and mission.

And in 2020, the Covid-19 pandemic impacted many arts organizations with a large-scale and unanticipated crisis that strained finances and operations exposing deep structural challenges. In some cases, the cash reserves begun three years prior with Equity Builder were there to help.

“From a cash equity point of view, the program was a lifesaver,” says Carolyn Payne, the executive director of Minneapolis’ Soo Visual Arts Center, frequent host to work by BIPOC artists. “I don’t know that we could be open today if they hadn’t included us in that opportunity.”

This meant that there had to be nimble footwork all around. At the same time, internally at Propel we started to confirm that our culture of “we’ll figure it out as we go along” wasn’t best serving our staff or the organizations we worked with.

But there were also positive takeaways. Because our relationship with each nonprofit within Equity Builder was customized, we were able to make adaptive responses to substantial changes. Because we placed a fundamental emphasis on relationships, trust built throughout the process enabled continuity in building cash reserves and taking advantage of cohort learning and other educational resources.

Cohort meetings were a venue for some BIPOC leaders to be in the same room when they otherwise wouldn’t be, an invaluable opportunity for both learning and the power of shared experience.

By the end, many participants reported a true and concrete shift in their viewpoints on fiscal stewardship. Cash saving became a regular part of the monthly plan.

And greater resilience can take many forms. SooVAC’s Payne reports applying skills she learned with Propel to serve as treasurer for a Twin Cities dance group. Roder’s Cultural Center sold one building and paid off two mortgages as part of a years-long effort at improving fiscal stability that led to even more cash savings. These examples are not to credit Propel, but to demonstrate the effects of a financial equity mindset that grows, shares, and is better positioned to serve in times of challenge.

Fiscal and management practices aimed at long-term stability counteract long histories of year-to-year, month-to-month, crisis-to-crisis survival and a perception of scarcity that can accompany it. These nonprofits have important work to do, and they need the time and solid ground under their feet to do it.

What We Learned

We consider Equity Builder a success. It was complicated, demanding, and ambitious for everyone involved. Our execution was far from perfect. We learned by doing, and it was difficult.

Equity Builder was, in a sense, 21 different, highly customized versions of the same plan. This was both a strength and a weakness. With the benefit of hindsight, if we started over, we’d begin by emphasizing at the outset a diagnostic process to understand as much as possible where each organization was in terms of these building blocks:

• Capacity for analyzing financials;
• Rigorous, accurate cash-flow projections;
• The board’s understanding of nonprofit finance and management;
• Plans and procedures for consistent cash flow;
• Leadership management and governance; and
• Effective fundraising and development.

It is vitally important to meet each nonprofit where they happen to be, and clarity of understanding makes this possible. Like everything else in Equity Builder, this kind of diagnostic process has to be collaborative. We encountered advanced levels of operations in these aspects with some organizations, while others were more basic. Within the understanding of the life cycle of the nonprofit, greater clarity makes for more in-depth conversations about where leadership wishes to place their efforts in terms of fiscal soundness and future health and stability.

We also learned that we had to be realistic. Some of the Equity Builder Participants communicated with us a lot, checked in often, and were scrupulously observant of financial goal points. Predictably, we liked that a lot. But others were less engaged, and we didn’t hear from them as much.

Some organizations reported to our evaluation consultant that Equity Builder had a deep and significant impact. We liked that very much. But others didn’t. We were able to learn from all kinds of feedback, which will inform what we do in the future.

We learned that some things on our end were less than helpful. During Equity Builder, Propel Nonprofits was formed out of the merger of two pre-existing organizations. From experience, we do not recommend launching a large and ambitious new program in the midst of an internal merger and physical moving of two staffs into one space.

We also didn’t specifically staff for Equity Builder, which in retrospect was a mistake. We simply underestimated our capacity for balancing this new workload with our pre-existing portfolios of responsibility. We had no shortage of staff enthusiasm for the program, but we weren’t properly realistic about the fact that, for many of us, it added 15 hours of work per week to already packed schedules. Related to this was a lack of internal clarity about who was “in charge” of Equity Builder, which would have been cleared up by dedicated staffing.

Our work could have been stronger in diversity, equity, and inclusion in the BIPOC-led organizations we worked with. We didn’t acknowledge the disparities these nonprofits experience when we made across-the-board infrastructure grants. And in learning by doing, we saw the ways in which a White-led organization with good intentions can perpetuate damage through language, communication, and action. While Propel’s own diversity, equity, and inclusion work has grown internally over these last three years, our challenge continues to be building equity in both senses of the word — with any steps toward success including naming, noticing, and recognizing these intentions in relationships with BIPOC leaders and staff.

Like any initiative worth repeating, the end for us feels like a beginning. Equity Builder can serve as an experienced voice in the conversation about mission-based nonprofits, in the arts and otherwise, and how they can look forward to a more solid future.

Few in the funding community need to be convinced that these organizations are important, and that they play a pivotal role in a society that is bending in an arc of equity and social justice. Their autonomy and vision benefit us all. And their thriving enables us to picture a future in which they are the established, well-funded, stable, and revered institutions that can serve as examples and exemplars for generations to come.

Quinton Skinner is an author of numerous works of fiction and non-fiction. His essays, journalistic features, and criticism have appeared in Variety, Glamour, Huffington Post, Delta Sky, American Theatre, Experience Life, Minnesota Monthly, Mpls-St. Paul Magazine, Literary Hub, Minneapolis Star Tribune, St. Paul Pioneer Press, Speakeasy, City Pages, METRO Magazine, and others. Skinner is co-founder of Logosphere Storysmiths, an agency specializing in writing for business startups, nonprofits, corporations, and individuals.

NOTES

1. Grantmakers in the Arts defines capitalization as “the accumulation of the resources an organization needs to fulfill its mission over time,” specifically with regard to financial health. In response to the observation that it has been the norm for the nonprofit arts sector to be poorly capitalized, an issue which disproportionately affects ALAANA organizations, GIA embarked on the National Capitalization Project (NCP) in 2010. To learn more about the Grantmakers in the Arts’ Conversations on Capitalization and Community workshops, visit https://www.giarts.org/arts-funding/capitalization.
2. Learn more about the Equity Builder Loan Program at https://www.propelnonprofits.org/equity-builder-loan-program/ and follow us on Twitter at @PropelNP/#EquityBuilder.