A non-profit association starts in the trend

Funding Non-Profit Organizations: Guide for Organizations

In this article:

 


Problems with the financing of non-profit organizations

“I have been playing football in a club with enthusiasm since I was a child. It's not just the sport itself, but above all the shared experience and friendship with my teammates that make club life so special for me. After the training, exhausted and satisfied, drink a beer in the cabin, chat and laugh with your comrades. Then on the weekend, full of ambition and the will to win, play the next game together. You only get that in a club! "

In the same way, I keep noticing how the infrastructure of many clubs in need of renovation is. Bad seats, no working showers and cracks in the wall of the clubhouse. So we trained on a hard court in winter for years. For every active footballer the sheer horror. The investment backlog among registered associations is all too obvious and is now estimated at more than 40 billion euros in Germany.

But what is the problem with financing non-profit association projects?

 

Registered associations are dependent on public funds

Unfortunately, clubs are involved in major projects almost always dependent on the public purse, as own financial resources are only available to a limited extent. Without funding programs, for example from the state sports association, as well as the approval and support of the city or municipality, it is usually not possible to start seriously with the implementation planning.

 

Financial institutions demand more security

Unfortunately, clubs also have increasingly bad cards at banks and it is often difficult to get hold of classic bank loans. Usually there is simply a lack of the necessary realizable collateral and equity reserves, as economic companies can usually easily show. Due to the bureaucratic challenges in exchange with public institutions as well as the increasing challenges on the capital market, the implementation of many important association projects is often delayed by several years. Often times they are discarded altogether.

Reason enough to take a closer look how association projects can be financed todayso that your club also remains future-proof.

 


Thoroughly plan the financing of non-profit organizations

In order to minimize the delays in the financing of a large club project described above, the forward-looking planner should think about the timeline of the overall planning. Complex projects such as the construction of a new artificial turf field, tennis court or the renovation of a clubhouse require a almost professional project management.

 

3-step process in time

Before addressing the financing issues, of course, a thorough structural planning, including a cost estimate, must be carried out. The project can only be implemented once the financing has been secured. In addition, a political component must be taken into account. At the beginning of a project idea, of course, the members must first be convinced, and later on, support for the project must be sought from the municipality or city council. With so much work and additional effort, volunteering can sometimes drive you to despair.

Before starting the specific financial planning for a major project, it is advisable to look at the following 3 step process to be shown and to be roughly classified in terms of time.

Figure 1: 3-step project planning process for association projects

 

Take into account all eventualities

In the practice of project planning, these three steps are of course not so clearly separable. In reality, there are overlaps in the organization, especially in steps 1 and 2:

  • Building permits must be obtained
  • Service providers change at very short notice
  • or the members want structural changes in the middle of the financing planning.

The list of unforeseen events could be continued almost indefinitely. This demands a lot of flexibility and work from the project planner.

Once you have familiarized yourself with the timing of such planning and the total costs of the project are no longer a complete black box, you can start planning the financing.

Figure 2: Crowdfunding keywords

 


The classic financing mix for non-profit association projects

Clubs are not designed to save large sums of money over several years. They act primarily on a non-profit basis and not like commercial companies. In the case of large financing projects, several sources of money are therefore usually necessary before the project can be realized. The classic financing mix for an association project is therefore typically relatively complex. A Mixture of equity, subsidies and debt is the rule.

 

Financing through equity

In addition to equity that has already been saved, there are of course additional revenues Donations and sponsorship an important role. As attractive as these sources of finance may be for the association, they are limited in amount for most associations and it usually takes several months or even years to raise significant sums with equity alone.

In contrast, there are enormous ones Efforts and extra work for the volunteersIn order, for example, to coordinate large sponsorship or donation campaigns on a long-term basis and to maintain enthusiasm for the project in the association.

Of course, the association can also increase its equity base through a Increase in the membership fee, or a one-time contribution improve. However, this must conform to the statutes of the registered association. Not every statute offers a corresponding authorization basis and thus the prerequisite for a contribution. In addition, experienced board members should know how sensitively members react to additional charges of this kind. Even small increases in membership fees can quickly lead to members leaving and a negative mood in the club.

Conclusion on financing through equity

  • Opportunities & sources of finance: Donations, sponsoring, increased membership fees, one-time contributions.
  • Problems: A lot of extra effort and a lot of work for volunteers, or restrictions due to association statutes.

 

Financing through grants

In addition to existing equity, clubs have access to numerous Funding from public organizations. Cities and municipalities as well as sports associations support clubs in many construction projects. The amount of money funded not only varies depending on the building project, there are also considerable regional differences between federal states, cities and state sports associations.

Also the The type of funding is quite different. Some state sports federations promote a certain quota of the total financing with a grant, other promotions are limited to cheap promotional loans.

Become common Funding spread over several years paid out. This money then has to be pre-financed so that a building association is able to pay due invoices for the construction work during the implementation.

Conclusion on financing through subsidies:

  • Opportunities & sources of finance: Numerous grants and grants from public organizations.
  • Problems: No uniform sums of money, regional regulations and forms of funding. In addition, pre-financing is usually necessary.

 

Financing through borrowed capital

Especially with large projects, clubs often cannot avoid outside financing. However, in the last few years Bank loans for registered associations are becoming more and more difficult to obtain become. The club properties owned are rarely accepted as collateral for a bank loan. If the city or municipality does not step in as guarantor, a loan for the association can be very expensive or even completely refused.

In addition, small to medium-sized loans are often not at all economical for banks. A bank does not really earn money by granting a loan of less than € 100,000, but rather pays on top of it due to the cost structures. So it is often more a favor for the club than a lucrative business for the house bank. The enthusiasm of the bank advisor can be limited when the association requests it.

Conclusion on financing through debt capital:

  • Opportunities & sources of finance: Bank loan
  • Problems: Banks require a high level of security and rarely issue small to medium-sized loans (as they are not economical).

 

However, the pillars of the typical financing mix of association projects described above - consisting of equity and debt capital as well as funding - by no means solve all the challenges in the financing planning of a major project. That's why it makes sense Look out for alternative, complementary and modern optionsthat can complement and optimize the financing mix of an association.

 


2 Modern forms of financing non-profit association projects

1. Crowdfunding for small association projects

New sources of funding are a blessing for every project planner in the association. A trend that has been recognizable for a number of years is that increasing use of Crowdfunding-Platforms by clubsto implement mostly smaller projects:

  • A new set of jerseys for the youth team,
  • a new swing for the adventure playground
  • or a new volleyball net.

These are all suitable purposes for classic crowdfunding.

The principle of crowdfunding is very simple: The project starter puts the project on a crowdfunding platform as attractively and emotionally as possible, for example atBW Crowd. Donors typically receive a reward or receipt for their money.

"Projects that receive an average of € 50 per supporter are among the best."

Nina Gladen, crowd expert

The great advantage of classic crowdfunding for clubs is that, due to the donation character, it is equity for the association. In return, the incoming amounts of money from the individual donors are limited. "Projects that receive an average of € 50 per supporter are among the best," says Nina Gladen, crowd expert for the BW Crowd and Xavin platforms.

That means around really significant sums of money over traditional crowdfunding To be able to finance the project, the project starter must have a very large personal network, professional communication structures and a lot of working hours.

 

2. Crowd loan for larger association projects

But what if an association needs significantly larger financial resources?

  • For a new soccer field
  • the renovation of the tennis hall,
  • or an extension to the clubhouse?

At a Financing sum of 100,000 €, an association already needs 2,000 supporters for the campaign, who support the project with an average of € 50. This will be difficult to achieve for most registered clubs. Especially since project marketing for a large campaign can be time-consuming and expensive.

For this purpose there is now also the possibility for clubs, about the Xavin loan platform from fans and regional supporters to record. The principle is very similar to classic crowdfunding. The main difference is that donors become investors. The investors grant the association a loan for which they receive a small interest and a premium.

The result: An average investment of € 2,800 per supporter

The result: An average investment of € 2,800 per supporter in Xavin campaigns. In the above example, only 36 supporters would have to be won for the project in order to finance a sum of 100,000 €. The usual term of the loan is 5 years. This term is usually a good compromise between the ability to plan the repayment of the loan for the association and a short term preferred by the investor for investments.

Figure 3: Comparison of crowdfunding vs crowd investing

In practice Associations such as TCW Straubenhardt, MTV Stuttgart andJFV Rhein-Hunsrück have already realized considerable amounts of funding via crowd loans and have carried out extremely successful campaigns. These three funding campaigns alone raised over € 300,000, with the average collection phase for most projects only lasting 20 days. This is actually very fast compared to other crowdfunding campaigns.

But what kind of loan is that anyway?

Specifically, it is a qualified subordinated loan (attention: this paragraph does not constitute legal advice). These types of loans are typical of crowdfunding platforms and have no collateral. In return, such a loan cannot drive the association into bankruptcy. Before this, the repayment will be delayed or the loan will fail altogether. In addition, banks treat subordinated loans in a similar way to the association's equity, so that bank loans are again within feasible reach for associations with very large projects. The loan agreement is also concluded directly between the association and the investor. In the past, clubs have often used member loans to finance important purposes. However, caution should be exercised here. Associations quickly move into legally questionable areas if the wrong loan structure is chosen and the Federal Financial Supervisory Authority (BaFin) operates a deposit business that requires approval.

But why do investors even grant loans without security?

Such funding campaigns are absolute trust investments. Supporters usually find the project emotionally appealing and regionally meaningful. At the same time, the investment is also a great vote of confidence in the club's management and their skills. Usually 30-40% of investors are even non-members who are simply enthusiastic about the project.

Supporters usually find the project very emotionally appealing and meaningful.

The crowd platform is of course also on one serious financial planning interested and also checks the plausibility of the financing in advance. However, there can be no question of a complex, bank-like rating process.

But how can crowd loans be integrated into the financing mix of association projects in a meaningful way?

 


Crowd loan: The most flexible option for your financing mix

Crowd loans can be integrated very flexibly into the financing planning of the project in order to an optimal solution for the club to find. Crowd loans are particularly useful in the following areas:

 

Funding gaps are closed

Quite often, almost everything is already in place at the project planning stage - if only it weren't for this annoying financing gap, which cannot be covered by equity or subsidies. In this case, crowd loans can be made through the flexible interest and term structure be the right solution.

 

Equity base is improved

Loans from the club crowd can be used as a supplement to traditional bank loans. In addition, because banks treat a subordinated loan in a similar way to equity and in return offer bank financing on improved terms. If, for example, a new club center is being built, it can make sense to raise part of the financing volume from the crowd in order to obtain a larger bank loan on favorable terms.

 

Funding is pre-financed

In particular, the pre-financing of subsidies can with the help of loans from the crowd can be implemented quickly. Supporters are happy to provide particularly cheap loans if public funding has already been guaranteed or expected.

 

Other advantages of crowd loans

In addition to the flexibility and ease of implementation, crowd loans offer even more advantages. Interest payments to investors can be converted into donations when due, for example, so that the registered association can ultimately receive interest-free financing. The aspect of the positive marketing of the project in public and the placement as a modern association are extremely valuable side effects of crowd financing.

The advantages of crowd loan financing at a glance:

  • Little administrative workload for the association
  • Equity-like financing
  • Finance large sums quickly and cheaply
  • Donation conversion of interest is possible
  • Quality assurance of the financing through the platform
  • Positive project marketing in internal and external areas
  • No entry in the land register: This saves costs for notary and entry in the land register
  • Funding can be financed quickly and easily

 

Is crowdfunding a good option for your club too?

In summary, crowd loans can very versatile as part of the financing mix be used by clubs. Crowdfunding shows its great strengths where traditional crowdfunding often reaches its limits, especially in the case of large financing projects.

In addition to the obvious advantagesAs with simple and cheap financing, non-profit associations can use the crowd strategically for large projects to pre-finance subsidies or to get cheap bank loans.

By displaying the project on the platform, the financing of the project is also increased transparent and of high quality processed. The charitable project is marketed positively and professionally. You can find out exactly how a good campaign works and what to watch out for by contacting Xavin.