The Options Available to Nonprofits for Financing (When Funding Gets Tight).
The Options Available to Nonprofits for Financing (When Funding Gets Tight)
Nonprofits across Idaho are being asked to do more with less. Grants are more competitive and operating budgets are under pressure. When revenue is uncertain, many organizations delay projects or defer maintenance.
Financing can be a strategic tool. The right structure may help preserve cash and improve payment predictability, while keeping risk low and long-term obligations in view. Outcomes vary by market conditions, credit factors, and costs.
1) Start with the full capital stack (not just a bank loan)
A conventional loan is familiar, but it is rarely the only fit. Options can include:
Bank loans or lines of credit for short-term liquidity or bridge needs.
Taxable loans or bonds when a project does not qualify for tax-exempt treatment.
Philanthropic capital such as Program Related Investments (PRIs), recoverable grants, or below-market loans.
Credit support tools such as guarantees or reserves, depending on availability and terms.
The key is matching the tool to the project timeline, cash flow, and risk tolerance, not just the stated rate.
2) 501(c)(3) tax-exempt bonds (in plain English)
Nonprofits may be able to access the tax-exempt bond market through Private Activity Bonds (PABs), including 501(c)(3) bonds. Generally, these are bonds issued by a governmental or qualified conduit issuer to finance facilities used by a nonprofit for a public purpose.
For eligible nonprofits, proceeds may be used for:
acquiring, constructing, or renovating mission-related facilities
purchasing mission-related equipment
refinancing prior debt to improve terms
Because bond interest paid to investors is generally exempt from federal income tax, and may also be exempt from state income tax, tax-exempt borrowing can reduce a borrower’s overall cost of capital compared with taxable debt. The Government Finance Officers Association (GFOA) reports that, on average, tax-exempt bonds can lower borrowing costs by about 2.1 percentage points, which may translate into savings over the life of a bond.
Constraints to know up front:
For specific tax rules, consult qualified bond and tax counsel.
Eligibility and use-of-facility rules apply, and certain leases or management contracts can be limiting.
Post-issuance compliance is ongoing work over the life of the debt.
Transaction costs, including legal and issuer fees, can be meaningful and should be weighed against expected savings.
3) Access conduit issuers and approvals
In Idaho, one pathway to tax-exempt financing can involve a conduit issuer such as the Idaho Housing and Finance Association (IHFA) for certain nonprofit or public-purpose financings, subject to program rules and approvals. Many conduit financings also require public-approval steps, for example, a TEFRA hearing and approval process for certain tax-exempt bonds, so planning early is helpful.
Key takeaway, if your nonprofit has a clear public-purpose project and a credible repayment plan, conduit financing may be worth exploring alongside conventional bank options.
4) Why a municipal advisor is important
Tax-exempt financing can be powerful, but it is technical. A municipal advisor (MA), when engaged under a written agreement, can provide advice on financing strategy and process, such as:
feasibility and sizing, cash-flow capacity and stress-testing
structure comparisons, bank placement vs. public offering, fixed vs. variable, key terms
coordination with the conduit issuer and transaction team including bond counsel
selection and pricing discipline, e.g., comparison or RFP processes where appropriate
An MA is not a substitute for legal or tax counsel.
Key considerations before you move forward
Affordability under stress, what if revenue is flat, or down, for 12 to 24 months?
Flexibility, are there covenants or restrictions that could limit operations?
Total cost, interest plus fees and issuance costs, not just the stated rate.
Timeline, approvals, due diligence, and documentation can take longer than expected.
A practical call to action
If funding is tightening, the right question often is not only, Can we afford this project? but, What approach supports the mission without draining reserves or creating unmanageable risk?
Clearwater Financial's municipal advisory team helps Idaho organizations evaluate financing options, compare structures, and coordinate tax-exempt and conventional solutions.
To learn more:
Christine Stoll, M.S., MAR, Vice President, Client Experience and Growth
Registered Municipal Advisor Representative, 208.800.9689, cstoll@clearwaterfinancial.biz
Disclosure: This article is for general informational purposes only and does not constitute legal, tax, or financial advice. Financing availability and terms depend on organization-specific factors and market conditions. Past experience does not guarantee future terms. Consult qualified professionals before making decisions.
REAL LIFE EXAMPLE:
Exploring refinancing options to improve the terms on an existing facility loan.
Heritage Academy, a nonprofit educational organization led by Dr. Christine Ivie, had previously borrowed approximately $1.12 million to acquire a building used for its mission.
The original financing had a balloon payment that was approaching maturity. The organization evaluated alternatives and competitively shopped the financing. Ultimately, the loan was directly placed with a bank at a lower interest rate and with terms that better aligned with the organization’s long-term operating needs.
In some cases, banks are able to structure loans that qualify for certain federal tax incentives, which can allow them to offer lower borrowing costs to eligible nonprofits. The financing was secured by the organization’s property, and because the borrowing involved tax-exempt considerations, the transaction included a municipal advisor and bond counsel to help structure and document the financing.
*Source: Government Finance Officers Association (GFOA). Protecting Bonds to Build Infrastructure and Create Jobs: A Projected 10-Year Analysis (n.d.). Accessed March 5, 2026. https://www.gfoa.org/protecting-bonds