Chicago Historian Shermann "Dilla" Thomas and his tour bus, purchased with financing from IFF.

Nine Ways Nonprofits Can Invest in Growth in an Uncertain Economic Environment February 22, 2024

Last October, interest rates reached their highest point in more than 20 years, putting pressure on borrowers by increasing the cost of debt capital. And while rates have declined slightly in the months since then, uncertainty remains about when – or if – the cost of borrowing will return to the historic lows of the past two decades. Layer onto that war in the Middle East and Ukraine, continued speculation about the possibility of a recession, and the upcoming elections, and the result is even greater uncertainty about the economic outlook in the year ahead.  

In such an environment, preserving liquidity should be a higher priority to ensure that organizations have the financial flexibility needed to navigate the unknown. This doesn’t mean, however, that investing in growth is no longer possible. For nonprofits with a goal to substantially renovate their space, acquire a new facility, or otherwise invest in the organization’s growth, a multimillion-dollar project budget may not be practical in the immediate future, but smaller capital expenditures that enhance the organization’s capacity and/or deepen its impact can still be worthwhile and cost-effective investments. That’s especially true when those expenditures support eco-friendly facility upgrades, which can result in long-term cost savings.  

And, by leveraging financing to spread the cost over time, nonprofits can complete these types of projects while still retaining cash on hand for other needs that arise. This may sound counterintuitive at a time when interest rates remain elevated, but the difference between two loans with different rates can be minimal when smaller amounts of money are borrowed. For example, for a fully amortized, $50,000 loan with a three-year term, the difference in monthly payments between a five percent interest rate and a seven percent interest rate is $45 per month. In most cases, the benefits of not waiting to invest in the organization’s growth likely will be worth this negligible additional cost. 

With that in mind, we’ve compiled nine capital expenditures that nonprofits might consider in the year ahead to invest in growth – many of which can also support more comprehensive sustainability strategies – that won’t break the bank amid a challenging and uncertain economic environment.  

Deferred maintenance

If the economic outlook is going to delay a large-scale facility project, it may be beneficial to complete smaller repairs to an existing facility to ensure that they don’t become larger, more costly issues. Tuckpointing, roof repairs, and electrical work are just a few examples of the types of routine maintenance that often require attention if left unaddressed for too long.  

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Read more about how to manage deferred maintenance in this article from our “Ask a Real Estate Expert” series.

Completing this work also offers opportunities to increase the energy efficiency of the facility, which can meaningfully reduce utility bills. If a roof replacement or installation is needed, for example, improving the insulation by adding a few inches of foam board is a small cost in terms of the overall project and can significantly save on both heating and cooling costs.  

The same is true if windows or doors need to be repaired or replaced. Poorly insulated windows and doors increase the amount of energy lost via building emissions, which is both damaging to the environment and an organization’s bottom line when utility bills are due. There are several basic steps nonprofits can take to improve building insulation to curb energy loss, including installing weather stripping on windows and gasketing and sweeps on doors to help create a better seal to reduce energy consumption. Updating windows to increase energy efficiency is also a good opportunity to increase the volume of natural light in the facility, which has programmatic benefits.  

HVAC repair/replacement

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IFF recently closed a loan that provided Fonseca Theatre Company in Indianapolis with the capital needed to repair its HVAC system to facilitate program expansion. Learn more about the loan here.

Nonprofits can often achieve cost savings while increasing the sustainability of their facilities by repairing inefficient HVAC systems or replacing outdated HVAC systems. This is particularly true when gas/oil-fired systems are replaced with electric heat pump systems.

Bathrooms

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IFF recently closed a loan that facilitated HUGE Improv Theater’s renovation of a new facility in Minneapolis. One component of the project was to upgrade the facility’s bathrooms to make them ADA-accessible.

While not a flashy renovation, improving and/or increasing the capacity of bathrooms is a relatively simple upgrade that will positively impact anyone who spends time in the facility. Additionally, renovating bathrooms is an ideal time to reduce water usage in the building by installing low-flow plumbing fixtures (e.g., toilets, faucets) that reduce waste. Low-flow fixtures are designed to produce water pressure similar or equal to older fixtures, but with drastically less water used. This can add up to meaningful cost savings over time while contributing to a more sustainable future.  

Lobby/waiting area

The lobby/waiting area is a space that almost anyone who enters the facility will need to pass through, and it’s where first impressions of the organization are likely to take hold. A fresh coat of paint, lighting improvements, and other small upgrades can have an outsized impact on the experience of clients and visitors alike.  

Workspaces and program spaces

If staff are cramped or working in suboptimal workspaces, this year could be an ideal opportunity to address those challenges. Adding windows to increase natural light, converting unused space into workspaces to make working conditions more comfortable, or otherwise completing modifications that improve staff morale shouldn’t require significant investment in most cases. The same is true for the spaces that support program delivery. If there’s one room where the majority of programming takes places, completing cosmetic updates or reconfiguring the space to improve operational efficiency can serve as a step toward a larger overhaul of the facility at a later date 

Appliances

Installing energy efficient appliances is an easy way for nonprofits to reduce their monthly operating costs and help the environment. Energy Star-certified appliances like washing and drying machines, refrigerators, and water heaters – among other examples – reduce greenhouse gas emissions, water usage, and dependency on unsustainable fossil fuels. 

Staff space

Updating workspaces to be more functionable and comfortable is one way to boost staff morale, and completing minor renovations to spaces like staff lounges and kitchenettes is another way to meaningfully improve the day-to-day experience of those working in the facility and perhaps even increase retention.  

Vehicles

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IFF recently provided Male Mogul Initiative with financing to purchase a van that will be used to expand the nonprofit’s social enterprise. 

If the organization relies on transportation to operate its programs (e.g., a home delivery program for a food pantry), purchasing a vehicle instead of renting one or relying on volunteers is an option worth exploring to ensure that the organization can consistently provide the services that depend on a reliable form of transportation.  

Work equipment

Purchasing new computers, desks, chairs, copy machines, and other office equipment is a relatively inexpensive way to boost staff morale and can improve operational efficiency. When combined with updates to the workspace itself, small improvements can have an outsized positive impact.