A Capital Campaign Horror Story – Part Two

Sections of this topic

    This is a three-part story of a small Historical Society that embarked upon a Capital Campaign at the urging of their current President and her husband, who donated $1M for a major project. The campaign was undertaken without a Planning Study; and, in their second year of fundraising only $156,000 has been raised… $100,000 of which is from one donor.

    (Again, this is a response to an email, with my comments in bold.)

    My finance committee and I thought we would continue fundraising until our goal had been reached.

    My reaction to that is that it seems that someone is not dealing with reality.

    The Executive Director (without the Treasurer or approval of the Board) applied for a Bridge Loan with a local bank – which came back as an approval for a $ 500,000 Construction Loan. Such a loan (line of credit), if drawn upon, can only be paid back with future fundraising. And, there is no room in our Operating Budget to handle the monthly payments for this.

    An ED applying for a loan without board approval is a definite NO-NO. I can’t understand how a bank could approve such a loan without the documents that would also be needed to conduct a capital campaign planning study — plans and specs !!

    If the reality is that the organization could not pay the payments on such a loan, then the board must vote to decline the bank’s offer.

    Board Members of a nonprofit have a fiduciary responsibility, and they could become liable, individually, for any debts accrued by the nonprofit. I’d strongly recommend asking the advice of an attorney with solid knowledge in nonprofit law.

    I managed to get this before our entire Board of 19 members but they voted 13-6 to go along with the loan because our President and her husband offered to cover all expenses above 1.7 M conditional on board approval of the $500,000 loan. If the board did not approve this they were taking their marbles and going home.

    At this point, I would advise the board to hand them their marbles and show them the door.

    The future of the organization is at risk. The board should not let itself be blinded by what appears to be easy money, money they don’t have to “give or get.”

    Next Week – Part Three

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