The nonprofit sector represents a huge business opportunity for community banks, not only in terms of the financial benefits of making loans, but how working with nonprofits can help the banks meet their Community Reinvestment Act (CRA) objectives.
But working with nonprofit organizations isn’t the same as working with other business customers. We spoke with two community banks on the three steps to mutual success in nonprofit banking.
1. Building Relationships with Nonprofit Organizations Organically
One community bank with a strong commitment to working with nonprofits is $53 billion-asset Frost Bank in San Antonio, Texas. It uses its deep community roots to forge and maintain relationships with these organizations.
“Frost [Bank] and its relationship managers who work with nonprofits are involved in the community and meeting nonprofit leaders as a part of that involvement,” says Mallory Ahl, executive vice president of public finance at Frost Bank. “As bankers get to know the nonprofits, they can discuss helping them with lending solutions and daily banking efficiencies.”
Ahl says relationship managers also attend nonprofit trade association events to meet more people and explain their roles as nonprofit bankers. For example, Frost Bank was the main sponsor of the San Antonio Nonprofit Council and its recent Bexar County judge candidate forum, and its bankers were able to speak with current customers and prospects before the forum started.
While some community banks start their relationships with nonprofits to make loans, others, like $1.98 billion-asset Beneficial State Bank in Oakland, California, begin working with nonprofits in other ways. Many of the bank’s employees are actively involved with local nonprofits; they volunteer to help with fundraising and events, and some serve on nonprofit boards and committees.
“These volunteer efforts are not about selling our services but about supporting our communities and building genuine relationships with organizations tackling some of the most challenging and underserved areas of need,” says Cynthia Weaver, vice president and relationship manager for Beneficial State Bank. “In addition, the bank has membership in a number of associations that support nonprofits and offer educational opportunities for the constituents of our nonprofit clients.”
These activities and word-of-mouth referrals provide Beneficial State Bank with organic opportunities to expand its presence with nonprofits and other mission-oriented organizations.
2. Market Loan Services for Nonprofit Organizations
After connecting with a nonprofit, Frost Bank and Beneficial State Bank explore the products and services that could help the nonprofit achieve its aims. When working with a nonprofit on a potential loan, for example, relationship managers at Frost Bank work with their customers so that the bank and the customers understand the following:
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What is the purpose of the loan, and what is the best structure for the loan? (Examples include seasonal borrowing needs or a capital campaign bridge loan.)
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What are the sources of funding for loan repayments? How concrete are these funds, and when will they be received? “This can help determine the repayment structure of the loan,” says Ahl.
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Does the loan amount or project make sense for the size of the organization? If it’s a term loan with monthly principal and interest payments, how will this affect the nonprofit’s cash flow?
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What is the future impact of cash flow on the organization once the project is complete?
Beneficial State Bank’s approach is centered on relationship-building. The community bank gets to know a nonprofit organization, understands its needs and provides education about how the bank can support it.
The community bank offers loan services to nonprofits in areas including term loans, lines of credit, commercial mortgages, affordable housing and nonprofit builder loans.
“Sometimes, we’ll communicate with a nonprofit for months or even years before the organization chooses to become an actual client, or maybe they never choose to do so,” says Weaver. “But, if we can offer meaningful connections and resources, the decision to work with our bank often becomes a natural fit for the nonprofit.”
3. Maintain Long-Term Relationship Banking Connections
Getting to know nonprofits and their needs and then providing them with any loans they may need are just the first two steps of working with nonprofits. The third is to maintain, and continue to build, relationships with them. Frost Bank, for instance, continues to work with nonprofits (and all its customers, for that matter) long after the loan has been paid off.
“When the loan is being repaid, the banker meets with the customer regularly to understand the status of the project and the normal operations of the nonprofit,” says Ahl. She says the banker provides the nonprofit with industry information, especially potential risks affecting nonprofits, throughout the relationship. They also learn from the nonprofit about its obstacles and work with it to brainstorm how to prepare for those challenges.
Beneficial State Bank is another that embraces the practice of relationship management. These are not one-off transactions but relationships built over time to establish trust.
“For our nonprofit clients, that allows an open door to include us in discussions about their challenges, successes and future strategies,” says Weaver. “Keeping communication open, connecting them to resources that support their goals and celebrating their successes lets them know we are their allies.”