Nonprofit community-based development organizations work in low-income communities and communities of color to implement development projects, such as affordable housing and community facilities, and provide programs and activities that meet community needs. They need financial resiliency and sustainability to ensure they can continue to serve their missions in their communities.
This study examines the financial health of the CBDO sector to assess vulnerabilities and risk. Despite overall sector financial growth and health, we find signs of distress, including income struggles, funding disruptions, cash shortages, highly leveraged assets, and insolvency for certain groups of CBDOs.
- The CBDO sector has grown steadily in revenues and assets over time. This holds true despite the Great Recession of 2007–09, which may have slightly increased the number of CBDO closures but did not reduce the financial growth of the CBDO sector overall.
- However, there are signs of financial stress. These include shrinking operating margins and declining net incomes over time, on average, coupled with one out of every three CBDOs experiencing a shortage of months of cash on hand and 16 percent reporting insolvency in 2018 (that is, their total liabilities exceeded their total assets).
- A small number of large organizations hold most of the sector’s resources. These large CBDOs are less likely than small organizations to experience financial disruptions, such as large drops in revenues or expenses in a single year. They also have higher assets but hold higher levels of debt and have less months of cash on hand, on average.
- Small CBDOs are in a more precarious financial position than large ones. Small CBDOs earn a larger share of their income than large organizations, which rely more on donations. They also have more months of cash on hand and less debt. But they also own fewer assets than large CBDOs and are more likely than larger organizations to experience negative net income, financial disruptions, and insolvency.
- Few regional financial differences exist, but they generally reflect the distribution of CBDOs across the country by size. Organizations in the West are larger and more financially robust, while CBDOs in the South are more plentiful, generally smaller, and have higher levels of cash but fewer leveraged assets. The number of CBDOs per population living below the federal poverty level is also lowest in the South.
- Real estate holdings are a key differentiator in CBDO financial health. CBDOs that hold a larger share of their assets in land, buildings, and equipment experience fewer sudden financial shocks relative to other CBDOs their own size, likely because of steady revenues and expenses. However, they face higher leverage (i.e. liabilities greater than 50 percent of their total assets), lower liquidity, and higher rates of insolvency.
- Vulnerabilities within the CBDO sector point to the need for increased supports to sustain and grow the sector’s financial health. Expanding financial resources and technical assistance can help at-risk CBDOs, but additional research is needed to expand recommendations.
Funders and technical assistance providers should ensure their existing supports for CBDOs are targeted to address risks and vulnerabilities. More research would also help clarify and strengthen recommendations and give more nuanced insights to policymakers, regional and local stakeholders, and others who support the important work of the nonprofit CBDO sector in meeting the needs of underinvested communities across the country.