Agenda 6-b - Discussion on Proposed Nonprofit Capital Funding Policy and Criteria

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3 NONPROFIT FINANCIAL CAPACITY REVIEW TARGET KEY PERFORMANCE INDICATOR FOCUS 1.QUICK RATIO Cash,investments,and AR 2x and higher The organization's financial capability to quickly liquidate assets to meet short-term financial obligations. Current Liabilities 2.DEBT RATIO Total Debt Not more than 15% The organization's available and unrestricted assets to meet its short-term and long-term debt obligations. Unrestricted Net Assets 3.EXPENSE EFFICIENCY RATIO Program Expenses Not less than 80% The organization's efficiency in fulfilling its mission through dedicated funds for program expenses. Total Expenses 4.OPERATING RESERVES RATIO Operating reserves Target range of 16%to 25% The organization's capability to fund expenses with reserves due to a lack or loss of operating revenues. Total Expenses The below chart indicates that Inter-Faith Council has the financial capacity to repay a $100,000 County loan based on the four Financial KPI measurements. For purposes of the proposed loan eligibility criteria, a nonprofit organization that meets all four of the KPIs would successfully meet the County Nonprofit Financial Capacity Review. IFC NONPROFIT FINANCIAL CAPACITY REVIEW TARGET KEY PERFORMANCE INDICATORS 1.QUICK RATIO Cash,investments,and AR 2x times and higher 7.9 Current Liabilities 2.DEBT RATIO Total Debt Not more than 15% 7% Unrestricted Net Assets 3.EXPENSE EFFICIENCY RATIO Program Expenses Not less than 80% 81% Total Expenses 4.OPERATING RESERVES RATIO Operating reserves Target range of 16%to 25% 30% Total Expenses Source:June 30,2017 Inter-Faith Council Audited Financial Statements FINANCIAL IMPACT: The proposed Inter-Faith Council loan of $100,000 would be funded from the Social Justice Fund. The Social Justice Fund balance is currently $328,199. If the Board approves a proposed policy and criteria for subsequent loans, then the Community Loan Fund is the staff recommended funding source and would be funded up to $500,000. SOCIAL JUSTICE IMPACT: The following Orange County Social Justice Goal is applicable to this agenda item: • GOAL: ENSURE ECONOMIC SELF-SUFFICIENCY The creation and preservation of infrastructure, policies, programs and funding necessary for residents to provide shelter, food, clothing and medical care for themselves and their dependents. RECOMMENDATION(S): The Manager recommends that the Board discuss a proposed policy and criteria for providing loans to nonprofits for capital projects and provide direction to staff.