Cash-Flow Loan Programs growing across the nation.

Four years before the September 11 attacks, the Robert Wood Johnson Foundation of Princeton, N.J., funded research into the importance of cash flow to nonprofit or communitybased organizations.

Results of the study by James Management Associates of Nashville, Tenn., showed that the impact of cash-flow crises ranged from mild to fatal. Those most seriously affected by poor cash-flow management tended to be new or smaller organizations, or those operating in a changing environment. To call the current environment "changing" would be an understatement for most nonprofits.

Fortunately, resources are available in the form of short-term loans, often from community foundations. In Denver, for example, the Denver Community Foundation makes loans from $1,000 to $20,000 for up to six months at 2 percent interest.

The Northern California Grantmakers Emergency Loan Fund also makes six-month loans to any nonprofit human services agency in the San Francisco Bay Area. The fund defines emergency as a situation when an agency's service delivery is jeopardized due to cash-flow problems created by the contracting or payment schedules of a funding sources. The fund will not cover outright deficits or fundraising shortfalls.

The granddaddy of the cash-flow funds was created in 1976 by the Fund for the City of New York. The Cash Flow Loan Program (CFLP) provides New York City's small and midsized nonprofit organizations with no-interest, short-term loans to tide them over until contract payments are processed. The CFLP makes more than $20 million in loans to more than 500 organizations annually. With its low service charge and quick processing time, the CFLP continues to be the best, and sometimes only, source of bridge financing for New York City nonprofits. After the events of September 11, the fund set up special loans for struggling organizations.

The amount of debt an organization takes on should be determined by the ability to service it over the period of borrowing. A six-month loan, for example, should not require special fundraisers. It should fit in with revenue projections. If that time period puts too much pressure on cash flow, consider lengthening the terms with the idea that the economy is likely to improve, making payments easier, but raising the cost of finance.

Banks also are primary sources of short-term lending, and building a relationship with a friendly banker who understands your industry is always a good idea. "In the past 10 years here, the banks have really become educated about the nonprofit sector and are lending to nonprofits in a much more reasonable way," said Jan Masaoka, executive director of CompassPoint Nonprofit Services in San Francisco. "These organizations may not be making big profits, but there's still a pattern of income that the banks have to accept."

Loans and lines of credit can come from board members or even staff members.

Other strategies that CompassPoint suggests include:

* Speeding up the collection of receivables (money owed to you);

* Moving up the fundraising event or campaign you are planning;

* Financing the purchase of equipment by leasing it or paying for it over time;

* Liquidating investments;

* Delaying payments to vendors.

When you must delay payments to vendors, it is often advisable to explain the situation to them carefully, and let them know when they will be paid and the amount of each payment.