CHICAGO -- Delena Wilkerson had reached her limit.

Fresh out of capital, the director of the Nonprofit Financial Center was being forced to turn down loan requests from the foundations and charities her group was meant to serve.

Banks, her most likely source of funding, were reluctant to lend to a financial agency that caters exclusively to nonprofits. That's because nonprofits depend on government subsidies, which often can't be pledged as loan collateral.

But Ms. Wilkerson found a solution that is being adopted by many community groups. She worked with eight banks instead of one.

The Happy Solution

The Nonprofit Financial Center ended up with a $500,000 loan pool, which put it back in business while simultaneously limiting the risk of each bank.

Lending consortiums are a fairly common part of the affordable housing landscape these days, but Ms. Wilkerson says the idea has never been applied to organizations like hers.

The Nonprofit Financial Center brokers low-interest bridge loans and lines of credit to groups that provide child care, arts support, and social services in the Chicago area. Many of the groups use the Center's loans to pay bills while waiting for Uncle Sam's checks to arrive.

That's precisely what bothered many of the banks, who were nervous about "check in the mail" repayments.

"The questions we had were: |Are we going to make money"," said Peggy Hoberg, a vice president at Harris Trust & Savings Bank. "How are credit decisions made? Who is responsible? What are the underwriting criteria and what role should the banks play?"

Ms. Wilkerson tried to address such concerns with persuasion and practicality. "Just because you're doing good works it doesn't mean you are irresponsible," she says. "And being a nonprofit doesn't mean you're unprofitable."

She backed up her words by giving each bank in the pool a seat on the Center's oversight board. All loans greater than $30,000 must be approved by the board. It also can intervene on loan requests that exceed 10% of the Center's total capital.

The board is "dotted with bankers," said Kenneth J. Rudnick, executive vice president at NBD Chicago Bank, another participants in the pool.

The Nonprofit Financial Center, founded 11 years ago, also presented the bankers with an enviable credit record.

Default Rate

"Our underwriting criteria are as strict as the banks'," Ms. Wilkerson said. "The difference is that we understand nonprofit organizations."

Her proof: The center's historical 1.8% default rate is lower than that of many banks.

And bankers are satisfied. "The pool gave us the opportunity to serve a sector of the market's lower end that we often found difficult to access," said Ms. Hoberg of Harris Trust.

The bank consortium's loans are placed in a two-year revolving fund. At the end of the term, each bank can either renew its investment or leave the pool. In return, the banks do not set a floor on the interest rate they receive on advances.

In addition to Harris and NBD, participants are: American National Bank and Trust Co., Chicago-Tokyo Bank, Cole Taylor Bank, First Commercial Bank, Michigan Avenue National Bank, and the Northern Trust Co.

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