For the first time in fifty-five years, the Ontario government is revising the legislation governing non-profits through Bill 65. This has provided an excellent opportunity for the non-profit sector to ensure that the changes occurring in society and in this sector were fully reflected in the new bill.

The Ontario Non-Profit Network (ONN) was part of a coalition from the sector working closely with the government to ensure that the new legislation met the sector’s needs. There was much to like about the new legislation, however, there were several key provisions missing in the new act.

One such provision would provide the sector with the ability to be able to raise capital by issuing community bonds with regulatory oversight identical to what cooperatives have under their act. ONN organized supporters of this provision to make presentations to the Standing Committee on Social Policy, which is responsible for this legislation.

What follows below is the presentation made by Beth Coates to the committee in support of the community bond provision. This provision is a key element in strengthening nonprofits through financial tools.

For additional information on financing nonprofits and social enterprise, please see Tonya Surman’s blog entry, 5 Recommendations to Strengthen Social Enterprise/Finance in Ontario.

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Submission to the Standing Committee on Social Policy
Bill 65, Not-for-Profit Corporations Act, 2010

My name is Beth Coates and I am would like to speak on the proposed community bond amendments as outlined in section 3.3 of the ONN brief on Bill 65. I am a chartered accountant and the Financial Manager of the Canadian Alternative Investment Cooperative; a position I have held for the past 17 years.

• We are a federally incorporated cooperative whose members are all registered charities, primarily religious communities, which was formed because there was recognition of the need for financing in the non-profit sector. We believe that our organization is unique in Canada.
• The cooperative was formed 26 years ago to allow members to pool resources and develop a lending/investing process with.
  • Standard operating procedures;
  • Tools to evaluate risk; and
  • Systems for managing investments.
• We have assets of over $7M. We lend across the country however over 70% of our lending has been here in Ontario.
• Over this period we have had remarkable successes – lending out over $16m with a default rate of less than 2%.
• What have we invested primarily in 1st and 2nd mortgages for:
  • Food banks
  • Shelters
  • Cooperative, affordable and transitional housing projects
• We have provided other loans to non-profits and cooperatives for:
  • Leasehold improvements
  • Cash flow requirements and working-capital loans
  • Community loan funds

What have we learned?

• Firstly, there is a need for financing in the non-profit sector. One of CAIC’s first criteria for lending is that financing cannot be obtained from conventional sources. It is not uncommon for applicants to tell us that banks insisted on personal guarantees from board members or that bad publicity generated by calling a charity’s loan made financing impossible.
• Secondly, access to capital can strengthen the sector by allowing it to build long term assets. These assets in turn will allow non-profits to become more self sustaining and enable growth. I’ll give two examples:
  • A non-profit purchases a building and make mortgage payments. When the mortgage is paid off there will be lower occupancy costs freeing up resources for operations; and
  • Equity from assets can also be leveraged (collateral for loans or guarantees) to access financing to expand programs thereby achieving long-term objectives.
• Thirdly, investing in this sector has proven to be low risk due to a number of factors.
  • Many non profits have access to multiple sources of funding including:
    • Fees for providing social services;
    • Donations;
    • Fundraising; and
    • Government grants;
  • Committed stable leadership; and
  • Consistent financial results.

What do we believe?

• This sector could benefit from additional access to capital. Currently there are three primary sources of capital funding, all of which have their limitations:
  • Capital campaigns – which can prove difficult as donors often want their resources used for programming not “bricks and mortar”;
  • Conventional financing – which, as discussed earlier, is often difficult to secure due to the non-profit nature of the organization; and
  • Government grants – which also can be difficult to obtain since the mandate of the program funding does not usually include capital requirements.
• Some form of regulated market mechanism needs to be put in place to:
  • Provide non profits with a standard framework to seek investors; and
  • Give potential investors a standard tool in order to assess risk related to investing.
• Community Bonds as described in the ONN brief could be exactly the right tool to achieve this: 
  • It provides a new source of financing for the sector;
  • It would allow large institutional investors such as pension funds but more importantly small investors (individuals) to make regulated investments in this sector; and
  • It would reduce the costs of obtaining capital by providing a standard process for soliciting financing i.e. offering statements which would have standard formats, information requirements etc.

This would result in better resource allocation – as prospective investors would be able make more informed decisions thereby ensuring that there is an efficient use of and maximum benefit from these scarce financial resources.

Although this sector is “non-profit” that does not mean that it is “non-results”. I encourage the committee to consider the community bond amendments as proposed so that we can give this sector the tools it needs to access financing to build and strengthen it with even greater social dividends for all Ontarians.

I appreciate the opportunity to speak and thank the committee members for their time. I would be delighted to answer any questions.

Beth Coates CA
Financial Manager
Canadian Alternative Investment Cooperative

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