Allison Clark, Associate Director, Impact Investments, and Sandra Aponte, Program Officer, Chicago Commitment, discuss how two of our programs collaborated to better support arts organizations’ financial resiliency.
Grants, along with ticket sales, gallery admissions, and other revenue streams, are essential for nonprofit arts and cultural organizations to stage plays, choreograph dance performances, and teach classes—all of which help make our communities thriving, vibrant places to live.
But what happens when organizations need to spend money on staffing, costumes, and utilities before some of this revenue comes in? Like any business or commercial enterprise, nonprofit arts and culture organizations need working capital, which is cash on hand to pay expenses in advance of customers paying for their work.
While businesses can apply for loans from banks and other lenders to help manage cash flow challenges, nonprofits often cannot because they lack hard assets to pledge as collateral or do not have the financial expertise to present their case to a lender. This is why, 17 years ago, we created the Arts and Culture Loan Fund (ACLF), a loan program specifically for our Chicago-based Culture, Equity, and the Arts grantees, as well as for organizations that receive funding from MacArthur and the Field Foundation through A Road Together.
The ACLF grew out of a report commissioned in 2008 which highlighted our arts and culture grantees’ need for working capital. Organizations had tried to apply for small working capital lines of credit, but they were stymied by the lack of assets to pledge as collateral and lenders’ reluctance to make loans under $100,000.
The intractability of this capital gap sparked an innovative collaboration between two of our programs: Impact Investments and Chicago Commitment, the latter of which makes our arts and culture grants. This partnership combined grantmaking, technical assistance, and a Program-Related Investment guarantee for lines of credit issued by a local bank. By using multiple philanthropic tools, we were able to support the Foundation’s arts and culture grantees in a novel way.
We strive to meet the needs of arts and culture grantees in our hometown by investing in their long-term stability and resiliency.
The ACLF is one of the longest cross-program collaborations at MacArthur, and it is an example of how we strive to meet the needs of arts and culture grantees in our hometown by investing in their long-term stability and resiliency, so they can advance their artistic practice and mission.
Artists blow glass at Firebird Community Arts. The Chicago Commitment grantee empowers and connects people through the healing practice of glassblowing and ceramics.
What began as a five-year pilot program with one lender and a technical assistance provider has evolved into a multi-lender effort under the management of IFF. Today, loans are provided by IFF and Fifth Third Bank, supported by a 95 percent guarantee from MacArthur. Technical assistance services–including small group trainings and individual consulting–are provided by an accounting and business advisory firm, BDO. In 17 years, the ACLF has provided loans to over 40 arts and culture organizations and technical assistance to many more.
With nearly 17 years of loans under our belt, we are pleased to share a new evaluation of the fund from SNP Strategies. It found that:
- Small- to medium-sized arts and culture organizations are under intense financial and operational pressure.
- The ACLF serves as a pressure release for participating organizations, opening up access to both flexible capital and training to support longer term financial planning.
- The ACLF is a model for supporting financial resiliency in the arts and culture sector.
- The program’s 17-year history provides a powerful demonstration that these working capital loans are not inherently at a greater risk of default than other commercial loans.
This report builds upon an evaluation of the initial five-year pilot period that showed a strong positive reaction from grantee borrowers, which encouraged us to expand the program’s lending capacity and add new program offerings.
An exhibition at the Chicago Artists Coalition (CAC) gallery space. The CAC promotes entrepreneurship for artists through programs including its two year-long residency initiatives that produce exhibitions.
The evaluation we are releasing today covers 2016 through 2022, allowing us to reflect on certain one-time shifts in the program designed to help organizations that were struggling to weather the challenges of the COVID-19 pandemic. Based upon feedback from borrowers on the benefit of COVID-related adjustments, we made many of these temporary changes permanent, including adjusting criteria to protect borrowers’ access to lines of credit, regardless of grantee status, and extending the maximum loan term from one to two years.
These shifts are emblematic of the ACLF’s goals: to find ways to connect arts and culture organizations with otherwise unavailable capital and to help borrowers make this capital work better for their organizations through continued innovation.
“Having had the experience of successfully accessing a loan and developing credit history is really huge and important.”
One leader of a participating organization said, “Having had the experience of successfully accessing a loan and developing credit history is really huge and important.” Others noted that it allowed their organization to take artistic risk, pursue new opportunities, and experience greater economic security.
After 17 years of leveraging the power of impact investing to help meet the needs of Chicago arts and culture organizations, this evaluation provides evidence for the ACLF as a compelling model. We hope it allows more impact investors to create or invest in similar loan funds that help nonprofit organizations achieve a new level of strength and resiliency even amidst uncertainty, recognizing—as we have come to learn—that the ACLF can help arts and cultural organizations continue to flourish, fuel our imaginations, and reflect our communities.
