The Soapbox and Toolbox for New York State's Nonprofits

April 11, 2017

Can a nonprofit use their endowment as collateral?

NYCON's fiscal and legal staff chime in to answer a frequently asked question we get from our members.


Q: Can a nonprofit use their endowment as collateral?

A: "I vote no if it’s either temporarily or permanently restricted. If collateral, that means in default the lender could seize the assets. I don’t think restricted endowment is “available for use” on anything other than the restricted purpose, likewise, the temporarily restricted has a timing or use restriction." --Kelly Mathews, COO, Sr. VP, Financial Management Group, NYCON

A: "Kelly is correct. Assuming the endowment is a truly restricted fund (not a fund with self-imposed restrictions established by the board), a nonprofit can’t unilaterally authorize the use of the endowed funds as collateral for a loan.  Any attempt at using the fund as collateral would be considered an “invasion” that requires judicial approval.  The only time the courts would authorize such an invasion would be if it was “impracticable or impossible” for the nonprofit to comply with the restrictions on the fund.  And, if those circumstances existed, the nonprofit would be better served by simply trying to liquidate the fund for capital, rather than attempting to borrow against it." -- Michael West, Esq., Senior Attorney, NYCON


Need more?

Current 2017 nonprofit members can contact Kelly at kmathews@nycon.org or mwest@nycon.org. Not a NYCON member? Please contact our membership office today!

 

Share This Article

NYCON develops and promotes an effective and vibrant charitable nonprofit community throughout New York State.  We strengthen organizational capacity, act as an advocate and unifying voice, help to inform philanthropic giving, and conduct research and planning to demonstrate relevance and impact.