Is organizational debt ever 'necessary?"

"We don't have any debt-- what we have is a mortgage."

I am sitting at a finance meeting for a non-profit board on which I serve, listening to a kind, well meaning, and utterly convinced man explain that having a mortgage is not debt in any negative sense.  A stifled response welling up in my gut, all I could think as I listened to him go on was, "That is the silliest thing I have ever heard!"

But this blatant confrontation between the fiscal views popular on this board on which I serve, and my own financial practices, have made me do some thinking.  Should my stance on personal debt impact my stance on organizational debt?

I've been thinking about this a lot lately.

What do I mean by organizational debt?  Simply put, I define it as debt that is held in common by a non-profit, a company, or a government.  The latter have additional complexities that require a longer discussion, so I'll just stick with debt held by non-profits for today.

My work as member of both a non-profit board and my church's finance board have placed me in a position of responsibility to ensure that I make decisions that uphold the fiduciary interests of each organization.  Both organizations are actively looking to expand and build new buildings- one would cost less than $100,000 and the other could easily exceed $500,000*.  Given that popular opinion views debt as almost always a 'must' for capital investments like buildings, I have been forced to seriously consider how my personal views on debt should impact my responsibility to each of these organizations.

After some careful thought, I have concluded that even in these situations, my personal views should carry over to my role as a board member. Here are three reasons why.

1) My private views should be my public views and vice versa.  There should only be one version of 'me.'  Otherwise, I am a hypocrite.  I don't like politicians who say one thing in public and then do the opposite at home.  'Nuf said.

2) The reasons why I don't have any personal debt should also apply to these organizations and others.  Without debt and interest payments, the non-profit and the church have greater flexibility to pursue their mission.  Dave Ramsey cites one fact that the American church is $33 billion in debt.  $33 billion!  If any of you are churchgoers, how tired do you get of hearing about mortgage payments and wish that money would instead be used to help your local community and others around the world? 

3) Working with what you have ensures diligence and proper stewardship.  Others might hold different opinions and see 'leverage' through borrowing money as good stewardship and faster growth towards goals.  However, borrowing money places anyone, including non-profits, at risk.  Given that non-profits and churches typically have restrictions on how to generate revenues, taking on debt is even riskier and a miscalculation in expected grant money or church offerings could be disastrous.  Planning and saving for capital expenditures is not only less risky (is there even any risk?), it is also a good model for church-members to follow and possibly people that the non-profit serves (if that is part of its mission).

What do you think?  Is debt EVER okay for a non-profit or a church?
Is there any risk to not taking on debt?




*This might seem like pocket change to some folks out there, but for the communities that I am working with this is a lot of money.

Image: renjith krishnan / FreeDigitalPhotos.net