Creatively Financing the Arts

This essay was originally published in the Winter 2014 RSF Quarterly.

by Reed Mayfield

Can you recall a moment when a song, a painting, a dance, or a theatrical performance moved you deeply? If you can, perhaps the experience caused you to gain a new or different emotional awareness. The arts have a unique ability to transcend age, socio-economic status, geographic location, and ranges of personal experience. The arts can simultaneously facilitate an artist to produce their work and a patron to enjoy the experience, piece, or production; the arts can also create economic value. Art promotes creativity, expression, identity, innovation, and aesthetics. These things are what we typically associate with the arts. What is less understood, however, is the multidisciplinary impact the arts have on social development, learning, and the economy. These three aspects are at the heart of what RSF Social Finance focuses on through its lending activity to arts organizations, and they are the indicators of RSF’s values—the arts can serve the highest intentions of the human spirit.

Art takes many forms, and there are many types of organizations that foster the arts through their programs and services. RSF is committed to supporting arts organizations that promote creativity, spiritual awareness, and provide community to people of all backgrounds. Specifically, we fund organizations that contract directly with schools or community-based organizations; provide support systems for artists, or arts organizations; and facilitate the economic prosperity of the arts.

Non-profit arts organizations face several challenges to reaching financial sustainability. In particular, these organizations have historically relied heavily on foundation and individual giving. According to a 2012 report from The Stanford Center on Poverty and Inequality, the recent recession contributed to a 10.9 percent drop in individual giving between 2007 and 2010.  Another financial issue art organizations face is the reimbursable grant format: an organization must incur the expenses related to the programming before a grant is awarded. This form of grantmaking can cause strain on the cash flow of an organization, and make it hard to meet overhead responsibilities, let alone budget for program growth. Arts organizations also tend to have untraditional assets such as contracts, incoming grants, or pledges, which may limit access to credit for growth or operations.

With a strong history of supporting the arts and an understanding of how non-profits work, RSF is uniquely poised to address these financial challenges. In particular, RSF is able to provide critical financing for working capital, facilities renovations, construction projects, or acquisition of space—financing that arts organizations often could not receive from conventional lending institutions. RSF is able to do so by employing innovative financing structures. For example, for working capital needs, RSF is able to offer a Grants Receivable Line of Credit. This entails looking at a forward rolling year of confirmed grants and making funds available based on this total. This gives an organization access to capital when their cash flow may otherwise be strained by inconsistent funding and reimbursable grants. In other cases, some financing needs are addressed by Pledge or Guarantee Loans where the organization’s community participates by providing the assets necessary to secure a loan. This creates a strong financial relationship that involves organizational leadership, beneficiaries or customers, and donors.

As of late, RSF has reinvigorated its historical focus on the arts. Given the state of our culture, the arts and access to them are more important than ever. At RSF, we believe the social value created through the growth of the arts has deep, long-term positive impact in the world. We invite you to join the conversation and share your insights into the arts and how we can create the systems necessary to support their financial and creative sustainability.

Reed Mayfield is Senior Lending Associate at RSF Social Finance.