Why Universities Should Borrow to Raise More Money

Why Universities Should Borrow to Raise More Money

Fundraising - Why Universities Should Borrow to Raise More Money - Loan Approved

Fundraising - Why Universities Should Borrow to Raise More Money - Loan ApprovedDr Daniel McDiarmid, Principal Consultant at AskRIGHT, evaluates the opportunity for universities to borrow money to increase their fundraising.

Education Minister Simon Birmingham spoke positively of philanthropy at the Business-Higher Education Roundtable awards last week. Word is that the Department is looking at ways to encourage universities to make a greater effort in fundraising. One can see the Bradley Review ideas of a matching gifts fund or support to build the fundraising staff numbers of universities being dusted off.

No government money is required, just logic, and a desire to make money.

Universities raise money at about 30 cents in the dollar cost (UK figures, Australian figures are not known, established fundraising operations have a lower cost than this). It means every dollar spent on fundraising returns an average net return of 200%. I suggest this is a higher rate of return than international students, commercialisation of intellectual property or other investments that universities are happy to make.

As Campaigns at the Universities of Sydney and Melbourne are showing, philanthropy is elastic. It increases in direct proportion with the fundraising effort. The Thomas Report in the United Kingdom also supported this conclusion.

With interest rates of 5% or a bit more, and a return on investment 200%, the logic seems clear. Borrow money to pay for the fundraising.

So why don’t our universities borrow money to raise funds?

One or more of these reasons apply:

  • The institution doesn’t want debt on the balance sheet
  • The leadership doesn’t like fundraising
  • There is a shortage of good fundraisers

Is it really worth foregoing millions of dollars a year because the University is squeamish about showing a loan on the balance sheet? Or because a Vice-Chancellor or Dean might feel personally rejected if a donor says “no”? It seems a high price to pay.

It is true that there is a great shortage of good fundraisers, but training and international recruitment can overcome this.

Follow the worked example:

Fundraising - Why Universities Should Borrow to Raise More Money

 

  • Borrow $1million per year for ten years to employ four major gift officers, a bequest officer, one administrative assistant and the associated expenses.
  • In ten years: the major gift officer will produce an average $1million per year over the period. On average, bequests will be realised within the last three years of this period, raising $2million over these three years.
  • The total borrowings over the period are $10million. The fundraising raised $42million. This is an average net return of 320% per year.

 

It’s not magic, but it will work, and it doesn’t need a government subsidy.

 

Social investing and impact investments are currently raising much interest. Perhaps philanthropists, foundations, private investors, or banks will be able to see these loans as a way of “doing good while doing well.”

 

AskRIGHT fundraising consultants can help you with your fundraising strategy. If you are looking at the option of borrowing money to increase your fundraising activity, contact us now for advice.

 

Dr Daniel McDiarmid

Dr Daniel McDiarmid

Principal Consultant at AskRIGHT
Daniel is a highly experienced and innovative fundraising professional with more than 30 years of success raising funds for higher education, research, religious and other organisations in Australia and New Zealand.

To find out how Daniel can help your organisation, contact d.mcdiarmid@AskRIGHT.com.
Dr Daniel McDiarmid

 

Main image courtesy of Stuart Miles at FreeDigitalPhotos.net