Monday, March 20, 2023

Silicon Valley Bank and Nonprofits

Professor Darryl Jones does an incredible job covering the waterfront of nonprofit and tax-exempt issues on this blog. So much so that I had to go back to make sure he hadn't covered this particular issue.

See, the effect of Silicon Valley Bank's implosion and collapse on the tech industry has been well-documented. But I was curious if it would have any effect on tax-exempt and nonprofit organizations. And it turns out the answer is yes. In fact, there were potentially two consequences, one of which has been resolved, but the other which has not.

One issue for nonprofits is similar to a major issue for for-profits: nonprofits deposited money in Silicon Valley Bank, sometimes in excess of the $250,000 insured by the FDIC. That meant that any delay in accessing their accounts risked impacting nonprofits' ability to pay their employees. But a couple days after California regulators closed Silicon Valley Bank, the FDIC announced that it would pay an advanced dividend to uninsured depositors and eventually allow them to get at their full deposit. Like their for-profit counterparts, then, nonprofits that had deposit accounts with SVB would be made whole.

But nonprofits faced an additional issue, one that has not yet been resolved. Because Silicon Valley Bank not only made loans to startups, it made loans and donations to nonprofits. These loans weren't a huge part of its portfolio--as of last year it had loaned about $1 billion (or less than 2% of its outstanding loans) to nonprofits--but nonprofits were counting on money it had pledged to contribute going forward. SVB had been especially important in funding the construction of affordable housing.

At this point, SVB isn't going to be providing those loans or making those donations, and nonprofits are left to scramble to find funding to finish their projects.

Samuel D. Brunson

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