How well is debt managed by nonprofits?

Little is known about why nonprofits accrue debt, how much they owe, and whether the funds they borrow are used productively. This article distinguishes between productive, problematic, and deferred debt. Employing a data base representative of 114,726 tax-filing charitable nonprofits in the United States in 1986, it examines the pervasiveness of nonprofit debt and the relation between this debt and nonprofit financial health. The analysis finds that over 70 percent of the nonprofits hold debt, the distribution of this debt is highly concentrated, and the level of debt and leverage varies with asset size and type of activity. Nonprofits with higher leverage and absolute debt levels are financially healthier than those with lower levels. While the analysis does not determine whether financially stronger nonprofits are better able to borrow, the results support the view that borrowing in the nonprofit sector is economically efficient.