As the economy continues its slow recovery, nonprofits and donors are more frequently trying to understand the role of financial reserves—a tool that may have been an option in the past but is now a must-have for organizations that hope to maintain stability in turbulent times.

In particular, people want to know how reserves compare with endowments, because both are ways for nonprofits to help secure the organization’s future.

Reserves are a lot more flexible than endowments—and often more appealing. The money and the interest from a reserve are governed by a nonprofit’s board and can be used for many purposes.

Endowments tend to last a longer time than reserves but are much more restricted. Typically, nonprofits can spend only the interest generated by investing the money in an endowment, and donors can place many restrictions on how the money may be used….

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A special type of organization, known as a community development financial institution, offers credit and financial services to organizations and neighborhoods that have trouble getting aid from traditional banks.

Traditionally, only a small universe of foundations and wealthy investors supported those institutions.

But that is changing.

For the first time, foundations and individuals are finding that in addition to a social return, these institutions are also providing a notable financial return. As a result, they are attracting new interest from unexpected places.

Historically, foundations have supported community development financial institutions through program-related investments. Such investments are typically loans or loan guarantees that foundations make to organizations that carry out programs connected to their missions — thereby preserving capital for their…

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I recently bumped into Debbie Reck, founder and executive director of Writers’ Express, a youth writing program.

Her organization has had real success with its curriculum and has seen increasing demand for its programs from other markets in recent years.

Debbie and I have spoken a few times over the past year about the quality of the group’s programs and how it has been trying to find the right funding partnerships to help it expand.

It had relied on a couple of committed funders and some supportive board members. But it had never connected with significant “equity investors” that could provide the capital necessary to help grow and support its infrastructure. As a result, it hadn’t yet been able to scale up—to replicate its work on a larger scale.

When I had last talked to Debbie at the end of 2009, she told me that she felt caught between funders who were asking her to adjust the…

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