Building a solid credit history is vital for nonprofit organizations. A nonprofit line of credit helps prove financial responsibility—and boost credit scores. By strategizing and diversifying your nonprofit’s debt obligations (and staying on top of payments), you can build a good credit history in no time.
Summary
Why Building a Credit History is Important for Your Nonprofit
The top three funding resources for nonprofits include fundraising, grants, and loans designed for nonprofits, such as a nonprofit line of credit. To keep its 501(c)(3) tax exemption status, a nonprofit organization must receive at least one-third of its revenue from public support and therefore use fundraising to support specific projects related to its mission. Grants are also awarded to fund particular projects, typically those directly related
to community improvement.
However, fundraising and grants aren’t always sufficient to cover an organization’s operating expenses, especially when cash flow dives. Borrowing money is an excellent way to establish business credit for your nonprofit organization, as long as you make on-time, regular payments and keep your balances low. This shows lenders that your organization has a responsible financial history worthy of lending more money to when needed.
Nonprofits are typically considered high-lending risks to local or commercial banks because of their lack of steady revenue, unlike a for-profit business with products and services to sell. Also, nonprofits do not have personal assets or personal guarantees to offer as collateral to guarantee the loans. For these reasons, it’s crucial to build good organizational credit to prepare for the future if more financial support is needed.
3 Ways Your Nonprofit Can Build Credit History
Three primary types of credit impact a nonprofit’s credit history.
- Service credit, which includes monthly utility bills such as electricity and phone bills, affects an organization’s credit scores—especially if there are missed payments.
- Installment credit is the type you receive by taking out a term loan with fixed monthly payments, such as mortgages or equipment loans.
- Revolving credit, such as a business credit card and a line of credit, gives the borrower a set credit limit to draw upon, then repay, and draw upon repeatedly when needed.
Before a lender runs your organization’s credit history, follow these three steps to build your nonprofit’s credit history.
Register for a D-U-N-S Number
The first step for any business looking to establish credit for financial opportunities is to register for a D-U-N-S Number through Dun & Bradstreet (D&B). A D-U-N-S Number is a unique identification number used to establish your organization’s profile to allow partners and lenders to learn more about your organization. It provides basic information such as location, phone number, headquarters, and affiliates. Plus, a D-U-N-S Number may be required to receive specific grants and other funding options.
(Note: As of April 4, 2022, all for-profit and nonprofit businesses will no longer be allowed to use a D-U-N-S Number when dealing with the federal government. After April 4, all entities must establish a new Unique Entity ID (SAM) through Sam.gov.)
Secure a Business Credit Card
Like all businesses, nonprofit organizations can build their credit history by obtaining a business credit card. Any business credit card will contribute to a nonprofit’s credit history, but you should check to see if the card issuer offers specific cards for nonprofits. You may be able to find a card with lower interest rates and no annual fees. In any case, make sure your organization is using and paying off the card on time and that the card issuer reports payment history to the three significant business credit bureaus: Dun & Bradstreet, Equifax, and Experian. If your credit report doesn’t reflect your activity, contact the Credit Builder’s Alliance, a nonprofit organization dedicated to helping nonprofits build credit wisely and report their credit activity to the principal agencies.
Apply for a Nonprofit Line of Credit
A nonprofit line of credit is a fixed amount of money that a nonprofit organization can access when needed for whatever purpose it needs. It’s an inexpensive emergency backup fund a nonprofit organization can turn to when cash flow is lower than expected.
Like the business credit card, a nonprofit line of credit is a revolving credit line, which means the loan funds are available when the organization needs them. Then, once the money is repaid, the funds are available again. In addition, fees are typically only charged on the money that has been withdrawn. Once the credit line is restored, the borrower pays nothing until their next withdrawal.
Financing Solutions, a leading provider of business loans for nonprofits in the form of a 501c3/not-for-profit line of credit, works with nonprofits every day to give organization leaders peace of mind when cash flow’s natural ups and downs disrupt normal operations.
Financing Solutions, the leading provider in the US of nonprofit lines of credit, works with nonprofits all the time which have no credit history.
With the Financing Solutions Nonprofit Line of Credit, nonprofit organizations always have the benefits of a more straightforward application process, plus:
- There are no costs to set up the Line or keep it in place
- There’s an easy 2-minute application online application
- If approved, you’ll receive a same-day, no-obligation offer letter
- The fastest setup, 48-72 hours
- Once you get the line of credit, requests for funds are wired to your bank in minutes
- You can use your line of credit whenever needed
- Inexpensive when used (low fees)
- There are no restrictions in place or collateral required
- No personal guarantee is required, (unless you commit fraud)
- Reputable company with an A+ & 5-star rating
- You can pay off the line whenever you are ready
- The credit line renews yearly and is easy to renew
- You have a secured account portal access 24 x 7
A nonprofit line of credit is a good funding resource that’s available whenever your nonprofit needs it, without the heavy burden of term loan requirements. If you want to see if your nonprofit organization would be approved and for how much, please fill out our no-obligation, 2-minute line of credit application here.
