One of the most common questions we receive at Financing Solutions is:
“How long does it take to get a nonprofit line of credit?”
The answer depends on who you’re working with.
If you’re applying through a traditional commercial bank, the approval process often takes four to eight weeks, and sometimes even longer. If you’re working with Financing Solutions, qualified nonprofit organizations typically have a line ready to use in two to three weeks, with a median turnaround time of 19 days based on our historical data. The range has been as quickly as 48 hours when clients’ paperwork is in and board approval is obtained.
That difference may not sound significant until you’re facing payroll, waiting on a grant reimbursement, or trying to keep an important program running.
Unfortunately, many nonprofits don’t seek a line of credit until they face an immediate cash-flow problem. By then, time is no longer on their side.
Summary
The Biggest Mistake Nonprofits Make
At Financing Solutions, we’ve reviewed more than 6,300 nonprofit line of credit applications over the past 15 years.
One statistic stands out more than any other:
Thirty-nine percent of nonprofits didn’t begin looking for a line of credit until they needed the money within the next three days.
Think about that for a moment.
If a traditional commercial bank typically needs four to eight weeks to approve a line of credit, waiting until you need the money within three days makes it extremely difficult to obtain financing in time.
That’s why we always tell nonprofit leaders the same thing:
The best time to establish a line of credit is before you need it.
Just like insurance, you hope you’ll never need it. But if an unexpected cash flow issue arises, you’ll be glad it’s already in place.
Why Do Nonprofits Wait So Long?
This isn’t just a nonprofit issue.
For-profit businesses often wait until the last minute as well.
In our experience, there are several reasons why organizations delay applying.
They Haven’t Experienced a Cash Flow Crisis
Many executive directors simply haven’t lived through a serious cash flow shortage.
If you’ve never worried about making payroll or paying important vendors while waiting for grant reimbursements or large donations to arrive, it’s easy to assume everything will continue working out.
But once you’ve experienced that kind of financial stress, your perspective changes.
We’ve seen organizations spend days trying to accelerate donations, collect receivables, postpone expenses, or ask board members for temporary loans simply to make payroll.
Once you’ve gone through that experience, you generally don’t want to repeat it.
They Don’t Realize How Long Approval Takes
Many nonprofit leaders assume obtaining a line of credit is similar to opening a checking account.
Unfortunately, that’s rarely the case.
Traditional commercial banks often require weeks of underwriting, multiple rounds of documentation, internal credit committee approval, and board resolutions before a line of credit is established.
The process simply takes time.
They Expect a Larger Credit Line
Another surprise for many applicants is the amount they’ll actually qualify for.
Many nonprofits expect to receive a much larger line of credit than lenders are willing to approve.
At Financing Solutions, the initial line of credit is typically based on the nonprofit’s annual revenue and financial strength. Many organizations begin with a modest credit line and can qualify for increases over time as they establish a successful borrowing history.
Why Does It Take So Long to Get Approved by a Commercial Bank?
Commercial banks serve many different industries.
Because nonprofits often don’t have the same assets, collateral, or ownership structure as for-profit businesses, underwriting a nonprofit line of credit can be more complicated.
Banks frequently request:
- Two to three years of financial statements
- IRS Form 990 filings
- Interim financial statements
- Accounts receivable and accounts payable aging reports
- Board approval
- Collateral documentation
- Additional supporting financial information
Once all of the documentation is received, the application typically goes through one or more levels of internal review before a final decision is made.
If additional information is requested, the process can easily extend several more weeks.
How Financing Solutions Differs
For more than 15 years, Financing Solutions has focused exclusively on providing unsecured lines of credit to nonprofit organizations.
Because we specialize in nonprofit lending, our underwriting process is designed specifically for nonprofits rather than adapting a commercial lending process originally built for businesses.
For most applicants, we request:
- Your most recent IRS Form 990
- Four months of recent bank statements
- Identification for the authorized signer
- A voided organizational check
Unlike many traditional lenders:
- We do not require collateral.
- There is no cost to establish or maintain the line of credit.
- You only pay interest when you actually borrow money.
- We do not require a traditional personal guarantee. Our guarantee is limited to fraud.
Once the line of credit has been approved, the nonprofit simply provides board authorization acknowledging that the organization is establishing the line of credit.
How Can You Speed Up the Approval Process?
The biggest factor affecting approval time isn’t usually the lender.
It’s the speed at which the nonprofit provides the requested documentation.
Organizations that quickly submit complete financial information generally move through underwriting much faster than those that gather documents over several weeks.
If you believe your nonprofit may need financing in the future, it’s worth organizing your financial records now instead of waiting until an emergency develops.
Common Reasons Nonprofits Use a Line of Credit
A nonprofit line of credit isn’t designed to solve long-term financial problems.
Instead, it’s intended to smooth out temporary cash flow gaps.
Organizations commonly use lines of credit to:
- Cover payroll while waiting for grant reimbursements
- Bridge timing differences between receivables and expenses
- Manage seasonal fluctuations in cash flow
- Handle unexpected repairs or emergencies
- Continue programs while awaiting pledged donations
- Take advantage of growth opportunities without disrupting operations
In many cases, the need isn’t caused by poor financial management.
It’s simply the timing difference between when expenses must be paid and when revenue is received.
Frequently Asked Questions
Can a startup nonprofit get a line of credit?
Generally, no.
Financing Solutions bases its underwriting on an organization’s operating history and financial performance. Brand-new nonprofits typically don’t have enough historical financial information to qualify.
Some commercial banks may consider a startup nonprofit if someone is willing to provide substantial collateral and personal guarantees, but approval is generally more difficult.
Does a nonprofit need collateral?
Traditional commercial banks often require collateral or other forms of security.
Financing Solutions provides unsecured nonprofit lines of credit, meaning collateral is not required.
How much can a nonprofit borrow?
Every organization is evaluated individually.
At Financing Solutions, initial credit lines are commonly based on annual revenue and the organization’s overall financial strength. Many nonprofits begin with a line of credit equal to approximately 3% to 4% of annual revenue, with opportunities for increases over time.
Does applying affect personal credit?
As part of the underwriting process, Financing Solutions reviews the credit of the person signing the agreement as part of its underwriting and fraud prevention process.
We do not report your payment history to the consumer credit bureaus, and we do not place a lien against the signer.
When is the best time to apply?
The best time to establish a nonprofit line of credit is before you need it.
Organizations are generally in a stronger financial position before a cash flow problem develops, making the approval process smoother and eliminating the stress of trying to obtain financing during a financial emergency.
The Bottom Line
A nonprofit line of credit should never be viewed as something you obtain after a financial crisis begins.
Instead, it should be viewed as an important financial safety net.
Traditional commercial banks often require four to eight weeks to approve a nonprofit line of credit. By contrast, Financing Solutions typically completes the process for qualified nonprofit organizations in two to three weeks, with a historical median turnaround time of 19 days.
More importantly, our experience reviewing over 6,300 nonprofit applications shows that nearly four out of every ten nonprofits wait until they need funding within three days before they begin looking for a line of credit.
By then, obtaining financing through a traditional bank is often unrealistic.
If your nonprofit believes there’s even a small chance it may need additional working capital during the coming year, don’t wait until cash flow becomes a crisis.
The best time to establish a line of credit is while your organization is financially healthy—not when you’re racing against the clock.
Stephen Halasnik is a Managing Partner of Financing Solutions, a direct lender to nonprofits and small businesses. Over the last 25 years, Stephen has built 7 companies and he passionately believes that every nonprofit and business should have a line of credit to turn to as a cash back up plan. That belief, learned over years of working with banks for his own business needs, drove him to start Financing Solutions so credit lines could be easier to set up and less expensive.
