This document helps nonprofits understand financing options from various lenders. It is authored by Stephen Halasnik, Keith Giovannoli, and Christina Wormann of Financing Solutions, who have decades of experience in nonprofit and business financing across private and government sectors.

Nonprofits often require specialized financing options given their unique financial environments. These tailored solutions enable organizations to maintain their focus on their core mission and operational stability, without being distracted by financial uncertainties.

Types of Loan Products for Nonprofits

Nonprofit Line of Credit

A nonprofit line of credit is a preapproved amount of capital that an organization can access when needed. The nonprofit may draw all or part of the credit line and pay interest or fees only on the outstanding balance. A line of credit offers critical flexibility for cash flow management, especially during donation lulls or periods of delayed grant funding. It is designed for short-term cash flow needs such as covering payroll timing gaps, bridging delayed grants, or handling emergency expenses. It is not intended for long-term capital projects or building purchases.

Pros

• Flexible access to capital
• Interest paid only on funds used
• Useful for short-term cash flow gaps
• Can be set up in advance for emergencies

Cons

• May include set-up or maintenance fees
• Some lenders require annual usage
• Not appropriate for long-term financing needs

Fixed-Term Loan

A fixed-term loan provides a lump sum that nonprofits repay in fixed installments over a set period, usually 3 to 5 years. These loans are available for real estate, equipment, and debt refinancing, and are commonly used for renovations, equipment purchases, or program expansion. Interest accrues on the full amount from closing, regardless of early repayment.

Pros

• Predictable monthly payments make it easier for nonprofits to manage their budgets and plan for repayment.
• Suitable for larger capital needs
• Appropriate for multi-year investments

Cons

• Interest accrues on the full amount from day one
• Less flexible than a line of credit
• Early repayment may not reduce total interest cost

Commercial Mortgage

A commercial mortgage finances nonprofit property purchases. These loans often require higher interest rates, down payments of 20 to 40 percent, shorter terms, and may include a balloon payment at maturity. Underwriting focuses on organizational financial performance and property income.

Pros

• Enables property ownership
• Builds long-term equity
• Structured for real estate financing

Cons

• Large down payment required
• Higher rates than residential mortgages
• Often includes balloon payment and refinancing risk

Cash Advance

A cash advance provides a fixed amount that must be taken in full and repaid through automatic daily or weekly payments, usually over three to six months. All principal and fees are due regardless of early repayment. Some lenders offer additional funding during repayment, which can increase total costs. Due to unpredictable revenue streams, cash advances are often a risky option for nonprofits.

Pros

• Fast approval and funding
• Minimal underwriting
• Accessible when other options are limited

Cons

• Very expensive
• Short repayment terms
• Repeated borrowing increases the total cost significantly

Factoring

Factoring allows nonprofits to sell receivables to a lender in exchange for an advance of 80 to 90 percent of the receivable amount. The lender collects payments directly and charges fees based on the repayment period. Factoring can help bridge cash flow gaps when most revenue is received at year-end.

Pros

• Accelerates access to expected funds
• Based on receivables rather than full financial underwriting

Cons

• Fees increase over time
• Many grantors prohibit assignment
• Less control over the payment process

Private Loan from Board Member or Donor

In emergencies, board members, executive directors, or major donors may provide a private loan to the nonprofit. Proper documentation, market-rate interest, board approval, and legal consultation are essential. While these loans can provide emergency funds, they are not a sustainable long-term financing solution.

Pros

• Flexible structure
• May provide quick access to funds
• Often relationship-based

Cons

• Potential conflicts of interest
• Repeated reliance may create reputational concerns
• Can strain relationships

SBA Loans

The SBA does not offer traditional 7(a) loans or lines of credit to nonprofits. Private nonprofit organizations may qualify for SBA disaster assistance loans, including Physical Disaster Loans and Economic Injury Disaster Loans, but only when a federally declared disaster impacts their area. SBA microloans are available to some nonprofit organizations for funding purposes. Funds are restricted to disaster-related recovery and require a formal application process.

Pros

• Long repayment terms
• Below-market interest rates
• Available to nonprofits in declared disaster areas

Cons

• Only available after federal disaster declarations
• Limited to recovery-related purposes
• Detailed application and eligibility requirements

Bridge Loans

Bridge loans offer capital while nonprofits await revenue from government contracts, grants, or other sources. This financing helps manage cash flow gaps and maintain operations until funds are received. Bridge loans are provided by commercial banks.

Additional Financing Tools

• Business credit cards: These cards allow nonprofits to draw on a line of credit for daily expenses and provide flexibility for managing short-term costs.
• Affordable housing loans: Provide financing for the construction, renovation, and acquisition of affordable housing properties, supporting nonprofit missions in community development.

Nonprofit loan funds often offer lower interest rates than CDFIs and may provide interest-free loans, making them an attractive resource for organizations seeking affordable financing.

Loan Applications and Eligibility

A strong application demonstrates financial stability, clear planning, and alignment with the mission. Lenders seek evidence of successful fundraising. Each loan requires specific paperwork, often including a business plan outlining operations and intended use of funds. Demonstrating the ability to make on-time payments and maintain consistent cash flow increases approval chances and reduces default risk. Nonprofit financing options differ from those for for-profit businesses, and lenders may still seek profit. Flexible funding and strong banking partnerships are crucial for operational success and community impact. Due to unpredictable revenue streams, access to diverse financial resources is essential for stability and growth.

Types of Lenders

Commercial Banks

Banks use depositor and government-backed funds and follow strict underwriting standards. Many do not lend to startup nonprofits and require strong financial performance.

Pros

• Lowest cost of capital
• Established institutions

Cons

• Strict qualification requirements
• Often require collateral and personal guarantees
• Longer approval timelines
• Traditional lenders are often unwilling to lend to nonprofits, which is why alternative lenders such as CDFIs exist.

Alternative Lenders

Alternative Lenders use private capital and generally rely on cash flow history rather than traditional collateral.

Pros

• Faster approval
• More flexible underwriting
• May not require traditional collateral

Cons

• Higher cost than banks
• May require limited personal guarantees

Community Development Financial Institutions (CDFIs)

CDFIs are certified by the U.S. Department of the Treasury and specialize in financial assistance to nonprofits. CDFIs are often nonprofits themselves, though some are banks or credit unions. They finance disadvantaged communities and mission-driven organizations, often using a relationship-based approach and sometimes approving loans that traditional banks decline. CDFIs typically operate regionally and may offer loans, but not always lines of credit.

CDFIs may require extensive documentation and often take longer to approve loans than traditional banks. They may also charge higher interest rates for small loan amounts.

CDFIs also offer specialized loan products for charter schools, such as facility acquisition and development loans.

Pros

• Often affordable capital
• Mission-aligned lending

Cons

• Limited geographic reach
• Lengthy application processes
• Selective underwriting

Startup Financing for Nonprofits

There are currently no widely available lenders offering true startup financing for nonprofits. Most new organizations rely on fundraising and donations until they establish a track record.

Cash Flow Management

Effective cash flow management is essential for nonprofit financial stability. Leaders must ensure sufficient working capital for daily expenses, growth, and unexpected challenges, while remaining focused on their mission. Without careful cash flow oversight, even impactful nonprofits risk disruptions that threaten their service to the community.

Community development financial institutions (CDFIs) and nonprofit loan funds provide financial assistance tailored to nonprofits’ unique needs. These mission-driven organizations offer financing options such as lines of credit, term loans, and construction loans to help bridge funding gaps, manage project expenses, or invest in community initiatives. The Nonprofit Finance Fund is one example of a resource offering expert guidance and flexible loan programs for nonprofits.

Traditional banks and lenders may offer business and permanent loans, but strict eligibility requirements and higher interest rates can make qualification difficult for new nonprofits or those with limited collateral. In contrast, CDFIs and credit unions often provide more accessible financing, supporting financial stability and community impact. The Small Business Administration (SBA) also offers programs such as SBA microloans, which can help nonprofits strengthen cash flow.

To maintain financial health, nonprofits should adopt proactive cash flow management strategies, such as:

• Maintaining a cash reserve or emergency fund to cover unexpected expenses and ensure uninterrupted services
• Diversifying funding sources—including grants, donations, and earned income—to reduce reliance on any single stream of income
• Building strong relationships with lenders, such as community development financial institutions and credit unions, to access affordable financing options when needed
• Prioritizing expenses and managing debt responsibly to maintain a positive credit score and qualify for future loans
• Seeking expert guidance from organizations like the Nonprofit Finance Fund or the Small Business Administration to navigate complex financing decisions

By following these best practices, nonprofit leaders can strengthen their organization’s financial foundation, support community development, and build thriving communities. With the right financing and sound cash flow management, nonprofits can grow, fulfill their mission, and create lasting positive change.

Authors

Stephen Halasnik is Managing Partner and Cofounder of Financing Solutions, which has been providing lines of credit to nonprofits since 2012. He hosts the Nonprofit MBA Podcast and has built multiple businesses over more than 30 years.

Keith Giovannoli is Managing Partner and Cofounder of Financing Solutions. He previously built and sold a successful custom manufacturing business and has extensive experience with business financing.

Christina Wormann is Head of Due Diligence and Credit Risk at Financing Solutions, where she works closely with nonprofit executive directors to review financial statements, assess risk, and structure practical lending solutions. She has more than 15 years of experience in financial analysis and regulatory compliance, including federal small business lending through the U.S. Small Business Administration.