Over the last decade, nonprofit organizations have experienced fewer hurdles when it comes to financing and banking options. The financing tools previously only accessible to small businesses are now available to nonprofit organizations as financing institutions realize the importance of helping nonprofits expand. Nonprofits are now the third-largest industry in the United States. Find out how nonprofit businesses use financing tools, which tools work best, and the best banks for nonprofit organizations.
How Are Tax-exempt Nonprofits (501c3) Using Credit Lines, Loans, and Mortgages?
Today, banks, credit unions, and alternative lenders all work with nonprofits to support the organizations’ money management initiatives and expansion plans. In addition, the best banks for nonprofits offer specific nonprofit bank accounts, such as 501c3 bank accounts, nonprofit checking accounts, not-for-profit savings accounts, and nonprofit lines of credit.
The best banks for nonprofits offer a variety of financing options, which we cover below. We also list the top best banks for nonprofit organizations and how alternative lenders such as Financing Solutions are now the go-to source for nonprofit financing.
Note: As of 2016, Financing Solutions is now the leading provider of lines of credit to nonprofits that have yearly revenue under $5 million.
Uneven cash flow is often one of the biggest problems nonprofit organizations face. Like small businesses, nonprofit organizations usually have fixed expenses that stay consistent from month to month, such as payroll. Then there are utility bills, rent, vendor bills, insurance, and the list goes on. However, unlike small businesses that get their revenues from sales, nonprofits get most of their funding from unpredictable donations and often delayed reimbursements from the government.
But there are nonprofit banking resources you can count on, including business lines of credit to maintain cash flow so you can pay your important bills on time. Many nonprofits use a credit line to make payroll when cash flow is lacking as it is against the Fair Labor Standards Act (FLSA) not to pay employees on time.
A line of credit is a preapproved set amount of money that the nonprofit organization can use and can pay back as soon as the cash starts flowing again. It’s similar to a short-term loan for nonprofit organizations, but a business line of credit typically costs a nonprofit less than a loan because the payback term is short.
Loans for Nonprofits
Nonprofits often use a loan to expand operations, undertake improvements, or make significant capital purchases. The best banks for nonprofits offer loans that need to be paid back monthly over a long period of time, often two to five years.
Nonprofit Mortgages and Refinance
Whether you want to refinance your building’s mortgage or you’re considering buying a building, many nonprofits are turning away from traditional banks due to commercial banks’ lending standards. Instead, they are using alternative financing institutions like Semble for their mortgage needs.
Semble helps nonprofits use future committed donations as collateral along with the collateral of the purchased building. In addition, Semble can match your nonprofit with an established bank that has worked with nonprofit organizations and understands their needs. Typically, you can get a better interest rate through Semble than if you approached the bank directly.
What Do the Best Banks for Nonprofits Look for When Approving a Nonprofit Loan?
If you’re looking for a credit union for nonprofits or a free checking account for nonprofit organizations, you might find the search difficult. Although a small percentage of banks and credit unions will periodically provide loans to nonprofits, the approval bar is often relatively high. In most cases, banks and credit unions require collateral, personal guarantees, and credit checks before they’ll make a loan.
But your chances of getting approved for a loan are improved if you have a long-standing relationship with a lending institution, such as the place where you have a checking and savings bank account for your nonprofit.
In addition to providing basic banking products and services, the best banks for nonprofits also offer other banking services, such as ACHs, overdraft fees, money market accounts, financial services, business credit cards, retirement plans, and merchant service fees.
Here are some other things you should be aware of:
Filling out an application for a bank loan can be a complex task, as they typically ask for a lot of backup documentation and financial statements. Consider talking to the bank loan officer first to see if it is even worth your time and, if it is, what sections of the application you need to pay particular attention to. Be prepared—the application is going to ask for both personal and business information.
Banks often want collateral to back up the loan to your nonprofit organization. That collateral could be assets the nonprofit has (such as property) or personal assets that you (or someone else) are willing to pledge to secure the loan.
The bank might require someone with a good credit history (usually 680 or better) to sign on behalf of the nonprofit. Remember, if the nonprofit defaults on the loan, that person would be responsible for paying it back.
Nonprofit Tax-Exempt Funding Sources
The best banks for nonprofits may be more flexible when asking for collateral and personal guarantees if they know that your funding source(s) are “safe.” For example, if 100% of your funding comes from the federal government, the bank might be more flexible.
Government SBA Loans for Nonprofits
Unlike a for-profit business, the government does not guarantee SBA loans to nonprofits.
What are the Best Bank Accounts for Nonprofits to Use to Conduct Business?
When selecting the best bank for your nonprofit, you need to consider the services you need. Often, as your nonprofit grows, you may discover you need to move your business banking relationships from a credit union to a local bank to a national bank because your needs have changed.
Here is a list of the best nonprofit bank account features to help you determine which financial institution might be the best for your nonprofit:
Business Checking Account Fees & Minimum Balances
Make sure you ask about all the fees associated with a checking account. Some banks and credit unions require you to maintain a minimum balance in your business checking account. Make sure you understand what the minimum is and if the bank makes exceptions if you can’t meet it every month.
Online Banking, Mobile Banking & Remote Deposit Capture
Many business owners want the convenience of being able to bank online banking and on their mobile devices. If these options are important to you, make sure your bank offers them. And find out if the bank limits the size of the check you can deposit using remote deposit capture, which allows you to deposit a check by taking a picture of it using your mobile devices.
To get free banking for your nonprofit organization, lending institutions typically require the organization to make a minimum number of deposits a month. So, again, check with the bank you’re considering to find out if they have these requirements and if you can meet them.
ATMs and Drive-Throughs
ATM fees can add up, so make sure you ask what the charges are if you use an out-of-network ATM. If the bank you’re considering doesn’t have local branches near your office, or an arrangement for free ATM use, this could be a deal-breaker.
Business Debit Card and Credit Cards
Be sure to ask about the policies and costs associated with any business debit cards and credit cards the bank issues. The best credit cards for nonprofits often feature low fees or offer a reward. If you want to give some of your employees a credit card to use, ask the bank about any safeguards they offer.
Monthly Maintenance Fees
Banks are notorious for charging extra fees, including monthly maintenance fees. These can add up, so make sure you understand all the fees you’d be responsible for so you can properly evaluate the bank.
FDIC Insured Accounts
The Federal Deposit Insurance Corporation (FDIC) is an independent federal agency insuring deposits in U.S. banks and thrifts in the event of bank failure. The FDIC was created in 1933 during the Great Depression to maintain public confidence and encourage stability in the financial system by promoting sound banking practices.
Per the FDIC, “The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. Deposits held in different ownership categories are separately insured, up to at least $250,000, even if held at the same bank.”
Automatic Bill Pay
Automatic bill pay is when you set up recurring transfers or payments from your bank or credit card to pay your bills — phone, cable, utilities, mortgage, or any other payments you make on a regular monthly basis.
Find out what interest rate the bank pays for savings accounts. (Some banks pay interest on checking accounts as well.) If you often have significant amounts of money in your accounts, consider setting up a sweep account, which automatically moves a set amount of money into a money market account. These accounts pay a much higher interest rate.
Overdraft Fees and Protection
Overdraft fees are another area where banks make money. Ask about notification services that alert you to an impending overdraft. If you are charged an overdraft fee, you can often reach out to the bank branch manager and ask them to waive it.
Ask the bank or credit union you are considering using about any free services they offer that would benefit your nonprofit.
Best Banks for Nonprofits
These are some of the best banks we’ve found for nonprofits, listed alphabetically.
Bank of America
For nonprofits that want to provide debit cards to specific employees, the Bank of America nonprofit checking account offers additional cards with preset spending and withdrawal limits. In addition, the account waives maintenance fees with a minimum balance of $5,000, which also triggers interest payments to the account.
Like most institutions, a Bank of America nonprofit account requires proof of 501(c) status from the IRS.
Low-activity nonprofits with low average balances can keep more of their funds in their account with the Community Checking account offered by BB&T (BBT). The account does not have a minimum balance requirement or charge maintenance fees. Coin and currency deposits are also free of charge.
Community Credit Union
Community Credit Union offers a “Not-for-profit Business Checking Account” with no minimum balance required. The account also comes with the same privileges as their other business accounts, including unlimited check writing, online banking, mobile banking, and more.
Home Savings Bank
For nonprofits, Home Savings Bank offers unlimited debits, credits, checks written, and checks deposited without fees. Maintaining a $100 minimum balance waives service charges, and accounts can be accessed online via their website.
With no limits on currency deposits, the nonprofit checking account from M&T Bank (MTB) caters to organizations that accept large cash contributions. Service fees are waived as long as the average balance in the account over each billing cycle exceeds $500. If the account falls under that amount, a $7.50 fee applies at the end of the month. The fee may also be waived if the account is set up for electronic statements. The account also offers online banking access and a bill-paying program.
PNC offers an account specifically geared to nonprofits. If you keep an average minimum balance of $500 each month, the bank waives the monthly service charge. The account also comes with a free debit card and no-fee online banking and bill pay.
Sterling National Bank
In addition to its regular checking and banking accounts, Sterling National Bank offers various solutions for nonprofits, including lines of credit and loans.
TIAA (Formerly EverBank)
This bank offers a no-fee nonprofit account with a monthly minimum balance of $5,000. Any balance under that amount incurs a $14.95 service charge for that month. There are no charges for internal transfers and the first 10 bill payments. TIAA does not charge a fee for overdraft protection or automatic overdraft transfers. All balances in this account earn interest at tiered rates.
United Community Bank
For small nonprofit organizations, the Wells Fargo Initiate Business Checking Account offers free checking with a $500 minimum daily balance and $1,000 average ledger balance. There is no fee for the first $5,000 cash deposits processed each fee period. After $5,000, it’s $.30 per $100 deposited. Organizations can also open 403(b) retirement plans for employees, which are specifically designed for nonprofits.
Wells Fargo also offers the Wells Fargo Business Line of Credit to Nonprofits as long as your revenue is over $10 million.
Your Local Community Bank
Opening a nonprofit checking account at a smaller bank will likely include many of the same features as national banks, but a local bank with community ties may be more willing to get involved with your organization. This type of involvement may include sponsoring events, sharing information about your nonprofit organization, or making charitable contributions. Over time, a partnership with a local bank may yield significant benefits beyond standard checking accounts.
Why Financing Solutions’ Nonprofit Line of Credit is So Popular
Financing Solutions’ Nonprofit Line of Credit is much easier to get than a line of credit from a bank, and in many cases, it is less expensive. Unlike a bank that charges a yearly or monthly maintenance fee, Financing Solutions’ Nonprofit Line of Credit costs nothing to set up, and there’s no charge when it’s not being used. And when a withdrawal is necessary, the Financing Solutions’ Line of Credit is less costly.
No personal guarantees or collateral is required to get a credit line from Financing Solutions. And you can get a quick answer after filling out an online 2-minute application that doesn’t require a credit check.
Financing Solutions can offer a nonprofit line of credits because it is funded through private investors and not through the government or depositors’ funds. Financing Solutions has been working with nonprofits since 2012 and hosts the popular Nonprofit MBA Podcast. Financing Solutions is the leading provider of nonprofit lines of credit to small nonprofits throughout the U.S., and we can help you. Contact us today!