Best Banks for Nonprofits: Bank Accounts, Credit Lines, Loans, Mortgages
Over the last decade, the same financing tools that small businesses have used are now commonly used at nonprofit organizations. Let’s talk about how nonprofits are using various types of financing and what are the best banks for nonprofit organizations overall when considering bank accounts and loans. It all comes down to what your banking needs are.
How Are Tax-exempt Nonprofits (501c3) Using Credit Lines, Loans, and Mortgages
There are banks, credit unions, and alternative lenders that are now working with nonprofits. The best banks for nonprofits are the ones that have a specific division that focuses on nonprofits. These banks often offer checking accounts, saving accounts, nonprofit lines of credit, nonprofits loans, and even mortgage services.
First lets talk about what the various loans for nonprofits are most often used for and then we’ll cover the best banks for nonprofit organizations. We will also talk about how alternative lenders are now the go-to source for nonprofit financing.
Nonprofit Lines of Credit (Credit Lines)
Uneven cash flow is often one of the biggest problems that nonprofit organizations face. Just like a small business, a nonprofit organization often has fixed expenses that pretty much stay the same month to month. A large majority of those fixed costs entail payroll which can’t be missed. However, the problem is often that the government reimbursements and donations tend to be unpredictable.
Nonprofits are using a business line of credit to help even out cash flow so that important bills can be paid. Many nonprofits use a credit line for to make payroll when cash flow is down because it is illegal to not pay your employee 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 cash flow is positive. The costs of a line of credit are typically very inexpensive because a credit line is often used for a very short period of time.
A loan for a nonprofit is often applied for to expand operations, make improvements, or make large capital purchases. A Nonprofit loan is a fixed amount of money that is paid back monthly over a long period of time such as 2-5 years.
Nonprofit Mortgages and Refinance
Many nonprofits are seeing the benefit of buying their building while others have already bought their building and are looking for cost-saving by refinancing. Nonprofit organizations that are buying their building are moving away from traditional banks because of commercial banks lending standards and are using alternative financing institutions like Semble.
Semble help nonprofits use future committed donations as collateral along with the collateral of the purchased building. Semble then matches up those nonprofits with established banks that are used to working with nonprofits and thank interest rate is often better then if youi had approached the bank directly.
What Do the Best Banks for Nonprofits Look for When Approving a Nonprofit Loan?
Less than 1% of banks or credit unions loan portfolios work with nonprofits and although a small percentage, banks and credit unions will periodically provide loans to nonprofits. However, the approval bar is often high but some banks/credit unions will make exceptions when it comes to collateral, personal guarantees, and credit checks.
Also, keep in mind that with the recent Covid-19 pandemic that banks and credit unions are not approving many loans regardless of whether your organization is a nonprofit or a for-profit business.
Having a long-standing relationship by keeping your non-profit checking account and savings accounts with the bank or credit union can help the bank get to know your organization. The bank not only wants to know who you are but they want to count on making additional revenue through other banking services such as through ACH’s, overdraft fees, money market accounts, financial services, business credit cards, retirement plans and merchant service fees.
The first thing you should know is that the application a bank will ask you to fill out is extensive. You might want to talk to the bank loan officer first to see if it is worth your time and what sections you should fill out. The application is going to ask for both personal and nonprofit business information.
Banks will often want collateral to back up the loan for your nonprofit organization. That collateral could be assets that the nonprofit has or personal assets that someone is 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. Yes, this does mean that if the nonprofit defaults on the loan then that person would be responsible to pay back the loan.
Nonprofit Tax-Exempt Funding Sources
Some financial institutions will be more flexible on 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.
Why is Financing Solutions Nonprofit Line of Credit Popular
Financing Solutions’ Nonprofit Line of Credit is popular because it is much easier to get in place than a line of credit from a bank and in many cases it is less expensive. Unlike a bank that will charge a yearly or monthly maintenance fee, Financing Solutions Line of Credit costs nothing to set up, nothing when not being used, and is inexpensive when needed.
The credit line from Financing Solutions requires no collateral and no personal guarantees. You can get an answer after filling out an online 2-minute application which requires no credit check.
Financing Solution can offer a nonprofit line of credit like this instead of a bank because Financing Solutions is funded not through government and depositors funds but through private investors. Financing Solutions has been working with nonprofits since 2012 and hosts the popular Nonprofit MBA Podcast.
What is the Best Bank Account for Nonprofits to Conduct Day to Day Business?
Selecting the best bank account for your tax-exempt nonprofit is usually based on the services you will be needing. Often, as your nonprofit grows you will find that you will move business banking relationships from a credit union to a local bank to a national bank because your business account needs have changed.
Here are a list of banking features you can use to determine which financial institution might be the best:
Business Checking Account Fees
Make sure you ask for all the fees associated with a checking account. With smaller financial institutions, they have the ability to make exceptions if, for example, your balance drop below the minimum so don’t be afraid to ask the bank officer.
Online Banking and Mobile Banking
Online banking and mobile banking are a lot bigger today than you may think. The smaller financial institutions, like credit unions and local banks, sometimes struggle with technology. You might be doing your personal banking with a larger bank so you may just take it for granted that all banks will have technological capabilities but that’s not always the case.
ATM and Drive Thu’s
ATM fees can really add up so make sure you ask what the charges are if you use the ATM at another bank. This might be a deal-breaker if the local branch is nowhere near your offices. In addition, make sure you ask if the bank has a drive-up or ATM because a huge amount of banking transactions are now being conducted through ATM’s or mobile banking due to Covid-19.
Business Debit Card and Credit Cards
Be sure to ask about the policies and costs associated with business debit cards and credit cards. You might have a few employees that you will want to provide with a credit card and you should ask the bank about safeguards.
Monthly Maintenance Fees
Banks are notorious for making money from extra fees including monthly maintenance fees and these really add up. Make sure you understand all of the fees so you can avoid them and so you can properly evaluate a bank.
Some banks and credit unions might require a minimum balance in your business checking account so make sure you understand what that minimum is.
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 failures. The FDIC was created in 1933 to maintain public confidence and encourage stability in the financial system through the promotion of sound banking practices.
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, tuition, cable, utilities, mortgage or any other payments you owe on a regular basis — each month. … You don’t risk forgetting to make the payments when you use automatic bill pay.
Find out what interest rate the bank pays you for money in your savings account. If you find you often have significant amounts of money on the sidelines you might want to ask if you can set up a sweep account. A sweep account will allow you to take a large amount of money and move it into a money market account each night automatically and will pay a much higher interest rate.
Overdraft Fees and Protection
Overdraft fees are another area where banks make a lot of money. You should ask if there is any notification services that would alert you to an impending overdraft.
Another unwritten rule that many bank customers do not know is that if you are charged an overdraft fee you can often reach out to the bank branch manager and ask them to wave it.
Ask the bank or credit union you are considering using about any other free transaction that they offer that they believe you could benefit from. Often bank branch officers know what other banks are offering and can help you narrow down services that you might use often that other banks might charge extra for.
Remote Deposit Capture
If you haven’t started to deposit checks through your smartphone yet you will find this technology indispensable. The ability to take a picture of a check and deposit into your account is a great service. Be sure to ask your bank if there is a limit as to the size of the check you can use with Remote Deposit Capture.
National Banks That Have a Nonprofit Focus
PNC offers an account specifically geared to nonprofits. By keeping 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.
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 also no charges for internal transfers and for the first 10 bill payments. TIAA does not charge a fee for overdraft protection or for automatic overdraft transfers. All balances in this account earn interest at tiered rates. Accounts with $100,000 or more earn 0.61%.
Home Savings Bank
For nonprofits that accept large amounts of cash, Home Savings Bank offers unlimited currency deposits without fees. Maintaining a $100 minimum balance waives service charges, and accounts can be accessed through the online banking website.
Community Credit Union
Nonprofits that receive large amounts of coins by participating in fairs, carnivals, and other events may be charged when depositing those coins. Community Credit Union offers coin deposits at no charge, which can result in significant savings. The credit union also pays dividends on balances over $600. This credit union requires a $5 membership payment and maintaining a $5 balance in your account.
Sterling National Bank
Sterling National Bank outside of its normal checking and banking accounts, offers a variety of solutions for nonprofits including various lines of credit and loans.
United Community Bank
For nonprofits seeking to consolidate services with a single provider, the checking account at United Community Bank offers a variety of solutions, including payroll and merchant services. The bank also offers unlimited coin and currency deposits and no monthly maintenance fees.
For large organizations with paid employees and high levels of monthly charge card activity, the Simple Business Checking account at Wells Fargo (WFC) can be linked to the bank’s merchant services and payroll services for automatic deposits and payments. Organizations can also open 403(b) retirement plans for employees, and these plans are specifically designed for nonprofits.
Bank of America
For nonprofits that want to provide debit cards to specific employees, the business checking account for nonprofits from Bank of America (BAC) provides additional cards that can be preset with spending and withdrawal limits. The account waives maintenance fees with a minimum balance of $5,000, which also triggers interest payments to the account.
Low-activity nonprofits with low average balances can keep more of their funds in the account with the Community Checking account offered by BB&T (BBT). The account does not have a minimum balance requirement and does not have maintenance fees. Coin and currency deposits are also free of charge.
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 of the account over each billing cycle exceeds $500. If the account goes 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.
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 that are not included in standard checking accounts.