Nonprofit board members shoulder significant responsibilities. They are expected to oversee operations, uphold bylaws, ensure accountability, and maintain financial stability. But what happens when a nonprofit faces a temporary cash-flow crisis? Can a board member personally lend money to their nonprofit—and should they?

The answer is yes—but with caution and clear boundaries.

Understanding the Role of a Board Member

The mindset of every board member should be focused on helping the nonprofit succeed and fulfill its mission. Yet, even well-managed organizations can experience delays in grant disbursements, donor contributions, or reimbursements. When bills or payroll come due and the bank account runs low, it may seem logical for a dedicated board member to offer a personal loan. However, this seemingly generous act comes with important legal, ethical, and financial considerations.

Can a Board Member Legally Loan Money to Their Nonprofit?

According to the IRS and state nonprofit laws, board members can loan money to their nonprofit—as long as the transaction is properly documented, approved by the board (without the lending member voting), and structured at fair market terms. The IRS prohibits what’s known as “private inurement”, meaning no individual involved with a nonprofit can receive an unfair financial benefit from their position.

To comply, the loan must:

  • Be formally approved in a board meeting, excluding the lending member.

  • Be recorded in the nonprofit’s minutes.

  • Carry a reasonable interest rate

  • Include a clear repayment schedule and written agreement.

Nonprofits should also document that the loan was necessary and in the organization’s best interest—especially if alternative funding was unavailable.

The Risks and Conflicts of Interest

Even if well-intentioned, a board member loan can easily create a conflict of interest. If the board member benefits financially through interest payments or influence over financial decisions, it can raise red flags with the IRS and jeopardize the organization’s tax-exempt status. The National Council of Nonprofits notes that self-dealing issues are among the top reasons for IRS audits of 501(c)(3) organizations.

Furthermore, if multiple board members are family or close friends, approving the transaction can appear biased—even if handled correctly. To avoid this, many nonprofits consult independent advisors or outside counsel to review and approve the agreement.

Alternatives to Board Member Loans

While board member loans can be legal, they are rarely the best long-term solution. Instead, nonprofits should build financial stability through a nonprofit line of credit—a flexible funding tool that helps organizations manage cash-flow gaps without personal financial involvement.

Financing Solutions, a leading provider of nonprofit lines of credit since 2012, offers a simple, fast, and affordable option for nonprofits. Their line of credit can be approved within 48–72 hours, costs nothing to set up, and has no fees when not in use. It’s designed to ensure your organization always has funds ready for emergencies, payroll, or short-term obligations.

Why Having a Nonprofit Line of Credit Matters

Missing or delaying payroll—even by a few days—is illegal and can expose a nonprofit to fines, penalties, and reputational harm. With a line of credit in place, your organization can cover temporary shortfalls immediately—without needing a personal loan from a board member.

A nonprofit line of credit:

  • Provides cash when grant funds or donations are delayed.

  • Protects the organization’s credibility and operations.

  • Avoids potential legal and ethical complications tied to board member loans.

  • Builds financial resilience and creditworthiness for future growth.

Financing Solutions: Trusted Partner for Nonprofits

Financing Solutions has helped thousands of nonprofits nationwide establish reliable backup funding. Their Nonprofit Line of Credit requires no collateral or personal guarantee, and most clients renew annually—proof of its ongoing value. The process is transparent, quick, and board-approved, ensuring full compliance with nonprofit governance standards.

Whether your nonprofit uses the line a few times a year or keeps it as an emergency funding resource, the peace of mind it provides is invaluable.

The Bottom Line

While a board member can loan money to their nonprofit, doing so introduces risk and regulatory complexity. A safer, more sustainable option is a nonprofit line of credit, which supports cash flow without potential conflicts of interest or IRS scrutiny.

If your organization wants to stay prepared for unexpected expenses, consider setting up a line of credit now—before you need it.