Can a Board Member Loan Money to Their Nonprofit
Nonprofit board members have immense responsibilities. You are expected to oversee daily activities, adhere to current bylaws, and ensure that finances are stable. Should a board member with these responsibilities also be allowed to lend money to their nonprofit organization?
The mindset of a board member should be to see your nonprofit succeed. Amid the day to day operations, there are always debts to be paid. Due to slow funding & circumstances the control of the organization, it’s inevitable that bills occasionally will become past due. While you want to help, should you offer to give a personal loan to your nonprofit?
Is It a Good Idea for a Board Member to Loan to a Nonprofit?
This article will give the pros, cons, & rules for the correct practice for a member of the board or donor that is contemplating loaning money to their nonprofit. Although a nonprofit loan may seem like a great idea, there are special considerations to be considered.
Alternative Lending is another option. Financing Solutions has an excellent program offering lines of credit to nonprofits.
If your nonprofit organization has a minimum revenue of $200,000 per year, the credit line can be set up within 48-72 hours. There is no cost to set up the credit line, and no cost if it is not being used.
IRS Nonprofit Business Loans Rules
Before a board member gives money, they should be instructed to seek legal counseling from their CPA or lawyer. While their intentions may be good, you do not want them to break any laws.
Conflict of Interest
When a board member provides a loan to their nonprofit organization, a conflict of interest could arise. If the loan includes interest payments, the board member may financially benefit from the arrangement and the IRS guidelines must be considered. In this scenario, the IRS states that you cannot receive excessive compensation or benefits because of your affiliation with a nonprofit organization.
If the majority of a board consists of members affiliated through marriage, family, or friendships, voting on a board member loan has the potential to gain the attention of the IRS. It is a good idea to have a group of advisers that everyone trusts or other independent parties in place to approve the transaction. This will remove any appearance of impropriety.
No Private Benefit Allowed
If your organization is listed as a public charity, the IRS states that no part of the organization’s net earnings can be used to benefit a private person. If a board member receives a benefit from the loan, it violates IRS rules.
Formal Board Meeting and Approval
The board should call a private meeting, excluding the lending member, to discuss and approve the loan. This ensures that the person loaning the money is not receiving any benefits.
Did You Know Missing, or Delaying Payroll is Illegal?
Most board member loans, or lines of credit for nonprofits, are used to meet payroll demands. It is against the law to miss or delay paying the employees of your nonprofit ON TIME. Not only can this cause your nonprofit to incur fines and penalties, but it could also cause unwanted scrutiny. If you decide to move forward and accept a loan from a board member, you should consider having a nonprofit line of credit in place for the next emergency or opportunity.
Financing Solutions the Leading Lenders For Nonprofit Organizations
Financing Solutions offers an inexpensive line of credit for your nonprofit. A Nonprofit Line of Credit is a pre-approved amount of money that your nonprofit has access to when it is needed. There is no fee if you do not utilize the line, it is renewed yearly and ensures that you have a ready solution in place to resolve your next unforeseen circumstance.
Financing Solutions has a long history of working with nonprofits. Subsequently, this has led to Financing Solutions becoming one of the leading providers in the nation for nonprofit financing. They understand the challenges nonprofits face with uneven cash flow. There are outstanding benefits associated with their credit line. The credit line can be set up quickly, there is no cost to set it up, no cost if it is not being used, and it can be paid off at any time.
Benefits of a Line of Credit for a Nonprofit
Having a nonprofit line of credit in place is an excellent way for your organization to have a flexible source of cash, readily available when issues arise, and short-term obligations must be met.
For nonprofits, fundraising, donations, and reimbursements are a major source of revenue. However, due to the sporadic and fluctuating nature of these cash inflows, it can be difficult to rely on these as a source of consistent funding to meet daily financial obligations.
A Nonprofit Line of Credit is a proven, reliable source of short-term funding to keep your organization solvent while your nonprofit gets back on track.
How Does a Financing Solutions Line of Credit Work?
Rest assured, that there is no collateral or personal guarantees required with a Financing Solutions nonprofit line of credit.
Some nonprofits use their line for a few days while others use it for a few weeks. It can be paid off at any time as long as the minimum payments are made. For this reason, the line of credit serves as an excellent backup plan. Although you might not have to use it very often, you will be relieved to know that it is in place when you need it.
The application process is fast and easy. Once you fill out the 2-minute online application, you will receive a no-obligation offer within minutes. A representative from Financing Solutions will call you to go over the quote to ensure we answer any questions you might have.
If you decide to move forward with setting up the line, a few obtainable documents are required i.e., a recent 990, bank statements, etc. We ask for a simple board forum document to be signed by the majority of the board members, which states that the board approves of the line of credit is being set up. The resolution can also be sent in via email.
Once the final contract is signed, you are set up in our online customer web portal where you will be able to request funds, pay off balances, and see other information pertaining to your account. When you request funds, they will be wired right to your bank account. Upon request, funds can be sent the same day.
The Bottom Line
The line of credit program is easy, reasonable, and most importantly, it is designed to meet the specific needs of your nonprofit. A Nonprofit line of credit or nonprofit loan will provide immediate relief to any challenging circumstances that arise.
If you are worried about the line of credit being used too much, based on our experience, nonprofits are usually very selective about using their line.
Over 90% of Financing Solutions clients renew their line of credit every year. Some nonprofits use their lines often while others rarely use it, but it is always available. Often our clients express the gratitude that they have a stable back up plan in their line of credit.
Financing Solutions Business Loans to Nonprofits
Since 2012 Financing Solutions has been the leader in providing a Nonprofit Line of Credit. Financing Solutions provides these funds directly and is rated 5 stars/A+ by the Better Business Bureau.