Can a Non profit Get SBA Loans
The Small Business Association (SBA) traditionally has an important role in providing access and opportunity for small businesses. A non profit is a small business, so it begs the question: Can a non profit get loans from the SBA other than the PPP or Disaster Reflief program?
Approximately half of the American workforce works for small businesses, including nonprofits. As the backbone of our nation, these businesses need help and support, often through a SBA loan. The traditional SBA loan program works through authorized banks. Non-profit organizations have especially unique requirements when it comes to working capital, cash flow, and monthly obligations.
Although an SBA loan is an excellent financing option for many small businesses, they are unfortunately not available to nonprofits. Don’t fret, there are other options such as Financing Solutions Non profit Line of Credit Program, non SBA backed loans from local and commercial banks, and even private loans.
Financing Solutions Nonprofit Line of Credit Program
During the 2008 great recession, it became obvious to small businesses that the commercial banking system wasn’t designed to work with businesses that had yearly revenue under $10 million. Sure, the SBA loan program was set up to help small businesses but in reality, the SBA loan program still had certain restrictions.
What started to replace commercial banks where lenders that catered to specific industries. One such company was Financing Solutions which carved out a niche in providing Nonprofits with a Line of Credit. Financing Solutions is now the leading provider of lines of credit to nonprofits throughout the United States.
A nonprofit line of credit is a predetermined amount of money that both parties agree the nonprofit has access to if needed. It is an inexpensive cash back up plan to help nonprofits when cash flow is down. In many cases, the line of credit is mostly used for important expenses that must be paid on time such as for payroll, rent, etc. Often, cash flow at a nonprofit is only down temporarily due to a delayed reimbursement or a slow down at certain times of the year.
Financing Solutions specifically designed its line of credit program with nonprofits in mind.
- No collateral or personal guarantees required
- No cost to set up the line and no cost when line not being used
- Easy to get in place with a no-obligation 2-minute online application
- Online customer web portal to request funds, track payments, schedule payoff
- Credit Line can be paid off in days, weeks, or months. Whenever you like.
- When used, the credit line is inexpensive
- The line stays in place for 12 months and is renewed easily
- Simple documents are required to setup line
Do commercial or local banks provide non profits loans?
Most banks like Well Fargo, Bank of America and others are willing to work with nonprofits however there are certain restrictions that make it hard for a nonprofit to qualify. All nonprofits require collateral and personal guarantees. Collateral is an asset that a bank could sell to recover losses in case of default. Personal guarantees are required by a bank and would be enforced if the nonprofit defaults. The person signing for the loan with a bank would be putting their personal collateral on the line.
Is a bank the cheapest option for a loan or line of credit? It could be depending on how much your nonprofit uses the line. If you use the line a lot then a bank could be the cheapest option. In many cases each year a bank will charge a setup fee and a yearly maintenance fee. A bank might also require audited financials from a CPA and those audited financials can be expensive.
Lastly, a bank loan for a nonprofit will take some time to get and keep in place. Count on it taking 2-3 months to get the application filled out and the backup documentation together. Plus some more time for the bank to review everything.
Is a private loan from a donor an option?
A private loan from a donor or board member can be an option but there are some considerations.
The IRS does have certain restrictions about who can loan money to a nonprofit. Some of those restrictions revolve around:
- Is the donor being over under/over-compensated for the loan
- Is someone in the nonprofit benefiting personally from the loan
- Has your nonprofit board been consulted and approved the loan
Lastly, getting a private loan from a donor is a good one-off but many executive directors do feel uncomfortable with going back to that same donor numerous times.
What is an SBA Loan?
SBA loans are highly sought after loans for small businesses. They are so competitive because of their very favorable loan terms and repayment terms. This includes low interest-rates, long-terms, and the fact that they are guaranteed by the government. They are reserved for highly qualified borrowers, and thus very difficult to obtain. Because of their favorable terms, they are highly flexible and businesses can use them for a variety of purposes.
The loan application process is highly competitive, and it is very difficult to get approved for this loan. This might seem like the ideal type of loan for nonprofits, but unfortunately, as you will read below, it is unfortunately not an option. We will present you with alternatives to this type of loan later in the article.
Why Can’t Your Nonprofit Get SBA Loans?
So, does the SBA provide 501c3 business loans? The simple answer is no. SBA loans are not for nonprofits. But don’t be discouraged, there are now other options.
SBA loans for nonprofits do fall under their SBA Microloan program. This microloan program provides SBA loans to nonprofit intermediaries and these companies then offer loans to nonprofits. The rest of the monies in the program go to for-profit businesses.
In other words, these companies get SBA loans and then dole out the money to other companies. Even if your business does fall into this category, you should be aware that there are numerous terms and restrictions. For example, the term for these loans is about six years. It’s also a secured loan, which means it requires you to pledge collateral which is often very hard for nonprofits to come up with.
All eligibility requirements and creditworthiness decisions are made by the intermediary, not the SBA. In addition, there are various fees from the lender that you will have to pay.
So while it is an option for nonprofits to secure loans from the intermediary program, it can often be extremely difficult to secure even these loans. Furthermore, intermediary loans have less than favorable terms and loan amounts, and the application process is competitive. This whole ordeal might leave you looking for another option altogether.
Is There an Alternative When You Can’t Get an SBA Loan for a Nonprofit?
Financing Solutions (www.financingsolutionsnow.com) is the leading provider of lines of credit for nonprofits. The criteria is simple and the line of credit is very easy to get. Your Nonprofit must have at least $200,000 in yearly revenue to qualify. In addition, someone on the board, or an officer, must have a 650 or greater credit score. There are no personal guarantees and no collateral is required.
The nonprofit line of credit costs nothing to set up and nothing if not being used making it an excellent backup plan. There are no restrictions as to what the line can be used for. Many nonprofits use their line of credit for when reimbursements are delayed and payroll is due. As a nonprofit, you likely have a variety of cash flow and working capital needs, of which a line of credit is an excellent financing option.
Unlike in the case with a long term loan, there are no penalties for early repayment. You can pay back the money as soon as your government grants or donations come in. This represents your best option for short term nonprofit financing.
Best of all, it’s easy to get your line of credit quote. You just need to fill out the 2-minute online application and we will send a no-obligation offer for you to consider. Your Relationship Manager from Financing Solutions will go over the quote with you. If you decide you want to move forward then we will need 4 months of bank statements, your most recent 990, and a few other simple documents.
Financing Solutions, an A+ BBB and 5 stars rated company, is a direct lender and has had hundreds of nonprofits as clients.
Can Your Nonprofit Go From Small to Super Successful?
As a small nonprofit organization, you may often feel like everything is going against you. Competing with the big guys can make one weary and create disenchantment. But can you fight all this and make your organization a superstar?
The answer is yes. Although as the owner a non-profit, you should be very much aware of the common hurdles and challenges you may face in this industry. Here are some tips to identify these challenges and to navigate your nonprofit toward success in this industry:
Use technology to your advantage – although you have to do more with less, this doesn’t have to be a barrier. You can use technology to better manage data and work smarter instead of harder.
Using programs to organize, maintain, and manage your expenditures and obligations can be vital in maintaining an efficient payment schedule. This helps to ensure that your nonprofit is not as vulnerable to the cash flow issues that are inherent to this industry.
Make your communication more personal – use your small size to your benefit. You have the ability to reach out to donors individually and make them feel special, so use it. It has been proven that donors are more willing to donate when they feel a personal connection with your cause.
By keeping them involved and communicating directly, they will feel more ownership over your cause, and really see how their money makes a difference.
Recruit the Right People – It is always important for nonprofits to hire the right people. Many people seek jobs that provide them a sense of meaning and community, and your nonprofit should provide exactly that. You can really seek out people who are willing to get invested in your cause and willing to help you work toward your goals.
Seek New Opportunities – As with any industry, it is important to stay on top of any trends that are available to you. The nonprofit industry is constantly changing, with new ways to communicate with and keep your donors involved in your process, and new technology that makes your company more efficient. Always be on the lookout for any trends, and make sure your non-profit remains on the cutting edge.
As you can see, securing an SBA loan is simply not realistic as a nonprofit, but there are options out there to meet your unique financing needs. An important first step is to really identify your business’s unique financial needs. You should know your current needs as well as your projected needs, so that you can find a financing option that really works for you. Financing Solutions can work with you to meet these needs and provide an option that works best for your business.
Get the right source for 501c3 financing – look no further than Financing Solutions. They will give you the fast nonprofit funding you need to go from good to great.