The issue of funding has remained a constant source of worry to nonprofit leaders: How much do we need? Where do we get it? And how do we get it? These mind-boggling questions have become more frequent and pressing, especially in these challenging economic times. But unfortunately, answers to these troubling questions are not readily available. That’s because nonprofit leaders are much more concerned with matters relating to crafting their organizations’ programs than they care about funding.
However, without a well-thought strategy for financing, nonprofits will hardly reach their goals. When nonprofits’ objectives and funding sources are not well-matched, money will not flow to the areas it will do the greatest good. Too often, the impacts are always pathetic: promising programs are either cut, poorly executed, or never launched.
Knowing how to finance your nonprofit through a variety of funding sources does not only ensure the survival of your organization but promotes frequent cash flow and helps you meet your community needs effectively.
Summary
Why Do Nonprofits Struggle to Get Funding?
Unlike for-profit organizations that deal on products and services to generate money, most nonprofits depend largely on fundraising for financing. As a result, nonprofits have fewer funding options, making it difficult for them to enjoy financial flexibility of sort.
More so, there are instances when traditional lenders like banks denied nonprofits financial assistance because they were not reasonably certain they would get their money back. Plus, most nonprofits lack the needed collateral that will facilitate their loan applications.
Many nonprofits don’t have an adequate financial plan to ensure regular cash flow. Most of them depend primarily on grants from the government to support their general operations. And when they get the money, they plow most of it into service delivery rather than investing some part of the money in strengthening their financial capacity. All of these contribute to the financial challenges the nonprofit sector faces today.
5 Financing Options for Nonprofit
Regardless of the financial difficulties besetting nonprofits, there are still many viable funding options that leaders of nonprofit organizations can explore to finance their community development projects. Some financing options for nonprofits include SBA government loans and grants, nonprofit lines of credit, bank or credit union loans, and business credit cards.
SBA Loans and Grants
The SBA funds nonprofits that are dedicated to helping underprivileged individuals or communities through their Program for Investment in Microentrepreneurs (PRIME) .
In addition, there are other intervention programs by SBA, including Covid-19 Economic Injury Disaster Loan (EIDL) for nonprofits.
SBA avail this grant to provide funding for nonprofits experiencing temporary loss of revenue due to Covid-19. In other words, the loan is advanced to nonprofit organizations to enable them to pay expenses they would have ordinarily been able to pay had the pandemic not occurred.
Although SBA resources and funding might take some time, don’t hesitate to turn to them for your nonprofit financing.
Nonprofit Line of Credit
Generally, a line of credit is a flexible loan given by banks or other financial institutions to businesses. Like a credit card, nonprofit lines of credit make a specific amount of money available for use when required. However, this must be repaid over a predetermined period.
The good news about a nonprofit line of credit is that interest or fees are only charged on the amount used from the credit line and not on the entire available fund.
A nonprofit line of credit is a veritable cash backup plan to draw from for emergencies or opportunities. It ensures a frequent cash flow within nonprofit organizations. Savvy nonprofit leaders use the nonprofit credit line to cater to recurring bills such as payroll, rent, and other expenses while waiting to collect government grants or get reimbursed after services have been performed.
Bank or Credit Union loans
A loan is another nonprofit funding source. However, unlike commercial businesses, nonprofits often find it difficult to get loans from banks or credit unions because most nonprofit organizations don’t have exceptional credit scores and tons of collateral. In addition, traditional financial institutions require a personal guarantor that will assure them that if the loan isn’t paid, the bank will have some recourse to recover their money.
When applying for a bank loan, ensure you have collateral, personal guarantees, and a good credit score.
Crowdfunding
The advent of the internet has brought numerous opportunities. For example, it has become possible for organizations to raise funds online by appealing to people that sympathize with their cause. Crowdfunding is a form of fundraising that encourages people to support community projects.
Crowdfunding involves leveraging social media or crowdfunding websites to access a vast network of donors by bringing them together for a common cause. In recent times, crowdfunding has become increasingly popular. Some of the most popular crowdfunding websites are:
- Donorbox
- Fundly
- Classy
- CauseVox
- Donate
- Chuffed
- Salsalabs
- GoFundMe Charity
Business Credit Card
Another source of funding worth considering is a business credit card. A business credit card offers a revolving line of credit and can be used to cover unforeseen expenses, pay bills when cash is tight or while waiting for an incoming check. However, one common drawback of business credit cards is that they typically have a higher interest rate than a traditional loan. In addition, a business credit card is usually unsecured, which means a higher risk for lenders.
Is Your Nonprofit in Need of a Line of Credit?
Every nonprofit needs a constant cash flow to survive. And there’s no easier way to ensure the effective operation of your organization than having sufficient funding to keep your nonprofit running. Undoubtedly, one of the major problems the nonprofit sector is facing today is the issue of funding. Money is at the heart of every nonprofit decision: community projects need to be implemented, payroll needs to be made as and when due, not even to talk about money that goes into day-to-day operations.
Not having enough funding on hand can severely hamper the efficient operation of your nonprofit, no matter how good-intentioned its cause is. For example, when your employees are not paid when they are supposed to be paid, it could dampen their morale and in a worst-case scenario, may trigger massive turnover. Plus, a magnificent and viable project can be truncated or might not even see the light of the day because of a lack of finance.
At Financing Solutions, a leading provider of business loans for nonprofits in the form of a 501c3/not-for-profit line of credit, we provide unsecured business lines of credit to nonprofits. Financing Solutions’ line of credit costs nothing to set up, nothing until used, and when used, it is inexpensive. In addition, the business line of credit with instant approval requires no collateral and personal guarantees, making it a great cash backup plan.
Fill out the no-obligation, 2-minute business line of credit application here. Remember, the time to set up a credit line is when you don’t need it so that it is ready to be used when you need it.