How a Line of Credit Can Really Help Nonprofits
A positive attitude, a solid mission, and dedicated employees can really make a difference for your nonprofit. You should also learn how a line of credit can really help nonprofits.
Leading a nonprofit is often not filled with huge triumphs, but little victories that add up. That’s typically what a nonprofit is really all about. One of the things that can really help you achieve those goals faster is a nonprofit line of credit (LOC).
How Nonprofits Can Get Financing
The unshakable myth that all not for profit financing is taken care of by the government or community never seems to go away. People don’t realize that the word nonprofit only refers to your tax status. You must still operate your nonprofit business like a business.
Whether for-profit or nonprofit, every business will require some type of fast business funding at some point. This is how you get the working capital that is required for existence and growth and to handle financial emergencies. Even with the best financial planning, shortages in business capital do happen.
Government loans and grants for nonprofits are perhaps the most popular form of funding. However, these are usually competitive and extremely restrictive. For example, when you apply for a grant, it is often for a specific purpose and the funder will ensure that you use the money for that objective only.
Getting a nonprofit business loan is no better. Traditional banks insist that you provide enough collateral to cover the cost of the loan. Even worse, most banks don’t understand the unique challenges that nonprofits face.
Many nonprofits rely on donations from supporters. Unfortunately, these can be unpredictable and sporadic. There is really no way that you can plan a budget using guesses and estimates for how much you will receive from donors.
One of the best types of nonprofit business funding is a line of credit. Once you learn more, you will wonder how you are able to get along without one.
Ways that a Line of Credit Can Really Help Nonprofits
Some people mistakenly believe that nonprofits are not eligible for a line of credit. The truth is that a line of credit is simply a flexible financing option that is open to all businesses. Best of all, there are numerous ways in which they are especially beneficial for nonprofits.
Handle cash flow problems
All nonprofits will experience some kind of cash flow issue. This is typically due to the fact that cash only comes in once or twice a year but bills pile up year round. Some of the items you will need to pay for may include things like making payroll, paying rent and developing programs. These initiatives require cash. For instance, caterers and facilities managers often require payment upfront before you can receive any products or services. Also, you should be aware that it’s actually illegal to not pay your employees. It could lead to serious repercussions from the IRS. With a line of credit, you can make these payments even before your grants, loans or donations come in.
Fund sustainability initiatives
While you are working to keep your nonprofit afloat today, you can’t forget about tomorrow. You must take steps now to ensure your survival in the future. This could involve establishing long term partnerships, strategic restructuring, and rebranding of your organization or hiring additional employees. Whatever you choose, it will take the money and you can get this cash from your line of credit.
Invest in new technology
You can’t continue to keep doing things the same old way and expect better results. It’s important for you to discover new methods to streamline processes and reduce costs. Many nonprofits accomplish this by making use of new technology and applications. For instance, you can find programs to help you consolidate back-office tasks, like merging payroll with purchasing or compliance. This helps you avoid duplication of tasks and saves time. The less time you spend on these tasks, the more time you can spend on growth initiatives.
Take advantage of new opportunities
You never know where your next great break will come from. Maybe it will be a change to move into a larger space. Or you might want to hire a grant writer to help you apply for those government endowments you’ve been missing out on. The important thing is that when these opportunities arise, you need to be ready. When you have a supply of nonprofit capital at your fingertips, like a line of credit, you can pursue these prospects.
Stop worrying about daily operations
Do you find yourself losing sleep, wondering how you will keep your doors open and fulfill your mission? Have you ever had to turn away clients because you just don’t have the resources? If you are constantly concentrating on merely existing, you can’t possibly focus on the growth of your business or helping as many people as possible. Additionally, just because you are dealing with big picture items, that doesn’t make the little, daily problems go away. There are still aspects such as purchasing supplies and employee travel that you must contend with. A line of credit allows you to keep handling these things until your money comes in.
Get through emergencies
The nature of unexpected events is that they occur when you least expect them. This doesn’t have to be as serious as a hurricane or economic disaster. Something like the death of a key figure in your organization or the bankruptcy of a major sponsor can send your entire business into shock. If you do not carefully plan for such crises, your business is at risk. In addition to a crisis management plan, you also need a line of credit for nonprofits to ensure you have the financial preparation you need to get through anything.
To act quickly and help others in emergency situations
As a nonprofit serving your community in areas like health care, education and relief, clients expect you to jump in and help at a moment’s notice when something goes wrong. Any of these industries can experience a disaster. For example, your city could be hit by a major storm or a school in your area could lose government funding, leaving them unable to provide the same level of service, like meals or musical instruction. If you are already struggling financially, you won’t be able to help anyone else. A line of credit will allow you to respond immediately to such events because you will have the cash on hand to assist with any crisis while still maintaining your own operations.
How to Really Get the Most from Your Nonprofit Line of Credit
- Use it to support temporary, short term nonprofit funding needs only. A LOC is an inexpensive way to balance uneven cash flow, but it can cost more in fees and terms if you drag it out. You should use it as a quick solution and then pay the money back as soon as your cash flow situation improves. If you do not have a good idea of when your cash will come in, don’t use your LOC.
- Look before you leap. It’s tempting to draw from your line every time you need money. After all, it’s right there, right? However, it’s vital to use your LOC wisely. Develop a plan looking at your yearly expenses and determining when you typically need extra cash for programs or operations. Then, decide how you will use the line in various situations.
- Understand the nonprofit accounting basics. How you record your LOC on your books is just as important as how you spend it. You only record a LOC when you actually use it. Remember to record anything that is payable and any outstanding balance on the correct lines in your bookkeeping documents.
- Don’t be afraid to ask for advice. Taking on debt is a serious matter that you should not take lightly. Don’t just presume that you are doing it correctly. You may want to seek guidance from board members or business leaders in your industry. If you establish good communication with your funding organization, they might also be able to offer direction and assistance to ensure that you are using your line appropriately.
- Get your line of credit from Financing Solutions (www.financingsolutionsnow.com). We make it easy to apply, which you can begin with a 10 question application.
At Financing Solutions, we understand the unique challenges of obtaining 501c3 funding. As a result, we don’t require collateral or personal guarantees.
Most importantly, your line can stay in place for up to 12 months. At the end of this period, if you remain in good standing, you can reapply without difficulty. With our line of credit products, you can get the fast not for profit financing your business needs to really succeed.
If your nonprofit would like a line of credit that you can use when cash flow is down please visit www.fscreditline.com/np to learn more, to apply and to receive a written offer. A line of credit for your nonprofit costs zero to set up and zero until you use it, making it an excellent backup plan.