Lines of credit for non-profits are useful in an astounding variety of situations. Whether you’re hoping to free up more cash to distribute to the communities you serve or pay your expenses in a month where all of your revenue seems to be coming in late, a good line of credit can meet your needs.
But a line of credit for non-profits can be hard to obtain. Many banks and credit unions won’t even consider extending credit to non-profits. For those that do, most require personal guarantees or collateral.
So how does a non profit go about finding a financing product that works for them? Read on to find out what a credit line can do for your non profit and where to go about finding a lender that will work with you.
What Is a Line of Credit for Non-Profits?
Lines of credit can best be understood by contrasting them with loans. A loan, as most people know, is typically taken in a single chunk. It is then repaid by the borrower – with interest on the entire outstanding amount – over a fixed period of time.
A line of credit, on the other hand, is extended to a borrower with a limit. Like with a credit card, the borrower uses as much or as little they want, up to the borrowing limit, at any time. The borrower can also typically pay back the outstanding amount at any time without suffering financial penalties.
A line of credit for non-profits works exactly like a line of credit for a for-profit firm.
Why Are They So Hard to Find?
We’ve covered the reluctance of banks and credit unions to extend credit lines to non-profits[1] in the past but we’ll briefly go over some of the reasons that those institutions are slow to grant credit lines for nonprofits. They include:
- Lack of expertise in nonprofit lending
- Lack of experience in nonprofit lending
- The nature of nonprofit work
- The risk posed to the bank’s reputation by engaging in collections efforts against a beloved community nonprofit
Because of these reasons and more, many banks and credit unions won’t consider extending a credit line to your non-profit, no matter how financially sound and responsible your firm is.
What Can They Do For Me?
More than anything else, the primary benefit nonprofits gain from having a line of credit is financial flexibility. Lines of credit for non-profits allow those organizations to pay expenses before realizing revenue, freeing them from a rigid adherence to payment schedules. A non-profit without a credit line can be forced to delay the payment of an expense until revenue has been realized while a non-profit with a credit line can use it to pay their expenses at any time and pay the line back when they receive revenue.
A credit line also frees up a significant amount of cash. Many nonprofits are forced to carry large cash balances to ensure that they’ll have enough reserves to pay all of their vital expenses in the event that revenue is realized later than expected. For example, they can’t risk being late with payroll because of the massive noncompliance fines and other governmental penalties that could result. So they hold a cash balance as a buffer to guard against missing payments.
A credit line eliminates or reduces the need to hold that much cash. Because you can choose when to pay expenses, you no longer need such a large buffer against unexpected financial events.
By freeing up cash for productive uses and increasing your nonprofit’s financial flexibility, lines of credit act as a kind of financial WD-40 for your firm. They lubricate your financial operations, preventing interruptions to cash flow as you go about your daily business.
This increased flexibility can have massive consequences for even small nonprofits. A failure to make certain payments on time, like payroll or debt payments, results in significant penalties, sanctions, and consequences from regulatory agencies and other institutions. Those consequences can have significant effects on your nonprofit’s reputation, affecting its ability to fundraise and make a difference in the community.
Where Can I Find One?
We’ve covered the fact that a line of credit for non-profits can be hard to find. Banks and credit unions aren’t keen to hand them out to non-profits and non-traditional lending solutions available to for-profit firms like peer-to-peer lending are not yet widely available to nonprofits. Equity financing obviously isn’t a realistic solution either.
Enter Financing Solutions, a leading provider of business loans for nonprofits in the form of a 501c3/not-for-profit line of credit. For years, Financing Solutions has been offering a line of credit for non-profits that’s low-cost, simple, and straightforward. It’s easy to apply for and many firms qualify. Because Financing Solutions works with all sorts of nonprofits, from those bringing in just $200,000 in annual revenues to those earning over $5 million, there’s a good chance that your non-profit is just the sort of partner they’re looking for.
Financing Solutions doesn’t require nonprofits to provide personal guarantors or collateral for their lines of credit. They also don’t charge interest, choosing instead to charge a small, weekly fee when the credit line is in use. If you’re not using the credit line, you won’t be charged.
There are no costs to set up the line and the outstanding balance can be repaid at a time of the borrower’s choosing. There are no penalties for early repayment as there might be with a traditional loan.
Give them a call at 862.207.4118 and let them know what you’re looking for. They’d love to chat with you. Or, better yet, access their credit line application online and get a quote in minutes.
