Loans for Nonprofits: A Guide to Borrowing
Like business loans do for companies and corporations, loans for nonprofits fulfill a nonprofit organization’s need for working capital when donations and grants fall short, putting the operation at risk. Fortunately, nonprofits have several funding options from a variety of sources.
Benefits of Loans for Nonprofits
There comes a time for every nonprofit when borrowing money is beneficial to the success and growth of the organization.
Benefit 1: Cash Flow
Every business runs into cash flow issues, and nonprofit businesses are no exception. Running a nonprofit without cash reserves is a considerable risk, especially when it comes to meeting payroll—it is illegal to delay or miss payroll. Loans for nonprofits (such as term loans and nonprofit lines of credit) can help fill the cash gap when needed, whether for paying bills, financing an unexpected repair, or making payroll.
Benefit 2. Pricey Purchases or Renovations
Most organizations search for loans for nonprofits when important purchases need to be made and using business credit cards with their higher interest rates and low approval amount doesn’t make good financial sense. (Plus, all credit cards are personally guaranteed and reported to credit burrows.) For example, you may need to buy an essential piece of equipment or renovate part of a building, which could be a costly purchase. Loans for nonprofits typically have lower interest rates than credit cards, so they’re more cost-effective and a line of credit is always approved for a large amount..
Benefit 3. When Opportunity Knocks
All nonprofits dream about finding an incredible opportunity that can propel them to tremendous success. Still, the dream may become a nightmare if the nonprofit organization lacks the financing to take advantage of the opportunity. Whether it’s the chance to start a new community program or move to a larger location, getting a loan for a nonprofit can help make your dream come true.
When Should a Nonprofit Seek Out a Loan?
There is a right and a wrong time for a nonprofit to search for financing options.
Taking out loans for nonprofits takes careful consideration and depends on several factors such as loan amount, repayment terms, interest rates, and more. In general, the right time to seek a loan for a nonprofit is when you have a specific plan for the money but a nonprofit line of credit is often taken out in advance so when it is needed, you have it ready to go.
The wrong time for a nonprofit to seek a loan for a nonprofit is if the organization is consistently underfunded and can’t pay its expenses. Adding debt to an already struggling organization is a recipe for disaster.
Types of Loans Available for Nonprofits
There are several types of loans for nonprofits to look for while waiting for a big donation, grant, or corporate sponsorship to come through.
Some banks and credit unions offer loans for nonprofits but it is very hard to get them approved especially for smaller nonprofits. A commercial bank loan for a nonprofit is typically harder to get and comes with stricter qualifications, such as the requirement for collateral when applying for a loan as well as a personal guarantee. Note: Financing Solutions nonprofit line of credit does not require collateral or a personal guarantee.
Community Development Financial Institutions (CDFIs) are banks, credit unions, loan funds, microloan funds, and venture capital providers specifically dedicated to nonprofit lending. CDFIs are also nonprofit organizations whose mission is to give families and other nonprofits better economic opportunities to revitalize neighborhoods. CDFI lenders are listed on the U.S. Department of the Treasury’s website. However, CDFI’s require that you show you are providing a service to economically disadvantaged areas of the US.
Nonprofit Line of Credit
Depending on the loan amount and purpose, a nonprofit line of credit might be a better short-term solution. For expenses such as small purchases or cash flow shortages, a nonprofit line of credit can keep the organization running until more significant funding comes through. A nonprofit line of credit is a “revolving” credit line with a predetermined interest rate and credit limit. A line of credit provides the nonprofit access to a lump sum of money that can be drawn from when needed. Fees and interest rates only accrue when the money is withdrawn from the account, and as soon as it’s repaid, the nonprofit line of credit has no costs. (note: Banks do require setup fees and yearly maintenance fees but Financing Solutions does not) Lines of credit also typically have lower interest rates than credit card financing and are quicker to get—which can be a lifesaver in an emergency.
How to Get a Loan for a Nonprofit Organization
Most business loans with a local or commercial bank, including loans for nonprofits, require submitting quite a bit of documentation. Here’s an idea of what you’ll need to apply:
- Last three years of financials, including income statements and balance sheets
- Number of giving units (groups, family members, recurring supporters of the organization)
- Total organization membership numbers
- Present property value (if there is property)
- Projected construction budget
- Organization’s fundraising efforts and the amount to be raised
- Information about previous fundraising efforts
- Organization’s history
- Background of the organization’s leadership and all key personnel
- Organization’s current and proposed locations
- Mission statement and primary ministries
- Community contributions
- Articles of Incorporation; bylaws; resolutions
- IRS Form 990
- Breakdown of usage of funds
- Website or Company Information
- Financial projections
- 501(c)(3) Document/IRS acknowledgment of Nonprofit Status
In most cases, collateral and/or personal guarantees are part of the loan requirements. Collateral is an organizational asset that has a value that lenders liquidate for cash, such as real estate, equipment, inventory, and vehicles.
When applying for a nonprofit line of credit, most borrowers find the application process much more straightforward, with less documentation required and quicker approvals. Plus, line-of-credit lenders typically require tax returns, bank statements, income statements, and a history showing good financial behavior. Note: Financing Solutions only requires a recent 990, 4 months of bank statements, a driver’s license, and a voided company check)
Have Additional Questions About Nonprofit Loans and Financing?
Most nonprofits and churches have ups and downs in cash flow due to delayed collections, reimbursements, grants, and fundraising. A nonprofit line of credit can significantly help your organization and ease your peace of mind.
The founders of Financing Solutions have started and grown several companies together, so we understand how important it is for nonprofits to keep costs low. That’s why we don’t charge you to set up a credit line, and there are no maintenance fees. We don’t ask for personal guarantees, and applicants can receive a no-obligation offer letter the same day. We make approval decisions based on our decade of experience working with nonprofit organizations. Financing Solutions is the leading provider of lines of credit to small nonprofits in the US.
With Financing Solutions’ Nonprofit Line of Credit, nonprofit organizations always have the benefits of a more straightforward application process, plus:
- There are no costs to set it up or keep it in place
- There’s an easy 2-minute application online application
- If approved, you’ll receive a same-day, no-obligation offer letter
- The fastest setup, 48-72 hours
- Once you get the line of credit, requests for funds are wired to your bank in minutes
- You can use your line of credit whenever needed
- Inexpensive when used (low fees)
- There are no restrictions in place or collateral required
- No personal guarantee is required, either
- Financing Solutions is a leading provider of lines of credit
- We are a reputable company with an A+ & 5-star rating
- You can pay off the line whenever you are ready
- The credit line renews yearly and is easy to renew
- You have a secured account portal access 24 x 7
A nonprofit line of credit is a good funding resource available whenever your nonprofit needs it, without the heavy burden of term loan requirements or asking for a loan from a board member. If you want to see if your nonprofit organization would be approved and for how much, please fill out the no-obligation, 2-minute line of credit application here.