Not everyone qualifies for a line of credit. Some non-profit organizations have poor credit ratings and don’t have access to property that would qualify as security or a guarantor that could co-sign. There are ways to improve your chances of qualifying for a line of credit if you are working with a commercial or local bank. However, in most cases, a commercial or local bank will not approve your nonprofit but don’t worry, There companies like Financing Solutions that do have a Line of Credit specifically for nonprofit organizations. Continue reading to find out who qualifies, who doesn’t, and how you can move from the latter category into the first!
Who Qualifies and Who Doesn’t
Generally, borrowers who meet at least most of the following criteria will tend to qualify for lines of credit with a commercial or local bank (Don’t worry, Financing Solutions doesn’t look at most or any of these):
- Long credit history
- Good credit score
- Access to assets that can act as security for the line
- Access to guarantors who can cosign the line
- Access to stable and significant sources of income
On the other hand, borrowers who suffer from the following deficiencies tend not to qualify for either a line of credit or loans:
- Non-existent credit history
- Short credit history
- Poor credit score
- Past-due accounts
- No assets that can serve as security for the line of credit
- No available guarantors to co-sign the line of credit
- Unstable or low levels of regular income
At the end of the day, it all comes down to risk. People who meet the criteria in the first list are demonstrably less risky for financial institutions to lend to than people who satisfy the conditions of the second list. In other words, when lenders lend to the first group of people, they generally get their money back plus interest on the loan. When lenders lend to the second group of people, they often don’t get their money back.
Now, just because you suffer from some, or even all, of the problems identified in the second list doesn’t mean that you’ll never qualify for a line of credit. It simply means that you need to execute a few strategies to improve your attractiveness to lenders and reduce your risk.
Credit History
If you lack a credit history or have a short one, start building! The best way to build a credit history is to use credit responsibly. That means utilizing either sources of revolving credit (like credit cards and credit lines) or loans to meet your financial goals.
Generally, it’s never a good idea to take out a loan just to build your credit history. The interest payments are too expensive for that. What you may want to do instead is to apply for a credit card or small credit line that you know you’ll qualify for and pay off the balance every month before interest becomes due. That way, you’re using credit without paying interest payments.
It will take a little while to build credit history but it’s surprising how quickly lenders determine that you’re a low enough risk to lend to.
Credit Score
Your credit score is the primary tool that lenders use to decide whether to extend a line of credit to you. But what are you to do if unfortunate circumstances or past irresponsible behavior have reduced your credit score? Are you stuck with that forever?
No! You can begin to improve your credit score by engaging in a few simple behaviors that will have a dramatic, positive impact on your score.
Reduce Your Credit Utilization
Credit utilization is the ratio of your total outstanding debt to your total available credit. An example may serve to clarify this.
Let’s say that you have a credit card with a $5,000 limit. It’s maxed out. You also have a $10,000 personal line of credit on which you owe $2,000. Your total debt, in this case, is $7,000 (5,000+2,000). Your total available credit is $15,000 (10,000+5,000). So, your credit utilization rate is 7,000:15,000, which equals approximately 47% (7,000/15,000).
Ideally, you want your credit utilization to remain below 30%. In other words, of the credit you currently have open and available to you, you want to use less than 30% of it. To put it yet another way, having credit available to you and not using it is usually very good for your credit score.
Make All Payments on Time
Make all of your bill, utility, and credit card payments on time. Being late even a few days can hurt your credit score.
One of the easiest ways to do this is to make your bill payments automatic. Most utilities and companies allow for an automatic debit option. Utilize it! It will make sure that you never miss a payment accidentally and keeps your credit score rising.
Don’t Open New Debt
Opening new debt reduces your credit score temporarily so don’t run around opening new credit cards, loans, or credit lines all over the place. Credit bureaus prefer old and established credit to new and untested credit.
If you have opened new debt recently, use it responsibly for a little while before the credit reporting bureaus increase your score back to where it was previously.
Don’t Close Old Credit Cards
Remember what we said about your credit utilization rate? One of the best ways to dramatically increase it, thereby lowering your credit score, is to close old credit cards that you’re not using. Think about it. Let’s say you have two credit cards. The one you use regularly has a limit of $5,000 and an outstanding balance of $2,000. The one you never use also has a limit of $5,000 with no outstanding balance. Right now, your credit utilization is 20% (2,000/10,000).
But what happens if you close that unused credit card? Your credit utilization jumps to 40% (2,000/5,000)! So, if you have an old card or credit line with no annual fee that’s just sitting there, don’t close it just before you want to apply for a new card, credit line, or loan.
Financing Solutions Line of Credit for Nonprofits
Financing Solutions is a leading provider of business loans for nonprofits in the form of a 501c3/not-for-profit line of credit in the US providing Lines of Credit to nonprofits with yearly revenue of at least $200,000. Our credit lines cost nothing to set up and nothing unless used making it a great backup plan. The Line has very low fees when used, requires no security, and we don’t request a guarantor. Nonprofits use their FS Line of Credit when there is an important unexpected expense like payroll that needs to be paid on time. Best of all, you can apply online in just minutes! Call us today at 862.207.4118 to see how we can help your non-profit!