Non-profit Mortgage Loans: A New Opportunity
It used to be that only for-profit businesses could access the mortgage loans necessary to buy a building or property outright. Today, new lending solutions and arrangements have made it possible for non-profits to access non-profit mortgage loans. There are also other creative solutions, like a Nonprofit Line of Credit, that allows nonprofits to address working capital needs.
The tools now available to non-profits range from crowdfunded loans to lines of credit and cover a variety of situations that apply to many non-profits. It’s in the best interest of the leaders of any non-profit organization to investigate the options available to them and determine which, if any, work best with their organizations’ capital and operational needs.
After reading below the options your nonprofit has in regards to a non-profit mortgage you might really consider also looking into a Nonprofit Line of Credit from Financing Solutions. Financing Solutions Nonprofit Line of Credit program is extremely popular due to the ups and downs of cash flow at most 501c3 organizations. Financing Solutions line of credit product is the first of its kind because it is specifically designed for smaller nonprofits that haven’t been able to be approved for a convention bank line of credit. Financing Solutions Nonprofit Line of Credit Product costs nothing until used, requires no collateral/personal guarantees, is very inexpensive when needed, and is an excellent cash backup plan.
The Previous Reality
In the bad old days, only banks and other specific institutions provided mortgage loans to businesses. As a result of their risk management practices, they understandably restricted their lending to financially healthy for-profit enterprises. These companies provided the highest probability of debt repayment with the lowest amount of risk.
Banks also have required personal guarantees which for a nonprofit, has caused a lot of compliance problems.
Unfortunately, this system left a lot of borrowers out in the cold. Especially non-profits that were often limited to renting a property because of a lack of access to the capital necessary to buy a property. While renting is a feasible option in some circumstances, other situations called for the purchase of property which was out of the question given the lending practices of the banks and institutions.
Crowd Funding Mortgages For Nonprofits
With the rise of the internet, new solutions became possible. Crowdfunded lending, alternative lenders, and other niche lending platforms extended credit to borrowers who had previously found such capital out of reach.
These new solutions, like the one offered by Semble, allow small- and medium-sized non-profits the ability to purchase buildings and properties by using future donations as colleterial. Combining the equity in the building/property with those future donations allows Semble to attract banks that are willing to provide a mortgage.
Should a Nonprofit Purchase a Building?
While new financial tools allow for greater flexibility and access to more capital than ever before, they are not necessarily a panacea. Owning as opposed to renting is not always the right solution for every non-profit. This depends on a lot of factors, including real estate prices in your area, capital requirements, regulatory requirements, longevity. It may end up that renting is a preferable solution for your non-profit and you may find that you don’t need access to the capital being offered by new lending solutions.
That said, it’s difficult to argue that an increase in the funding choices available to non-profits is a bad thing. Many non-profits do benefit from the greater flexibility and opportunity afforded by those agencies who choose to leverage their operations to one degree or another. While not for every non-profit, those organizations that can safely cover their interest and principal payments may find that non-profit mortgages and other loans open up a world of opportunity.
Line of Credit as a Non-profit Mortgage Loan? Probably Not.
If the idea of owning a property rather than renting has taken root, you may wonder what tools are available to your non-profit to make the buying a building. a reality. You may even wonder if a nonprofit line of credit, like the one offered by Financing Solutions, can be used to finance the purchase of a property.
The answer is likely no. It is unwise to use a line of credit to fund the purchase of property, especially for a non-profit. Lines of credit are not structured like mortgage loans, let alone non-profit mortgage loans. Lines of credit are used to address temporary shortfalls in working capital. Where as mortgages are typically amortized over extremely long periods of time, often from ten to thirty years and secured with the property being purchased. As a result, a mortgage has a more favorable terms that are compatible with the long period of repayment.
Mortgages typically have lower interest rates and inflexible repayment structures than lines of credit. Plus line of credit are usually for a smaller amount. For example, some mortgages cannot be repaid faster than the repayment schedule permits or the borrower may be required to pay a significant penalty.
Line of Credit as an Operational Aid? Absolutely!
This does not mean that lines of credit are not suitable for non-profits. Quite the opposite – they are tremendously useful for operational purposes. For example, a non-profit looking to reduce the volatility of its cash balance over the course of the month or year can benefit from a line of credit. A non-profit seeking to cover short-term cash deficits so they can make payroll is a very typical use for a credit line. The situations in which a low-cost and low-maintenance financial tool like a line of credit can help a non-profit are many but the purchase of property likely isn’t one of those situations unless use the line of credit temporarily until a mortgage can be set up.
Instead, consider lines of credit as a supplement to maintaining a large cash balance for operational requirements. The additional flexibility offered by the line of credit helps reduce the amount of money you need to keep for short-term operational needs thereby freeing up cash for operations, investment or donation.
The internet has unleashed all kinds of creative and useful financial instruments in the world. While they should be used with due caution – especially by non-profits entrusted with shepherding endowments to their rightful recipients – they can open up a world of opportunity to those organizations willing to think outside the box.
Non-profit mortgage loans are just some of the new products available to non-profits around the country. They round out a suite of products, including lines of credit, that provide funding to small, medium-sized, and even large non-profits. If you’re wondering if your operational efficiency can be further tuned by adding an inexpensive line of credit to your financial toolbox, try applying for a Financing Solutions product today!