Nonprofit Financing is Behind For Profit Businesses
If you fall behind in the race to success, the only answer is to run faster. However, no matter how hard you run, your nonprofit financing will always lag behind for profit businesses.
The mindset many people still harbor about nonprofits can hold you back. They often believe there should be no overhead and no profits. This same type of thinking also spreads to banks when it comes to emergency nonprofit funding. So for both lending institutions and donors, nonprofit organizations are at a severe disadvantage which keeps them perpetually behind for profit businesses. But there is a way out.
Why is Nonprofit Financing Behind for Profit Businesses?
Nonprofit organizations are behind the for profit sector. And nonprofits are not to blame.
Commercial banks are reluctant to provide financing products to nonprofits due to 3 key reasons:
- The bank underwriting requirements of having collateral to back up any type of financing makes it hard for a nonprofit to qualify.
- Banks are fearful of coming down hard on a nonprofit if they default or have trouble repaying the loan. Therefore, from a public relations standpoint, it’s better for the bank to just deny the application for a nonprofit business loan.
- Banks have larger deals to finance. As a result, when a nonprofit needs a loan of $100,000 or less, its small potatoes to them.
It has put nonprofits into a situation where they always have to make sure they have good budgeting and a large cash reserve in order to make ends meet. On the other hand, as you know, this is easier said than done.
How For Profit Businesses Make Ends Meet
A majority of for profit businesses have a line of credit at their disposal. They use this to manage the ups and downs of cash flow. Consequently, if a client is late paying a for profit business then the business will use their line of credit and pay bills and make payroll. Then, they repay the money back to the line when cash flow improves.
If a for-profit business sees a good opportunity to grow their business, they take it. Although they know that they won’t get paid by clients for another 30-60 days, they will use their line as the fast business financing they need.
How to Improve Your Nonprofit Financing Efforts
A line of credit is not just a tool of for profit businesses. It’s even more ideal for a nonprofit. Nonprofit organizations experience more unexpected delays in reimbursement than a for profit business.
The largest expense for a nonprofit is often making payroll. And while you might be able to put off paying vendors or purchasing equipment, payroll is an expenditure that cannot be missed.
Some nonprofits will delay paying payroll when cash flow is down but this is actually illegal. Additionally, doing so could result in IRS scrutiny and fines.
A line of credit from Financing Solutions (www.financingsolutionsnow.com) is fast, easy and inexpensive. There is no charge to set up your line. You are only charged when you use the line. This makes it a great backup plan for nonprofit financing.
You can apply by simply answering 10 questions. We will then send you a written offer. No credit check is done to send a written offer.
If you want to move forward with your line then we will ask for a few simple documents like 990, bank statements, a voided check, etc. In 72 hours or less, your line will be set up and you will be able to use it whenever you like.
What’s Behind the Most Successful Nonprofits?
There is a famous saying that goes, “behind every successful man stands a good woman.” That’s just another way of saying that no one succeeds alone. Every victorious person and organization has someone or something holding them together, providing a boost when necessary and helping them win. This may lead you to wonder, what’s behind successful nonprofits?
Your organization may never hit the $50 million of funding threshold like the big guys. Studies show that only one nonprofit out of 350 ever reaches such numbers. Still, there are things you can learn from them to turn your organization into a household name and grow your business.
A common factor that many big nonprofits have in common is that they diversify their sources for funding. This could be corporations, government grants and loans, donors or national foundations. It’s important to avoid putting all your eggs in one basket. If you do, you put yourself in danger of ruin should one funder go away. Also, it’s likely that traditional nonprofit financing sources will eventually reach the limit of what they will or can contribute. Some donors limit the amount of time they will provide funding upfront. Others severely restrict how you use the money. When these things happen, you will find that your organization is unable to grow further without an increase in nonprofit financing. Hitting a brick wall in your financing options leaves you powerless to expand.
You must also have a hard-working, dedicated, effective board. In many nonprofit organizations, the director and nonprofit board constantly butt heads. They may disagree about the allocation of funds, responsibilities of board members or the direction the organization is heading. These kinds of conflicts only serve to dilute efforts and pull the organization apart. The best nonprofits have a clear mission and written goals so everyone knows what to expect and what to do.
It’s also vital to find excellent ways to engage with your funders. No matter what sources you use for 501c3 funding, you must tell your story and make them want to give. This might involve tailoring your program to meet the needs of a specific funder, finding sources that are a natural match to your business or highlighting success stories of recipients.
Selecting the right employees and board members is essential. You want to find people who share your passion. Ideally, they should also have a different way of thinking so that new ideas come freely. In the popular book Good to Great, author Jim Collins describes the process as putting the right people in the right seats on the bus. When hiring employees, you should look for people who are not afraid to roll up their sleeves and maybe perform functions not directly in their job description. For board members, its best to appoint people who have the valuable skills and connections to move your organization forward, like community leaders, business advisors and financing experts.
Rethink your definition of success. Of course, you need to raise nonprofit capital to fulfill your goals and continue your good works. However, it’s imperative to remember that it’s not always about the monetary numbers. Did you attract more volunteers this year than last year? That’s something to celebrate. Is attendance at your events on the rise? This means that more people are buying into your mission and what you are trying to achieve. See your accomplishments in terms of the lives you change and the impact you make on your community. When you use these types of yardsticks for measurement, you are already and always a big deal.
When you know your strengths and weaknesses, your nonprofit will grow. Sometimes, the very qualities that allow you to get your nonprofit off the ground are the same ones that can hinder you from growth. The key is recognizing where you may be lacking and to hire managers who will compliment your own efforts. Although it’s often necessary to perform all the jobs in your organization at the beginning, it may now be time to step back and delegate more. At every step, you should measure and evaluate whether you are still the best person for the task.
Look for unconventional revenue streams. Sometimes, we are so caught up in surviving day to day that we forget to think outside the box. Donors, foundations and 501c3 loans are not the only options. For example, maybe you can rent out your facilities when you are not using them. It might be possible to open your space to the public and auction off a chance to see what happens behind the scenes. Another popular event is a “night in” where people come in their jammies for a relaxing evening and donate what they would normally spend for a night out. The possibilities are literally endless. No matter what you choose, make sure that it relates back to your primary mission.
One of the most important factors to have is a good funder-nonprofit relationship. You can get this for your organization by contacting Financing Solutions. Nonprofit financing breakthroughs can come through at any time so it’s crucial to be ready with a nonprofit line of credit.
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.