US lenders who service nonprofit organizations have always been challenging to find if you are a nonprofit. However, some nonprofit lenders have started to give 501c3s the same business loans and business lines of credit that for-profit businesses have had for decades. What is now different is that these lenders are not the ones you would have normally turned to.
So, let us talk a little bit about the history of nonprofit lenders, who the nonprofit lenders are nowadays, what these nonprofit lenders focus on for approving loans and why a nonprofit would want a nonprofit loan or line of credit.
History of Nonprofit Lenders and Nonprofit Organizations
Nonprofit organizations have wanted the same access to capital for decades that for-profit businesses have had. However, those nonprofit lenders have typically been commercial or local banks. Unfortunately, the approval process that banks have always used has been very challenging for nonprofits to qualify for.
Banks have always required solid financials which would show enough profit to pay for the loan, collateral in case of loan default, and a personal guarantee so the bank knew they had a firm commitment. These loan requirements made it almost impossible for a nonprofit to qualify for any type of financing. Time and time again executive directors and nonprofit board members would learn of the approval requirements and would feel it wasn’t worth applying for a loan for their nonprofit. There are times when a nonprofit was lucky enough to have a long, excellent relationship with a bank and was able to be approved for a small loan.
However, in the 2008 recession banks stopped lending and when that happened, it started a wave of private lenders that were able to use new technology and algorithms to better determine risk more economically. Since 2008, 80% of small businesses are now getting their loans online from lenders who use private funds and with the wave of new capability, nonprofits have benefited greatly.
Financing Solutions, New Nonprofit Lenders You Should Know About
In 2012, Financing Solutions, a leading provider of business loans for nonprofits in the form of a 501c3/not-for-profit line of credit, began to provide loans for nonprofit organizations in the form of a line of credit and since then has been a top nonprofit lender to smaller nonprofits whose yearly revenues are under $5 million. Nonprofits are now setting up a credit line for emergencies or opportunities when cash flow is temporarily down instead of borrowing money from a donor or their board.
Financing Solutions streamlined the loan approval process by not requiring any collateral or personal guarantees and instead approving nonprofits based on their cash flow. In essence, Financing Solutions looks at simple documents like a nonprofit’s 990 and bank statements to determine how much the line of credit can be approved for. The nonprofit online line of credit application takes 2-minutes to fill out and the line of credit costs nothing until used, making it a great cash backup plan.
Semble’s Nonprofit Mortgage Loans
The challenges of this past year have made it more difficult than ever for non-profits to secure a loan to purchase property or to refinance an existing loan. For the past 14 years, Semble has been providing a comprehensive approach to addressing the facility loan needs o non-profits. As a result of the Semble unique loan program, non-profits have been able to realize savings of up to 60% on monthly loan payments, which frees up precious recourses for the mission of the organization. The three key benefits of Semble’s loan program are
- more loan options
- significantly lower monthly payments
- an increase in charitable giving.
Nonprofit Lending and Banking For Large Nonprofits
If your nonprofit is over $10 million per year in revenue, then some banks have started to create divisions specifically to serve a nonprofit’s unique needs. JP Morgan Nonprofit Banking Division is an example of a bank that has such a division. It services 941 large nonprofit banking clients providing $77 billion in nonprofit loans to large nonprofits.
CDFI’s for Nonprofits
Community development financial institutions (CDFI) are private financial institutions that work locally that are designed to help businesses and nonprofits that work in low-income or disadvantaged areas. CDFI’s are broken down into Community Development Banks, Community Development Credit Unions, Community Development Loan Funds (nonprofit lending), and Community Development Venture Capital Funds.
CDFI’s are run through both private and government matching donations and are run on a local level. It is a good idea to learn about the CDFI’s in your state.
Startup Nonprofits Looking For Financing and Loans
If you are starting a new nonprofit, then you might as well know now that looking for a nonprofit loan to start your organization will be next to impossible unless you are willing to put up collateral like your home and willing to sign a personal guarantee because that is what a commercial bank will ask for.
The better choice is to spend your time getting pledges from friends, family, and acquaintances. Then start to learn about the various government programs that provide grants for nonprofits in your sector. The skills you will learn in getting donors and winning grants will be very important in the future of your nonprofits. Most people who start nonprofits think about how they can help a cause, but the fact remains that founders of successful nonprofits are great fundraisers.
A great resource for learning about building a nonprofit can be found by listening to or reading The Nonprofit MBA Podcast.
Don’t Be Fearful Of Learning More About Financing Tools
Many nonprofits are fearful of nonprofit lenders thinking that every penny that is paid out to a nonprofit lender is a penny that is not used for your cause. However, as a nonprofit gets bigger your organization will begin having similar needs to many for-profit businesses. Knowing where to turn to for funds based on what you are trying to accomplish can help your organization which in turn can help others.