No matter how generous your nonprofit organization’s donors are, there will inevitably come when the organization needs one or more nonprofit loans to keep its operations and programs growing. Nonprofit loans can help with the many expenses nonprofits manage and incur, such as rent or mortgage payments, supplies, utilities, transportation, payroll, marketing costs, and more. Like all business loans, nonprofit loans provide working capital but also incur extra interest rates and fees.

Thinking About Putting in an Application for a Nonprofit Loan? There Are Just a Few Things to Consider First

Among other things, nonprofit loans can help your organization expand its real estate options, undertake improvements, or make significant investment purchases. Lenders offering loans typically provide a term loan, a fixed amount of money paid back monthlynonprofit loans over a long, predetermined period of time, such as two-five years.

Before applying for a loan, here are some factors you need to consider:

  • Does your organization really need a nonprofit loan? Term loans put extra strain on your monthly cash flow for a long time, so make sure you first consider other avenues of raising money, such as fundraising, grants, or sponsorships.
  • How will the loan funds be used? Banks, credit unions, and other traditional lenders typically offer a variety of loan packages for different uses, so be sure to narrow the purpose for the nonprofit loan before beginning the application process.
  • What loan amounts are needed? First, create a budget for the project or the various uses for the nonprofit loan and then review it with the organization’s accountant to see if the amount is sufficient.
  • How does the nonprofit organization’s financial health measure up? It’s best to check the organization’s credit score before the lender does so you can fix any errors with the credit agencies.
  • How soon are the loan funds needed? Traditional nonprofit loans can take anywhere from a few weeks to several months to process. If your organization needs the money quickly, you may have to find other sources of financing.
  • What other debt does the organization have? Before taking on any new debt, it’s essential to go over all outstanding loans and credit card purchases to ensure the nonprofit can take on additional debt.
  • What costs are involved in a nonprofit loan? All nonprofit loans carry some interest rate, fees, and penalties. Make sure you know all the costs involved before committing to the loan.

What You Should Know About Nonprofit Loans

Like all business loans, a nonprofit business loan is a big commitment for additional financing for your nonprofit organization. Unlike for-profit businesses, lenders know a nonprofit can’t simply sell more products or services to make a profit and pay back the loan. Most nonprofit organizations depend on grants and donations, neither of which is ever a sure thing. For these reasons finding and securing a nonprofit loan may prove even more challenging without proper preparation.

Where to Apply for a Loan as a Nonprofit

Many banks, credit unions, and alternative lenders have nonprofit loan options—you simply need to ask about them. Start with your nonprofit’s banking institution since they already know and understand your organization’s mission and goals.

It’s also vital to shop around, as lenders all have different interest rates and fees to compare. Check with other nonprofits to find out where they have had luck getting a loan. In addition,  the Small Business Administration (SBA) has resources that help nonprofits seeking financing.

Here’s the Ultimate Nonprofit Loan Application Checklist

As we said previously, it’s critical you’re well prepared before applying for a nonprofit loan. Check out the following checklist to gather the appropriate documents.

  • Last three years of financials, including income statements and balance sheets
  • Number of giving units (groups, family members, recurring supporters of the organization)
  • Total membership numbers for the organization
  • Present property value (if you own property)
  • Projected construction budget
  • Organization’s fundraising efforts and 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 Acknowledgement of Non-Profit Status

Nonprofit Loan vs. Nonprofit Line of Credit

If time is the priority and you need funding for a nonprofit emergency quickly, the bank requirements for a nonprofit loan will slow you down. It’s smarter to seek an alternative source of funding like a line of credit.

A nonprofit line of credit provides an ongoing source of money available to your organization for whatever demands your organization requires. While nonprofit loan requirements often specify what the loan can (and can’t) be used for, a nonprofit line of credit is different. A nonprofit line of credit allows your nonprofit organization to have the funds for minor repairs, upgrading technology, meeting payroll, or any other need (big or small) your organization requires. In addition, nonprofit loan requirements often entail a very extensive application process, putting a heavy burden on the organization’s staff and financial officers. The application process for a nonprofit line of credit is much simpler and requires much less documentation and preparation.

Typically, a line of credit helps even out cash flow when needed. Like all businesses, nonprofit organizations experience periods when money is flowing and periods when money is tight. Having extra cash on hand can seriously help get an organization over a low point and back on track, especially in an unstable financial environment.

Once the nonprofit line of credit application is approved, the nonprofit organization receives the money as a revolving credit line, similar to a credit card line. The money is available to the nonprofit organization when needed, and the organization can always access whatever money remains in the account. When you borrow money, you are only charged fees on the money that has been withdrawn. Then, when you repay money to the line, the funds are available again—without having to apply for a new loan. Also, when the line is back to its total amount, there is no cost for the nonprofit organization. To sum it up: Borrowers draw funds when needed, pay the money back, and have the money available again for their next need.

Call Financing Solutions

With the 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 an excellent funding resource that’s available whenever your nonprofit needs it, without the heavy burden of term loan requirements. 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.