A nonprofit organization has several funding options in addition to its typical fundraising activities, such as corporate sponsorships, grants, bank loans, and a nonprofit line of credit. Paying operating costs and meeting payroll can’t wait for donations to come in, so it’s crucial to know about the options available to your organization to cover these and unexpected expenses. Nonprofits without adequate funding are often challenged to decide which programs they can afford to continue and which need to be cut. Here are five financing options for nonprofits and why a nonprofit line of credit may work best for your organization.
Nonprofit organizations must obtain at least one-third of their revenues from public support to keep their 501(c)(3) status. Donations can come from capital campaigns asking for help from individual donors and for-profit businesses. Funding can also come from private foundations, which typically receive their monies from a single primary source such as a family or corporation. Private foundations provide grants to other charitable organizations. Nonprofit businesses are regulated by their home states and must comply with their state’s Attorney General’s guidelines for fundraising and donations.
Nonprofit Corporate Sponsorship
Nonprofit funding can also come from corporate sponsorships—the nonprofit organization partners with a corporate sponsor that supports the organization through funding and promotional activities. In return, the sponsor receives recognition and promotional rights.
Nonprofit grants fall into two categories: federal government grants and nonfederal grants. Federal grants are either categorical or block grants. Unlike a nonprofit line of credit which can be used for anything your organization needs, categorical grants fund specific project goals or programs. Block grants have broader objectives, such as community welfare. Nonfederal grants can come from state and local governments, corporations, community organizations, and private foundations. You can find federal grants on Sam.gov and in the Grants.gov database.
Nonprofit Business Loans
Like business loans, most banks and credit unions offer nonprofit term loans. However, the organization can expect stricter qualification considerations such as requiring a minimum credit score and/or putting up collateral when applying for a loan. Before offering the loan, the nonprofit may also be required to state a specific use for the funds.
Other financial institutions are dedicated to nonprofit lending, such as Community Development Financial Institutions (CDFIs). CDFIs are banks, credit unions, loan funds, microloan funds, and venture capital providers committed to giving families and nonprofits economic opportunities to revitalize neighborhoods. You can search for CDFI lenders on the U.S. Department of the Treasury’s website.
Be aware, nonprofit loans, grants, and fundraising typically take a long time before you can receive the funds, so in a pinch, it may be a good idea to have a nonprofit line of credit set up to draw upon.
Nonprofit Line of Credit
For operating expenses, small purchases, or cash flow shortages, a nonprofit line of credit is a short-term solution that keeps the organization running. Like a credit card, the nonprofit line of credit is a “revolving” credit line with a predetermined interest rate and a credit limit.
A line of credit provides a nonprofit organization access to a lump sum of money it can draw from whenever they need it. The money is then paid back over time. Fees and interest rates accumulate only when the money is withdrawn from the account. As soon as it’s repaid, the nonprofit line of credit usually does not cost the nonprofit any money. The terms and conditions of the nonprofit line of credit rely on the lender’s loan terms. Typically, lines of credit have a lower interest rate than credit card financing and ultimately cost the organization less because the loan is paid back quickly.
Credit lines can be unsecured or secured. A secured loan or line of credit requires collateral or a personal guarantee. Most banks require collateral, often in the form of real estate, accounts receivable, inventory, or equity in the nonprofit’s building. An unsecured line of credit does not require collateral or a personal guarantee.
A nonprofit line of credit is beneficial when donations and government reimbursement checks are slow to come in, and you need to make payroll. Or when an emergency repair needs to be done, or an opportunity arises, you can’t pass up. In addition, a nonprofit line of credit can help raise your organization’s credit score—as long as you make the payments on time.
If your organization has a good relationship with your bank, start there to inquire about a nonprofit line of credit. Be sure to ask about any fees and documentation requirements before comparing lenders. Alternative online lenders also offer nonprofit lines of credit, and you may be approved much faster. Still, again, it’s crucial to compare rates and fees before committing your nonprofit to a new financial obligation.
Need Help With Financing Your Nonprofit? Call Financing Solutions!
Financing Solutions works with nonprofits every day to give organization leaders peace of mind when cash flow’s natural ups and downs disrupt normal operations.
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 a good 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 our no-obligation, 2-minute line of credit application here.