Summary: Financing Solutions shares the top 4 reasons how a nonprofit line of credit is used. Nonprofits use their Line of Credit typically to make payroll when there is a delay in reimbursement funding, when there is an emergency that has to be addressed, to start a new program early when the nonprofit knows that there will be funding, and to take advantage of an opportunity to improve the nonprofit.
You Can’t Miss Payroll
The number one reason why a nonprofit line of credit is used is to make payroll when a reimbursement check has been delayed. Sometimes this happens out of the blue but other times it is because of funding delays at the end of a fiscal year.
Most Executives do not know that it is actually illegal to miss payroll and one of the top reasons is that the state and federal government want their payroll taxes now. Yes, the government also cares about your employees being paid but for whatever reason, you run the risk of being fined and audited if you do not pay your staff on time.
Another good reason why a nonprofit doesn’t want to miss payroll is because your employees really do need the money. If you have ever announced that payroll was going to be delayed you often will get a knock on your door from an employee(s) who are sure to tell you how that delay is going to affect their lives. The true fact is that many of your employees care deeply about your mission but they themselves often are struggling.
Lastly, it is hard enough to find good people but employees are working for your organization because they want a steady and predictable income. If you start not paying your staff on time, regardless of how much they care about your cause, good people might start to look elsewhere for work.
Emergencies Happen
A Nonprofit Line of Credit is typically put in place for this reason, emergencies come up and cash flow is typically uneven throughout the year. Financing Solutions Line of Credit product is easy to get in place and costs nothing until used so it is the best backup plan anyone could have and when it is needed, the line is very inexpensive.
One nonprofit client used their line of credit because their roof collapsed and they needed to get back in their space as quickly as possible. Another used their nonprofit line of credit because their was an unexpected subzero weather event that drop their shelters to overcapacity.
There is just not enough cash flow in a nonprofit to always put money aside for rainy day events and the nonprofit line of credit makes it more economical to just use it instead of saving funds.
Start Programs Early
A few clients use their nonprofit line of credit when they know that reimbursement or grants are coming so instead of waiting for the reimbursements, they begin their new initiatives. Nonprofits are conservative by nature so although the nonprofit line of credit is non restrictive and can be used for whatever you like, nonprofit Executive Directors will almost never used their line unless they are assured that funding will be coming in from another source.
Taking Advantage of Opportunities
We have seen clients use their nonprofit line of credit when there is a good opportunity that they don’t want to pass up. One such example happened when one nonprofit had the chance to buy 3 used trucks at a fantastic price but they needed to act fast. They used their nonprofit line of credit and within 6 weeks paid back what they borrowed saving themselves about $20,000.
Almost every nonprofit Executive Director has wanted a line of credit over the years but due to how hard it was to get one, it didn’t make any sense. What Financing Solutions has done over the years is create a program that broke down all the problems with a bank line of credit so that it made complete sense for a nonprofit to get one one place. The application takes 2 minutes to fill out, there is no personal guarantee, the line requires no collateral, the line costs nothing until used and when the line is used, it is inexpensive.
Visit here to get more information if you are interest in a line of credit for your nonprofit.
