When Do You Need a Line of Credit for Your Nonprofit?
There are many occasions when nonprofit organizations need additional financing and many reasons why a nonprofit line of credit is the best solution to a funding shortage. Charity Navigator, a nonprofit charity evaluator, says nonprofits that don’t spend at least 65% of their budgets on programs and services are not living up to their missions. Therefore, in the rollercoaster financial world of nonprofits, it makes good sense to have an emergency backup source like a nonprofit line of credit to cover non-mission-related expenses that keep your organization running.
Nonprofit Line of Credit Explained
A nonprofit line of credit is a source of working capital available to a nonprofit organization to cover operating expenses or small purchases when cash flow is lagging. The nonprofit line works similar to a credit card or credit card cash advance, but without the high-interest rates. A nonprofit line of credit is a “revolving” credit line with a preset interest rate and credit limit.
Revolving credit gives the nonprofit access to an approved sum to draw money from when needed and pay it back over the loan’s terms. Unlike a bank loan, the nonprofit makes payments (plus any interest and/or fees) only on the amount drawn and not the total loan. In addition, applying for a loan typically takes weeks to months to process and receive funds. A nonprofit line of credit has less stringent qualifications, and your organization could receive the money in as little as 24 hours. Also, unlike traditional business loans, a nonprofit line of credit may not require any collateral or personal guarantee from someone in your organization.
Instances When You Need a LOC for Your Nonprofit
Fundraising and grants for nonprofits aren’t always enough to keep an organization operating, so a short-term loan like a nonprofit line of credit can come in handy when waiting for donations and government reimbursement checks to come in. Plus, successfully applying for credit for your nonprofit can help raise your organization’s credit score—as long as you make the payments on time. Here are three instances when your organization may need a nonprofit line of credit.
Payroll is one expense that cannot be postponed. In fact, it is illegal to miss payroll, and the penalty fines can be substantial. Like small businesses, nonprofits require dedicated staff to keep the organizations running smoothly. From the office staff to accounting to program administrators and janitorial staff, paid workers make it possible for a nonprofit to fulfill its mission. When cash flow is low, a nonprofit line of credit can cover payroll costs until funding comes in.
At some point, most businesses and nonprofits encounter a crisis that may lead to unexpected expenses. Whether you need to make repairs at your office, your company vehicle breaks down, or you need expert advice, not having funds to handle these types of emergency expenses can be potentially catastrophic for your organization. It’s better (and wiser) to have a nonprofit line of credit to draw upon before these or similar situations occur.
For-profit businesses and nonprofits alike never know when an opportunity will come knocking—something too valuable to pass up. So, again, having a nonprofit line of credit in your back pocket can be the difference between success and failure. Whatever the opportunity, a nonprofit’s finances are better off when money is available whenever it’s needed.
Is Your Nonprofit Ready for a LOC? Give Financing Solutions a Call!
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 simpler, 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 reliable 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.