Where to Get a Line of Credit for Your Nonprofit
Lines of credit for nonprofits can be used for a multitude of scenarios, but most often a line of credit is used to address emergencies or opportunities that can be paid back in the short term. As Managing Partner at Financing Solutions, which is one of the largest lenders of Nonprofit Lines of Credit to small nonprofits, and having dealt with commercial and local banks personally, I know a lot about a line of credit for nonprofits. I believe I can shed some light on how to get a line of credit for your nonprofit regardless of who you get it from.
What Is a Line of Credit For a Nonprofit Used For?
Typically, lines of credit can be used in situations where cash flow is temporarily down, and you need a temporary cash backup plan. Lines of credit are typically flexible and have few regulations surrounding how the line of credit is used, regardless if you go with a credit union, traditional bank, or an alternative lender. A line of credit should not be used for long term purchases like purchasing a building/property, or any real estate.
Why Hasn’t Nonprofits Set Up a Line of Credit?
A line of credit is an amazing safety net that all nonprofits should have. Have you ever been in a situation where you quickly need cash to fix an issue? Lines of credit can be used if you need help with payroll, or maybe you have a small repair and you need help financing it.
If your nonprofit is looking to start a new division within your organization, or you are looking into buying a large property, a line of credit probably isn’t what you should be looking for. Anything that requires a large amount of working capital, you are going to want to look for a larger term loan or mortgage. For example, if you do a lot of community development and you need a large amount of money for a project, a line of credit isn’t the right financing tool because you have to pay a line of credit back quickly.
Lines of credit are an important tool that business owners have used for decades. For nonprofits, commercial banks’ underwriting standards don’t exactly fit a nonprofit model. Traditional banks very frequently tell nonprofits “no” so many nonprofits have given up applying. In addition, the bank applications process is lengthy.
However, nonprofit organizations now realize that a credit line can be an important emergency tool to have. Similar to a credit card, you can always use your credit line when you are in a pinch and pay the line down when your funds come in. Some nonprofits have been known to delay paying their employees until funds do come in. That is actually illegal to not pay your people on time and if the state/federal government finds out, there could be large penalties and even forced closure. On top of it being illegal to not pay your people on time, it isn’t the right way to treat individuals working for your nonprofit who you will find, really need their paychecks.
What Will a Commercial Bank Look For To Approve Your Nonprofit Loan or Credit Line?
Some banks and financial institutions will just not work with nonprofits. There are many different reasons a bank might say no. A major factor that has impacted 2020 is Covid-19, and banks analyze how the economy is doing when making decisions. If the economy is doing good, you are more likely to be approved for a line of credit. However, if the economy is in a recession or doing poorly, it might be very difficult to get a nonprofit line of credit.
As a nonprofit, you often have to have a long-standing relationship with a bank for approval. Banks want to see good cash flow, a good credit score, 990 tax returns, and all financial/bank statements that your organization has. At the end of the day, banks are looking to make sure that you can make your monthly payments on time. If you don’t have a good history with the bank, you will probably have to pledge some type of collateral (stocks, bonds, etc.) to secure your line of credit (called a secured line of credit). This is what the bank will use in case your nonprofit defaults.
Lastly, the cost of setting up and maintaining a bank line of credit might be expensive. Banks typically have a setup fee and yearly maintenance fees, no matter if you are looking for a term loan or line of credit. Banks are also going to want a personal guarantee, which ensures your nonprofit will pay back the money.
Why Financing Solutions Nonprofit Line of Credit Could Be a Better Option?
Why should you choose Financing Solutions over a traditional bank? First, you should know that Financing Solutions is A+ rated by the BBB and is 5 stars reviewed. Financing Solutions line of credit program costs nothing to set up, nothing to get in place, and are inexpensive until used. Unlike banks, our line of credit program is easy to get in place and renews yearly. Our line of credit program is so popular because when it isn’t being used, it costs nothing to have! Most lines of credit are used as a cash back up plan so they are not needed often, therefore it can’t hurt you to have it in place. Also, our Line of Credit requires no collateral and no personal guarantees. For a nonprofit, It’s not a good idea to borrow money from a donor or board member, executive director, or other members. The IRS can create a conflict of interest, and you should check with your accountant before getting a personal loan.
Nonprofit organizations commonly have cash flow issues due to the ups and down nature of their cash flow. Financing Solutions Line of Credit Program might be the way to go. We don’t run a credit check for offers. Our application process is a simple 2-minute online process with no obligations.
Getting your hands on a nonprofit business loan or line of credit might be more beneficial than you think. It is becoming more and more common for nonprofits to have a line of credit ready to use.
Conclusion: Funding Options for Your Nonprofit
Whether you are looking for business financing or nonprofit financing, Financing Solutions has many perks in comparison to traditional banks. If you are looking for a more reliable source of funding for when cash flow is down, then Financing Solutions can help.
Nonprofit financing can seem daunting and overwhelming at times. Especially if you are in a tough situation and need to get your hands on money fast. A line of credit can make difficult situations easier to handle. When a shortage of cash flow arises, you can always know where you are going to get your funds temporarily. The key here is to make sure you are educated on all the possible financing options for your nonprofit, and know which one is going to be the most beneficial.
About Financing Solutions Line of Credit
Financing Solutions business line of credit costs nothing to set up, nothing until used and when used, is inexpensive. The credit line requires no collateral and no personal guarantees.
Organizations will set up the line of credit in advance so that if there is ever any cash flow issues, you will have a cash back up plan. The time to set up a credit line is when you don’t need it so that it is ready to be used, just in case.
If you would like to see if your organization would-be approved and for how much, please feel free to fill out the no-obligation, 2-minute line of credit application here.