Business Loans for Nonprofits: Best Financing Options

If you run a nonprofit organization that doesn’t rely on fundraising, you may be looking for a solution to your business funding needs. Is Your Nonprofit Eligible for a Business Loan? Where to look What terms and rates do you qualify for?

What you should know about corporate loans for nonprofits

Nonprofits are notorious for facing mountains of financial struggles. Many use fundraising and apply for grants to get the capital they need to increase cash flow and cover expenses.

However, because these funds are limited (and sometimes dry up entirely during tough economic times), nonprofits may seek other sources of funding, such as corporate loans. The problem is that sometimes it can be difficult to get a permit for this. Nonprofits, unlike for-profit corporations, do not sell products or services for a profit and are therefore often viewed as risky investments for lenders as they may not have regular cash to repay the loan. The credits available may have strict criteria to qualify.

Top Funding Options for Nonprofits

That being said, nonprofit organizations do Having options when it comes to small business financing. It’s all about looking in the right place. Here are some options you can explore.

term loan

Nonprofit organizations may qualify for small business loans offered by banks, credit unions, and online lenders. Banks tend to offer long-term loans with low interest rates to borrowers who qualify.

Online lenders may have less stringent criteria to qualify for long or short-term loans, although they may charge higher interest rates for working capital loans. Start your search with these lenders:

lines of credit

If your nonprofit organization needs some cash now and the rest later, consider a business line of credit that will allow you access to cash. Borrow what you need and pay back, and you can keep borrowing from the line over time.

Commercial Real Estate Loan

If your nonprofit organization wants to purchase commercial real estate, for example for an office or function space, there are business loans specifically for that purpose. The purchased property serves as collateral for the loan.

business credit cards

Access to business credit cards ensures your nonprofit organization can always purchase office supplies, printer cartridges, and other items it needs to thrive. Look for a credit card that offers rewards so you can earn on what you spend.

Financial institutions for the development of the community

CDFIs are lenders and banks that support economic growth in underserved, low-income communities. If your nonprofit operates in such a community, you may qualify for soft loans through a CDFI. Find a CDFI near you.

grants

Another source of funding for nonprofit organizations is grants. There are corporate, nonprofit, and government grants that your organization may qualify for. Some are available to any business, while others are specifically focused on specific industries.

How to qualify as a nonprofit business lending organization

Before applying, check the eligibility requirements to qualify for a business loan, as some are not open to nonprofits. Those that are may have specific requirements when it comes to personal and/or business credit, time in business, and annual revenue. Nonprofit startups may have trouble qualifying for a loan through a bank or the SBA, as they generally want you to be in business for at least two years.

The credit funds you can get may depend on your qualifications. The better your qualifications, the more you may be able to borrow.

Many lenders look at your credit score to determine how risky it is to lend money to your nonprofit. The lower your score, the greater the risk in their eyes. If you haven’t checked them out yet, see where your scores stand so you know what you qualify for. You may need to look for a lender that has lower credit requirements.

Things to consider when choosing funding for a nonprofit organization

All nonprofit business loans have different loan applications and eligibility requirements to qualify. So take some time to research all the loan programs you are interested in. Make a list of the programs you qualify for, then find out what is required to apply.

You may be asked to provide tax returns, financial statements, and proof of your 501c3 status. You may also need to provide collateral for a loan. This reduces the risk for the lender because if your nonprofit is unable to repay the loan, the lender can take the collateral to cover your debt. In addition, you may be asked to provide personal guarantees for business loans. This is common practice: if your nonprofit cannot pay the loan, you become personally liable for the debt.

Another tip: only borrow as much as you can afford to pay back. A common mistake made by small business owners and nonprofit owners is biting off more than they can chew. If your monthly repayment amount exceeds your budget, you will quickly fall into arrears.

Applying for a loan for a nonprofit organization

Each loan application process is different, but in general, you can expect to be asked to provide details about your nonprofit, including its location, industry, and income. You may be asked to provide proof of your 501c3 status and any business licenses you may hold, as well as tax returns and financial statements.

Once applied, it can take weeks to get a response when applying for a loan through a bank. If you apply online, you may get an immediate response. Once approved, sign the loan agreement, which lists your repayment terms and interest rate. Once this has been processed, the funds will be transferred to your nonprofit’s commercial bank account.

Can a Nonprofit Organization Receive an SBA Loan?

The Small Business Administration guarantees low-interest loans for businesses, but unfortunately their SBA loan options don’t extend to nonprofits.

Verdict by Nav: Business loans for nonprofits

If your nonprofit organization needs money and isn’t raising it through fundraising, you can explore funding options. Find out how much you need and what you want to spend on before applying for a loan.

This article was originally written on March 25, 2022.

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