So, you’ve started a nonprofit organization. You’re passionate about your cause and have put together an inspiring team, united by your shared pursuit to make a positive improvement in the world. But you need some money to help finance your venture. Unfortunately, in our profit-motivated society, it can be extremely hard to find a lender or any other party who has financial incentive to increase you some capital. Whether you'll need an infusion of capital to maintain your existing nonprofit, or you wish to secure financing to obtain your fledgling nonprofit off the floor, you may have to start a lot of stones before you locate an interested lender. However, obtaining financing like a nonprofit isn't entirely impossible, so long as you know where to look.
Is a company loan a viable option for any nonprofit organization? Where else can nonprofit businesses get financing? Continue reading to learn the answers to these questions.
Why Nonprofits Have Trouble Getting Business Loans
Nonprofit organizations are, of course, not about turning a profit. Any money they make—if they bring in any money at all—is supposed to be reinvested within the organization. Banks, which are all about profits, have little to no interest in helping nonprofit organizations. Lenders consider nonprofit organizations to become “high-risk borrowers,” because they do not trust that you will make enough money to settle a loan. When they do not receive any additional financial incentive to complete so—for instance, a government subsidy or perhaps a “corporate giving” PR campaign—banks typically will not lend to a nonprofit that isn't bringing in significant revenues. Such is capitalism.
7 Methods for getting Loans (Or Other Financing) For Your Nonprofit Organization
Fundraising, donations, and member fees are typically the main sources of funds that drive a nonprofit organization. If you want more money on top of what your organization is able to bring in with these channels, you’ll face quite a steep climb.
However, while it’s not easy, there are ways to finance your nonprofit organization, even if you can’t get a loan. Also, financing isn't necessarily out of the question, particularly for a more established nonprofit. The right kind of funding for your organization will depend on various factors, which I’ll describe in greater detail in the sections below.
1) Community Development Financial Institutions (CDFIs)
Short for “Community Development Lender,” a CDFI is really a lender having a pursuit to facilitate community growth by giving financial assistance to businesses and consumers in low-income or disadvantaged areas. CDFIs are usually not-for-profit or nonprofit organizations, but might take the form of traditional banks/credit unions or venture capitalists. Usually, they don't operate on a national scale, so you'll need to seek out CDFI opportunities nearer your home.
CDFIs might be microlenders offering loans of $50K or less, while some CDFIs also issue larger loans to more established businesses. City First Bank in Washington D.C. is definitely an example of a CDFI that provides loans to nonprofits.
While CDFIs could be a viable source of capital to nonprofit organizations, particularly to people who be employed in disadvantaged regions, there are some downsides. CDFIs usually charge higher rates than banks do (though less than you’d get with short-term or payday loans) and frequently require you to submit lots of documentation. It can also take a long time for the funds in the future through.
Learn much more about CDFIs by reading our comprehensive CDFI loans article, and check for CDFIs inside your region on the CDFI Fund website.
2) Banks & Credit Unions
Though it’s more difficult to qualify financing from a traditional bank, there are several banks that provide loans to nonprofits. Big corporations — banks included — often like to flex their philanthropic muscles via nonprofit awards programs. However, banks may charge higher rates of interest on loans to nonprofits because of the higher risk involved, and you will likely have with an established nonprofit with documentation to show your revenue, expenses, fundraising plans, and other financial information.
Credit unions, being nonprofit themselves, are more likely than traditional banks to provide nonprofit loan or grant programs (or function as CDFIs). As nonprofits, credit unions do not have to pay taxes and can offer very competitive interest rates. A credit union can also be much more likely than the usual bank to increase a loan to a newer or smaller nonprofit. Bank loans are typically offered in smaller amounts than bank loans and you'll have to have a checking or savings account with this credit union in order to qualify.
It’s vital that you only apply for funding to banks and lending institutions that specifically advertise that they work with nonprofits/have a lending program for nonprofits. These institutions will better understand your requirements as a nonprofit, and will also be more prone to accept the application.
Learn much more about bank loans for businesses (including nonprofit businesses) and how they differ from loans from banks.
3) Crowdfunding Platforms
For startup nonprofit organizations that are not as likely to qualify for bank loans, crowdfunding could be a wise decision. There are numerous types of crowdfunding, but charitable/donation lending may be the one best suited to nonprofit businesses. With respect to the crowdfunding platform you use, you may be able to obtain free capital for the nonprofit, in the form of online donations you don't have to repay. Or, you may be eligible for a a no-interest crowdfunded loan, and you’ll just repay the principal around the loan.
It is extremely important to familiarize yourself with the laws regulating nonprofit fundraising within the state or states in which you will be operating. You may have to register your charitable nonprofit with the state before you begin soliciting donations.
If you’re prepared to explore fundraising online, begin by looking at these 6 platforms that do crowdfunding for nonprofits.
4) Nonprofit Grants
Business grants are another form of funding that nonprofits may qualify for. Grant money for nonprofits can come from government sources, business associations, corporations, or any other nonprofit organizations. Typically, grant cash is meant for very specific purposes, and federal government grants, in particular, need a rigorous vetting and application process. Additionally, they'll need to see what you’ve achieved with your nonprofit thus far. Most non-government grants are for smaller amounts (less than $50K) and may resemble a contest or competition by which you’re competing with other organizations. Make sure you make sure that the grant you’re interested in is open to nonprofit businesses; some grants only affect for-profit businesses.
When trying to find grants, you should check grants.gov, the centralized source for all U.S. government grants. You should also do a more targeted search for grants in your particular region, as many grants only apply to applicants living in a certain state, city, or municipality. For example, your Maryland has a lot of business financing programs including grants, many of which apply simply to applicants in certain counties. If you be employed in a fiscally distressed region or serve a disadvantaged demographic, you could also qualify for special grant opportunities. For example, you will find business grants for women, business grants for minorities, and business grants for veterans.
You can find out more about business grants for nonprofit organizations by reading our nonprofit grants article.
5) Nonprofit Loan Funds
Nonprofit loan money is another viable supply of capital for nonprofit organizations to research when looking for funding opportunities. These institutions, often nonprofits themselves, offer loans to nonprofits in need of funding, and particularly to nonprofits in underserved communities. Typically, nonprofit loan funds charge less interest compared to traditional lenders; in some scenarios, the loans may be interest-free.
Some nonprofit loan funds include:
- Nonprofit Finance Fund
- Growth Partners Arizona (formerly the Nonprofit Loan Fund of Tucson and Southern Arizona)
- The Loan Fund (Boise state broncos)
- Open Road Ventures
- Propel Nonprofits (made from the 2022 merger of Nonprofits Assistance Fund and MAP for Nonprofits)
Nonprofit loan funds differ from nonprofit grants for the reason that you will need to repay whatever you borrow. Nonprofit loan funds may also be CDFIs. Just like other loans, nonprofit loan funds typically require an operating history—meaning your nonprofit startup might not be eligible.
6) Online Loans
There are various online business loans that your nonprofit may qualify for. Generally, online loans have higher rates and much more relaxed requirements when compared with loans from banks or credit unions. Competent nonprofits may qualify for a medium-term online loan with an above average interest rate, while newer organizations may have to accept short-term, high-interest loans. Despite their higher price tags, just one benefit of online loans is the speed and convenience; often, a web-based loan’s time-to-funding—how long from the time you apply to when you get the funds in your account—is only a few days.
For nonprofit startups with no track record, an unsecured loan could be an appropriate online loan option. You can apply for this type of loan from a personal lender, and the only thing the lending company will typically care about is the personal credit score. Personal loans are often for $50K or less. Because these loans come with high interest rates along with a short repayment schedule, you might only use this type of loan as a last measure. Still, when you purchase an established personal lender, you will get a better deal than you'd from a payday loan or from the cash advance in your charge card.
Some, although not many, online lenders have special loan programs for nonprofits. Accion is definitely an example of one online lender (also a CDFI) that lends to nonprofits.
Note that online loans may require you to sign an individual guarantee which states that you—not your organization—are personally responsible to settle the borrowed funds balance.
7) Corporate Giving Programs
Even if you fail to secure a big loan or grant, you are able to benefit from contributions from corporations as well as smaller businesses in your community. Whether motivated by generosity or just good PR, it doesn’t really matter: businesses increasingly wish to “give back” for their community, and that includes helping nonprofits. Companies in your city or county might have various programs or policies you are able to benefit from like a nonprofit:
- Sponsorship of fundraising events (dinners, dances, 5Ks, etc.)
- Non-cash donations (food, clothing, office supplies online, etc.)
- Paid-release days (days employees are paid to volunteer for a charity)
Taking benefit of corporate giving programs requires some creativity and difficult work, as you will need to interact with local businesses to figure out how they can best serve you, typically in combination with your own fundraising efforts. You will also have to generate awareness inside your organization about corporate giving programs inside your region and frequently reach out to local businesses. The good thing is that businesses are generally happy to display their generosity towards the community, as this benefits their organization too.
How To enhance Your odds of Getting Approved
Once you choose to apply for financing, it’s time to find a potential lender and begin assembling your application package. If you take the time to properly prepare for the applying process, there is a higher probability that the lender will choose to take a chance on your nonprofit. Here are a few important ideas to keep in mind.
Make Sure You Satisfy the Borrower Requirements
Nonprofit loans are a very specific kind of financing, and if you bark up the wrong tree, you’ll you need to be wasting everyone’s time. Make sure that your organization meets all the minimum borrower requirements for whichever loan you’re considering before you decide to apply. Or if you’re trying to get a personal loan, check your credit rating to make sure you meet their minimum accepted score. A lender will not create a special exception for you personally, no matter how awesome your nonprofit sounds.
Choose The Right Kind of Financing
In accessory for meeting the minimum requirements for a financial loan, you also have to choose a loan which will work best for your requirements. For instance, maybe a credit line will better meet your organization’s needs than a term loan. Even if you're pre-approved for a financial loan offer, you have to also consider whether you can reasonably pay the loan repayments and therefore are comfortable with the repayment timeframe. Otherwise, you need to apply for a smaller loan or consider tips on, ramping your fundraising efforts, etc.
Have A powerful Business Plan
Just like a for-profit business, a nonprofit small business to have a solid business plan in position, especially when trying to get financing. The lender will want to visit a specific plan detailing both the way your nonprofit organization meets a necessity in the community and how you plan to make use of arises from a loan, all supported by thoughtful research and powerful financial documentation. They’ll should also observe that your organization can successfully raise funds.
Have Your Documents Ready
Whether you’re applying for financing or a grant, you will be inspired to submit certain documents. It is advisable to have of those materials on-hand when you apply which means you are ready to supply them when asked. Some things you might need include:
- Driver’s license or other government issued ID
- Your organization’s fundraising case statement
- Proof of 501(c)(3) (nonprofit/tax-exempt) status
- Recent tax returns
- Recent bank statements
- Other financial documents such as income reports and cash flow projections
- Proof of collateral
Keeping strong records, particularly of your organization’s financial information, could make you better-prepared to supply documentation that supports your nonprofit’s need and eligibility for financing.
Need more loan application help? While we wrote the following articles mainly with for-profit businesses in your mind, the same strategies for business loan requests generally apply to nonprofit business loan applicants too:
- How To Get A Small company Loan: The Step-By-Step Guide
- 20 Tips To Improve Your Business Loan Application
FAQs About Nonprofit Loans
Can nonprofits get loans?
Yes, nonprofits could possibly get loans. However, because nonprofits are considered “high risk” by many lenders, it might be difficult to find a lender prepared to use your nonprofit.
How do you find grants for nonprofits?
You can find nonprofit grants a number of ways, like searching online grant databases, joining a note group focused on sharing grant resources, or asking a librarian for help. Get the search began with our article on 7 ways to find grants for the nonprofit.
How and where can I apply for a nonprofit loan?
There are multiple places to start your research for a nonprofit loan, like Community Development Financial Institutions (CDFIs), banks, lending institutions, or nonprofit loan funds.
Will the SBA offer nonprofit loans?
The SBA microloan program may be the only standard SBA program available to nonprofits. However, nonprofits can also qualify for government loans for COVID relief, including EIDL and PPP loans.
Which type of financing is allowed for any nonprofit organization?
Nonprofits can get most types of loans, for example traditional term loans, short-term financing, and contours of credit.
Final Thoughts
Although the nonprofit’s business model is within some ways quite different from what for-profit business, nonprofits operate similarly to regular businesses people. Capital, operational expenses, and expansion of services are valid good reasons to seek financing, no matter an organization’s business design. While your financing options as a nonprofit are somewhat limited, you might have an advantage over for-profit businesses when applying with organizations for example CDFIs, microlenders, and nonprofit loan funds, as well as when trying to get government grants.
Has your nonprofit succeeded in obtaining financing? Have a favorite nonprofit lender? Hold forth within the comments!
