A non-profit business loan can offer supplemental funding for business owners to start up or grow their existing non-profit. While nonprofits are largely funded by private donors or through grants, that flow of cash isn’t always consistent. A non-profit business loan can be a worthwhile solution to bridge any gaps in funding so your non-profit can continue to run smoothly and do all it was built to do, and then some.
Because typical funding sources for a nonprofit can be unpredictable, it can be difficult to find a lender willing to issue a nonprofit business loan. From a lender’s standpoint, funding a loan for a nonprofit organization can be even riskier than funding a small for-profit business loan. Unlike a for-profit business, non-profits cannot simply increase their provided services as a way to boost their annual revenue - in fact, doing so would likely only cost more money. Still, lenders will likely want to see annual revenue reports along with detailed fundraising plans and credit scores before making a decision on a nonprofit small business loan. At mySMBscore we can help business owners assess the risk that their business presents to lenders, thus helping them understand challenges they may face.
Though it may be difficult, there is hope in getting a loan for your nonprofit - you might just have to do some digging to find the options that work best for your organization. To get started, visit mySMBscore to unlock valuable insights and personalized offers.
Some traditional banks can offer lending to nonprofits - but, it may be difficult to qualify. With that being said, it’s important to explore your options so you may want to check with a local bank, especially if you already have a business relationship with them. Keep in mind that credit unions are nonprofits so they may be more sympathetic toward other nonprofits that need help.
Nonprofits can apply with banks, credit unions, or online lenders that offer business loans for nonprofits. There is also a whole sector of nonprofit lenders that specifically cater to the financial needs of nonprofit organizations. These lenders offer not just small business loans for nonprofits, but also typically will provide education and other empowering resources - as their goal is to contribute to the community. Many nonprofit lenders will only be able to provide smaller loans of up to $50,000 though since they are funded through different avenues and do not have the same resources as large traditional banks. The application process can sometimes be extensive, but oftentimes nonprofit lenders and the nonprofit entities they fund develop a close relationship and work together to benefit the community.
Credit unions can be a smart place to look for nonprofit business loans as they are nonprofits themselves. The next best place is likely an online lender. Compare offers and check your SMBscore before applying.
Just like any other business, a non-profit can have a credit score. An SMB (small to medium business) score is a relatively new concept. So if you’re confused as to what it is or how your business develops one, you’re not alone. Just like with a personal credit score, building one can take time and the higher your SMB score is, the less risky your business appears to lenders.
While personal credit scores are tied to your social security number, a business credit score is tied to your business’s EIN. Factors like the amount of debt your business has, payment history, and time in business can all affect your SMB score. It’s important to keep tabs on your SMB score so that you can empower yourself with the knowledge to make better financial decisions.
Top funding options for nonprofits and charities:
Term loans are a popular choice for business funding as they are usually funded as a lump sum and can be obtained without collateral. Nonprofits and charities can utilize these loans for a variety of expenses. As a nonprofit you may hope that lenders will pay it forward with deals on rates or discounts, but you’ll need to qualify just as any other type of business. This means comparing offers will be important to make a confident decision.
Similar to a credit card, a line of credit gives you access to a predetermined credit limit. Spend as you need, when you need it - and only pay interest on what you spend.
Credit cards are a common funding option for nonprofit businesses since obtaining other forms of financing can be more difficult. Credit cards will typically come with higher interest rates than other funding options, so it may be wise to look into other avenues before opening a credit card for your nonprofit business. Credit cards are best used for tracking spending and improving cash flow on a short-term basis. Plus, they can offer lucrative rewards that can be used for business travel or employee incentives and beyond.
CDFIs are lending entities that focus on promoting economic growth in disadvantaged communities. Since many nonprofits operate with the same mission, finding funding through a CDFI could be easier than from other lenders.
We get it, credit scores are important - but what scores will secure a nonprofit business loan for your organization? Although the exact answer will vary by lender, a general range to aim for would be a personal credit score above 580, and a business score of 155 or higher. Nonprofits with higher credit scores are more likely to receive offers so if possible take action to work toward improving your financial standing.
Things to consider when choosing a nonprofit business loan:
It is important to do a deep dive into your lending options before rushing into any kind of financial commitment. Biting off more than you can chew in monthly payments could mean the end of your nonprofit or the loss of any collateral. Another thing to consider is you will likely be asked to sign a personal guarantee, meaning you yourself are personally responsible for any payments on your loan. Simply put, missing payments will not only jeopardize your business but your personal credit as well.
Applying for a nonprofit business loan:
When you are ready to jump in and start applying for a nonprofit business loan, you should have some documents ready. These can include:
While a loan backed by The Small Business Administration is a great option for many small business owners, SBA-guaranteed loans are not typically available for nonprofit sectors. That said, some types of SBA loans may be available for nonprofits.
Many seasoned nonprofit business owners will agree that before applying for a non-profit business loan, you should look into all grants that may be available to your organization as a form of funding. There are grants via corporate, nonprofit, and government avenues that your nonprofit could qualify for. Some may be industry or geographically specific, but there are options out there. If you do run into difficulties finding alternative funding, a small business loan for nonprofits could give you the capital needed to propel your nonprofit and achieve your growth goals.
Now that we know a little bit about nonprofit business loans, let’s talk about how to qualify. Similar to any other small business loan, lenders can evaluate multiple factors to deem your business’s creditworthiness.
Likely the biggest qualifying factor will be your personal and business credit scores. Most lenders evaluate your credit scores to assess the risk associated with a business loan for your nonprofit. If you haven't checked your credit scores recently, that is a good place to start before applying for a nonprofit business loan. To check your business credit score or SMB score, you can do so at mySMBscore. That is just the beginning of how we can help your nonprofit work toward qualifying for a business loan and finding competitive offers.
It is also important to review lender-specific eligibility criteria for a nonprofit business loan before applying, as many lenders will not consider loaning to nonprofits. Lenders that do accept nonprofit funding applications may have rigid criteria regarding credit scores, time in business, and annual revenue.