Loans for Nonprofit Companies
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When deciding whether to fund a business, lenders look at revenue. But what happens when a company is not built to make money? Nobody said it was fair, but nonprofits can be rejected outright for not making enough money.
Some lenders do offer nonprofit loans. It’s a financial product designed for businesses who focus on altruistic goals and use their revenues to pursue their vision.
If you are interested in this type of funding, here is some more information help you get started.
Point to Your Successes
Even the most charitable nonprofit lenders need to know they’ll be paid back eventually. They only have so much money to lend, and they will choose companies with great mission statements and solid business plans.
It’s up to you to prove that your business can pay back the loan. You don’t have to show that you’re a money-making behemoth. However, you do need to point out where your business produces revenue.
Both for-profit and nonprofit companies generate money. There are other similarities as well. Focusing on these will help you stand out. You can also present your repayment plan to prove your ability to repay the loan.
Being smarter about your loan won’t only help you score points with the lender, it’ll also set you up for more success after you get the funding.
Define the Reason for the Loan
A loan provider will want to know why you need the money. Here are some answers to that question:
- Address a cash flow gap – Profitability might be just around the corner, but sometimes you need a little extra cash to get there.
- Consolidate debts – There are a couple of different reasons to consolidate your debts. Sometimes you aren’t ready to pay off your loan on its due date, so moving it over into a new loan can net you more time. This is not usually an ideal scenario since you’ll likely end up paying more in fees and interest than if you had paid off the first loan on time. Another reason to consolidate debts is to get a lower overall interest rate on the money you’re paying back.
- Make a big purchase – When you don’t have the cash on hand to make a necessary purchase, you can’t always wait for a donation or a grant to fund it. It should be noted, though, that the faster a loan gets funded, the more expensive it usually ends up being.
- Fund an opportunity – It takes money to make money. Whether it’s expansion, a merger, a new hire, or one of many other unexpected expenses that accompany a great opportunity, sometimes the benefits ultimately outweigh the risks. But when you don’t have the money spend, a loan becomes a necessity.
You’ll be in better shape speaking to a lender when you can explain why you need the money.
Borrow Smart
Your company needs capital. That does not mean it is in trouble. Many businesses thrive while borrowing money. However, you can make a bad situation worse by taking out a loan.
Companies that use loans properly usually start out with a solid plan.
Your plan should show how the loan money will improve your finances overall. If you’re borrowing the money to deal with debt without addressing the problem causing the debt, then you might be setting yourself up for failure.
Find the Right Fit
You might have a better chance getting a nonprofit loan if you find a lender that specializes in your niche. It’s the same logic you use when going after government funding; you want to find funding built for you.
Choose the Lowest Interest Rate
An urgent need can lead to a rushed decision. But hurried decisions don’t always have the most productive results. If you accept the first offer you receive, it may end up costing you more in interest. It’s better to wait until you can compare a few different offers. Then, you can choose the one with the lowest interest and fees.
Just because a lender is willing to work with you, that doesn’t mean they are trying to do you any favors. Like you, they need to make money to survive and will set rates accordingly. It’s up to you figure out what you can afford and then find a funding source that can offer it.
Have a Plan B
You may not get the money. We see businesses with good credit histories struggle to find funding. It’s a hard process and not everyone sees good results.
You can prepare yourself for bad news about the loan. Think about alternative ways to get the money. You might need to sell part of your company, reduce your reach, downsize, or make another money-saving decision.
Final Thoughts
As you look for a nonprofit loan, remember to figure out the reason for the loan as early in the process as possible. When you are ready, begin working toward finding a provider who has a history working with businesses in your industry. If you have any questions, please contact us. One of our customer service experts will reach out to you.
