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Guide for Getting Loans for Nonprofit Companies

by Mike Abelson   July 7, 2017
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What is a Nonprofit Business?

According to the National Council of Nonprofits, there are up to 1.3 million charitable nonprofits across the U.S. These organizations are non-business entity companies that focus on effecting social change. Nonprofit organizations can be based in any number of social sectors and deal with a wide array of issues such as health, education, race, politics, or economics, to name a few.

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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 that 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 to help you get started.

Point to Your Successes

Loans for nonprofits.

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 a loan.

Being smarter about your loan will not only help you score points with the lender, but it will 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. It is important that organizations show how they could benefit from some additional funds. Here are some ways companies can utilize nonprofit loans:

  • Address a cash flow gap – A cash flow gap is the number of days between a business’s payment of goods and the time it receives cash from its customers for its own goods. And if your company is in this situation, while profitability might be just around the corner, sometimes you need a little extra cash to get there. A loan might provide that extra cash padding you need.
  • 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. Experts suggest taking precautions to avoid this scenario though, as borrowers might end up paying more in fees and interest than if the original loan amount had been paid off in the first place. 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 the many other unexpected expenses that accompany a great opportunity, sometimes the benefits ultimately outweigh the risks. But when you don’t have the money to spend, a loan becomes a necessity.

You’ll be in better shape speaking to a lender when you can succinctly 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 if you are unprepared and unaware of the rules and regulations that come with it.

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.

In order to avoid steep rollover fees, experts suggest making a budget to help plan out your monthly expenses. This can highlight where there are gaps in your company’s spending and where the financial problem areas are.

You might also have a better chance of 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.

In addition to finding the right fit, it is important to choose a loan with the lowest interest rate. An urgent need can lead to making rushed decisions. 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 money. You might need to sell part of your company, reduce your reach, downsize, or make another money-saving decision.

Nonprofit Micro Loans

A microloan can provide alternative benefits that conventional lenders might not offer. These loans are typically $50,000 or less and are offered through government or nonprofit programs to help start-ups and other smaller companies.

Some top U.S. microlenders include Grameen America, LitFund, and the Opportunity Fund. Interested businesses can also turn to The SBA Microloan Program, which offers loans of up to $50,000. Likewise, the SBA Community Advantage Program offers loans in marginalized communities that may not have access to capital. The loans awarded through this program can be as high as $250,000.

If you own a start-up or a small-scale business and need funding to grow your company, you can apply and see if you are approved for a nonprofit loan.

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.

Mike Abelson   Editorial Director
Digital Marketing
Mike is the Editorial Director at Lendza. He enjoys helping entrepreneurs and startups succeed through smart, innovative strategies. He’s partnered with CEOs and executives to grow businesses from the ground up. Before his work at Lendza, Mike was a stock market analyst. When he’s not traveling for work, he enjoys reading adventure and science fiction novels.