Nonprofits, like other businesses, sometimes need a little extra cash to fund their activities. However, the rules governing loans to nonprofits vary from those for for-profit businesses. Nonprofit loans tend to be tougher to get than those for for-profits. If you need an infusion of cash for your charity, start with a basic understanding of the types of loans out there to find one that could potentially work for your organization.
Community development financial institutions (CDFIs)
Lenders that specialize in offering financial assistance to nonprofits are known as community development financial institutions, or CDFIs. These institutions are usually nonprofits themselves, although some may be banks or credit unions. CDFIs often charge high interest rates for small loan amounts — usually offering loans of $50K or less.
Note that not only do CDFIs charge higher interest rates than banks, but they also ask for lots of documentation and can take longer to approve the loan than a typical bank lender. You can find CDFIs in your area using this locator tool.
Nonprofit loan funds
Some CDFIs overlap with nonprofit loan funds, which fulfill a similar goal of providing financing to charities and other nonprofits. Nonprofit loan funds offer lower interest rates than CDFIs; in some cases, the loan may be interest-free. Some options to explore include Nonprofit Finance Fund, Open Road Ventures, and Propel Nonprofits, as well as resources like Growth Partners Arizona and New Mexico’s The Loan Fund. Note that many nonprofit loan funds will require the applicant to submit an operating history. Startups, therefore, are not eligible.
Traditional bank lenders
While it’s less common for nonprofits to get loans through banks and credit unions, it is possible.
“Big corporations — banks included — often like to flex their philanthropic muscles via nonprofit grants or loan programs,” wrote Merchant Maverick. “However, banks may charge higher interest rates on loans to nonprofits due to the higher risk involved, and you will likely have to have an established nonprofit with documentation to show your revenue, expenses, fundraising plans, and other financial information.”
Credit unions are more likely to offer a loan to a new nonprofit since credit unions themselves are nonprofit organizations; and, since they don’t pay taxes, credit unions can offer competitive interest rates. For both banks and credit unions, you will need to submit extensive paperwork to demonstrate your ability to make on-time payments.
[Read more: Small Business Funding: A Breakdown of Business Loan Types]
Some CDFIs overlap with nonprofit loan funds, which fulfill a similar goal of providing financing to charities and other nonprofits.
Corporate giving programs
Banks and other for-profit companies often have corporate giving programs that can support nonprofits with grants, loans, and in-kind donations. Companies like Walt Disney, Google, and Starbucks have extensive giving programs that support nonprofits and small businesses. Contributions can vary, and not every giving program will offer loans. Some may provide in-kind gifts, event sponsorships, cash donations, or grants. Do some research to understand what these programs can offer your organization.
Nonprofit grants
Grants are not loans, technically, but they are a common source of funding for nonprofits. Federal, state-level, and corporate grants provide free funding (e.g., money you don’t have to repay) to nonprofits that meet certain criteria. Many grants have a lengthy application and approval process, so be discerning about which opportunities you apply for. However, grants are often offered year after year. Once you secure the grant once, you have a good chance of applying for it again after the grant period ends.
[Read more: What's the Difference Between a Grant and a Loan?]
Business credit cards
A business credit card allows your nonprofit to draw against a line of credit that will be repaid over time. This is a good source of funding for daily and fixed expenses, like utilities and office supplies. “With some research, you can find business credit cards with low interest rates, which is beneficial if you cannot pay your bills on time,” wrote NerdWallet.
The best credit cards for nonprofits may be slightly different than those for enterprises. Explore your options to learn what perks are included, from cashback to low APRs. You will also want to be judicious around accounting for your credit card. Set up a system that helps track your credit card spending and saves receipts in case of an IRS audit.
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