Nonprofits might not have the bottom line as a top priority, but they still need to keep the lights on and pay employees. If your nonprofit finds it needs some more cash flow, grants might be the go-to source for funds.
However, there are some nonprofit-friendly lenders that can help get your organization the funds it needs. We take you through your options to help you decide if a loan is the right choice for your nonprofit.
Where can I get a loan for my nonprofit?
Nonprofits don’t have a lot of options when it comes to loans. Since the goal isn’t to make money, lenders consider them to be high-risk businesses. In fact, it’s so standard for business lenders to require applicants to run a for-profit business that many don’t even mention it. There are, however, some lenders that offer special programs for nonprofits.
Community Forward Fund
The Community Forward Fund provides loans to not-for-profits and social organizations across Canada. The Fund promotes sustainable financing by drawing on investment money to give to borrowers, rather than by relying on donations. Investors – which include community foundations, private foundations and other institutions – earn interest as borrowers grow their organizations and repay their loans.
Representatives from the Community Forward Fund will meet with prospective borrowers 1-on-1 to discuss financing options, and if approved, borrowers can count on getting flexible repayment terms that suit their needs.
The organization also hosts a clinic called, “Money, Mission and Strategy,” which is designed to provide nonprofit owners with financial tools and a plan for realistically achieving their goals. Both supportive and visionary, the Community Forward Fund is a great place to look for the means to start growing your nonprofit business. Visit the organization’s website for more information.
This information is accurate as of October 2019.
Futurpreneur is Canada’s only non-profit dedicated to financing and supporting the entrepreneurial visions of young business people aged 18 to 39 years old. In partnership with the Business Development Bank of Canada (BDC), Futurpreneur offers young nonprofit owners up to $20,000 (payable over 5 years) to grow their organizations. Along the way, they’re given tools to develop their business plans and are mentored for up to 2 years by handpicked business experts for 4-5 hours a month.
Funds are repayable over 5 years at CIBC’s prime rate + 3.75%. During the first year, you only have to make interest payments. To be eligible, applicants must satisfy a number of criteria including, but not limited to, the following:
They must be able to create full-time emplyment for themselves
They must have invested at least 10% of the value of the business themselves
They must have some experience or training related to their business concept
They have to submit a full, viable business plan by the end of the application process (Futurpreneur provides tools to help with this)
Their business must have been fully operating for less than 12 months – it cannot be in the research and development stage
Other financial institutions that offer nonprofit financing solutions
What common business expenses can I cover with financing?
Cashflow fixes. Nonprofits don’t always have a regular flow of funds coming in. When you’re waiting for a grant to come through or payment for a project, a line of credit or working capital loan can help.
Real estate. Chances are your nonprofit doesn’t have the money upfront to pay for a new space — especially if it’s based in a coastal city. In that case, what you’re looking for is a mortgage.
Improvements. A term loan or line of credit can help your organization redesign your current space or make small one-off improvements like adding an extra conference room.
Debt consolidation. Spending too much time keeping track of debt? Taking out a business loan to pay off your creditors puts your debts in one place — and can hopefully save you on interest.
Representative example: Carter and Gianna open a food bank
Carter and Gianna are a retired couple who want to put their time and energy into something that will benefit the local community. They decide to open a food bank using a portion of their savings and a grant they were fortunate enough to receive from the government. However, they’re still short about $50,000.00 of the money needed to get the food bank up and running.
Carter and Gianna apply for a nonprofit loan and are approved, thanks to their strong credit scores and solid business plan. Because the loan is for a nonprofit enterprise, they are offered a very competitive interest rate and repayment terms that are specially tailored to their organization’s needs.
Cost of opening a food bank
Business loan (term loan)
Interest rate (APR)
Origination fee of 3.00% ($1,500.00)
Application fee of $0 (waived by lender)
Total loan cost
*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.
What will I need to apply?
What you need to apply for nonprofit financing varies by lender. You might be asked to supply some or all of the following documents when your nonprofit applies for a loan:
Financial statements. A financial statement gives your lender an idea of your nonprofit’s cash flow and net worth.
Bank statements. Bank statements also show how much money regularly comes in and goes out, and can give your lender a picture of how much you’ll be able to afford in monthly repayments.
Nonprofit bylaws. Your lender might ask to see your bylaws to get a better understanding of the financial model you’re following to find a type of financing that fits your situation.
Board resolution. This gives your lender information on your nonprofit’s board of directors and an understanding of the financial decisions it’s made in the past.
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What challenges might I face getting financing as a nonprofit?
The main problem nonprofits face is finding a lender willing to work with them. That’s because lenders tend to consider them high-risk borrowers — there often isn’t a steady stream of funds coming in. Since nonprofits have a different financial model than for-profit businesses, you might want to work with a lender that has a specific program for nonprofit financing.
One other problem is that it’s not always easy to get funding fast. Those online lenders with 5-minute applications and next-day funding typically are only available to for-profit businesses. If you anticipate needing funds fast in the future or want to cover your bases in the event of an emergency, consider taking out a line of credit.
Grants for nonprofits
Grants are a more common source of financing than loans for nonprofits. You don’t need to pay these back, but it can take a lot of time and effort. They also aren’t typically as large as business loans, often no more than a few thousand dollars. If you’re thinking about relying primarily on grants, consider hiring a professional to take care of your application. They’ll have some expertise on what works and what doesn’t and could get your nonprofit more funding in the end.
Don’t have the funds to bring on new staff? You might want to start your search for grants here:
Your board of directors. Board members often have connections to family or corporate foundations that might be interested in funding your nonprofit. Let them know you’re interested and ask if they know of any grants that your nonprofit might be eligible for. They might even be able to put in a good word for you, or at least introduce you.
Local foundations. Many foundations offer grants with the aim of helping a specific community. Try searching for grants by city, province or region and your area of specialization, like music or scientific research.
Corporate foundations. Corporate grants are sometimes more focused on specific causes. For example, RBC accepts applications for funding up to 0.5% of your total operating costs, though the bank has a list of types of organizations that won’t receive funding such as political or religious organizations.
Federal grants. The federal government does offer funding opportunities for nonprofits, though these can be highly competitive. They may also have a specific purpose, like evaluating and protecting historic buildings or promoting the arts. Learn more about government grants here.
Getting a loan as a nonprofit takes some research, but it isn’t impossible. Sticking with a lender that specializes in nonprofit financing might be your best bet — it can be difficult to find a lender willing to work with you otherwise. Read up on how business loans work to make the right choice for your nonprofit.
Frequently asked questions
If you’re between the ages of 18 and 39, you may be able to qualify for financing through the Futurpreneur program. Newcomers to Canada who have lived in the country for less than 60 months can get financing through this program to start a business. And anyone who has a good business idea can get $20,000 or more to open or run their business full time.
Provinces also have funding opportunities for nonprofits and small businesses, so you should check with your provincial government to see what your organization qualifies for. To learn more, visit the Government of Canada website.
They can. In fact, community development financial institutions and credit unions follow a nonprofit business model because they work to serve a specific community, rather than make money.
Anna Serio is a lead editor at Finder, specializing in consumer and business financing. A trusted lending expert and former certified commercial loan officer, Anna's written and edited more than 1,000 articles on Finder to help Americans strengthen their financial literacy. Her expertise and analysis on personal, student, business and car loans has been featured in publications like Business Insider, CNBC and Nasdaq, and has appeared on NBC and KADN. Anna holds an MA in Middle Eastern studies from the American University of Beirut and a BA in Creative Writing from Macaulay Honors College at Hunter College, CUNY.
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