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Loans for nonprofit organizations
How and where to find a loan when your bottom line isn't about money.
Grants are the traditional be the go-to source for funds. But they can be time-consuming to apply for and don’t always offer as much as you need. If your budget still has gaps, you might want to apply for a low-interest loan from a nonprofit-friendly lender.
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, a handful of lenders that offer special programs for nonprofits.
First Republic Bank
First Republic Bank offers financing for nonprofits as a part of its business loans program. Known for its stellar customer service (they even bake their own cookies for clients), this bank offers your organization support throughout the whole process. You’ll get paired with a specialist who can help you with not only applying for a loan, but also banking services, managing your organization’s finances and 403(b) retirement plans.
First Republic offers the following types of loans to nonprofits:
- Business term loans for one-time costs.
- Business lines of credit for ongoing expenses.
- Bridge loans to cover day-to-day costs when your business is waiting for a grant or donation to come in.
Like your organization, its loans are low-cost and tax-exempt. Your organization must open a First Republic checking account to qualify for a nonprofit loan, however. Loan amounts, rates and terms vary depending on your nonprofit’s unique situation.
Bridgeway Capital is a community development financial institution (CDFI), or a lender that specializes in providing funds to local businesses with the aim of building up underserved communities across the country. Bridgeway Capital’s focus is on entrepreneurs, though it also has a nonprofit loans program.
Here, your organization can apply for financing that includes:
- Short-term working capital loans to cover overhead expenses.
- Real estate loans to purchase a new office or property.
- Bridge loans to tide your business over when you’re waiting for grants or donations to come through.
The loans come with fixed rates and no prepayment penalties. Like with First Republic Bank, loan amounts, rates and terms vary based on your nonprofit’s specific circumstances.
Propel is an organization that provides financing for nonprofits in Minnesota, Wisconsin, Iowa, North Dakota and South Dakota. It offers several different types of loans:
- Working capital loans designed to help keep your programs running smoothly. These loans range from $20,000 and $600,000.
- Lines of credit made to help cover gaps between grants and other cashflow hiccups. A line of credit gives your organization access to a credit limit of $20,000 to $600,000 that you can draw from when needed.
- Short-term facility project loans to help your nonprofit renovate, repair or buy equipment. Loans typically range from $50,000 to $1 million.
- Long-term facility mortgage to help your organization to buy a new space. You can use your mortgage to buy a building, for major renovations or for construction. Typically, mortgages range from $50,000 to $1 million.
Loan terms can be as short as a few months and as long as 15 years. Rates vary depending on the nature of your nonprofit, though they start at around 6.5% APR. Term loans come with an origination fee of $500. Lines of credit come with a fee of 1% of the loan amount.
To be eligible, you must be a 501(c)(3) that’s located in one of the five states where it operates. Loans aren’t available to startup nonprofits, so you’ll likely need to be around for at least six months.
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.
- Equipment. Most nonprofit-friendly lenders offer financing specifically for purchasing new equipment. These tend to be secured with the equipment as collateral and often give you up to 100% of the equipment’s cost.
- 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.
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.
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 five-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, state or region and your area of specialization, like the arts.
- Corporate foundations. Corporate grants are sometimes more focused on specific causes. For example, Wells Fargo offers grants to small businesses and nonprofits involved in education, conservation, disaster relief and more across the nation.
- Federal grants. The federal government does offer a few grants for nonprofits, though these can be highly competitive. They also tend to have a specific purpose, like evaluating and protecting historic buildings or evaluating the effect of lead paint on certain communities. You can find these on Grants.gov.
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.
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