So, you've decided to start a charitable organization. You're passionate about your cause, and you've assembled an inspiring team dedicated to making a significant change in the world. But you'll need some cash to get your business off the ground. Unfortunately, finding a lender or other party with a financial motivation to lend you money can be pretty tricky in our profit-driven world. You may have to turn over a lot of stones before you find a willing lender, whether you need an infusion of funds to keep your existing charity afloat or you want to acquire finance to get your new nonprofit off the ground. Obtaining funding as a nonprofit, on the other hand, is not impossible if you know where to seek it.
Why Are Nonprofits Having a Hard Time Obtaining Business Loans?
Loans for nonprofit organizations, of course, are not in the business of making money. Any profit they make—if any gain is made—is intended to be re-invested back into the organization. Banks, who are just interested in making money, have little interest in assisting charitable groups. Lenders view philanthropic organizations as "high-risk borrowers" because they are unsure that you will be able to repay a loan. Banks will not lend to a nonprofit that does not generate considerable revenue if they do not give any additional financial incentives to do so, such as a government subsidy or a public relations campaign promoting "corporate giving." That is the nature of capitalism.
One way to deal with cash flow problems is to borrow the funds you need to pay your nonprofit's bills. Your cash-flow statement might assist you in determining the size and term of the loan you require. If you require financial assistance, the following are some of your options:
Seek a loan from a board member: You can certainly get the loan fast if the board member can help, but borrowing from a board member is only appropriate if you follow your organization's conflict-of-interest regulations. The board member can provide the loan at or below market rates.
Make sure to sign a promissory note with the lender and document the board's formal approval of the loan in the meeting minutes.
Check with local foundations to see if they know of a lending fund for nonprofits: Some grant-making organizations and government agencies provide low-interest loans to their grantees experiencing cash flow challenges. A program like this is more likely to be sensitive to your requirements than a commercial lender.
Go to your bank and apply for a small-business loan: Obtaining a bank loan if your company does not have a credit history can be difficult. Foundations, on the other hand, can make this process easier by guaranteeing bank loans for charities
Check with your bank to see whether you're eligible for a credit line: You can borrow up to a given amount for a set length of time with a line of credit. When an organization repays a loan, it may be unable to borrow from the same line of credit for a set length of time.
Even if you don't anticipate any problems, your company may wish to apply for a line of credit as a safety net.
As the last option, use an organizational credit card to borrow the funds: Only do this if you're confident you'll be able to repay the loan and cover the interest.
Last Thoughts
Although the nonprofit's business strategy differs from that of a for-profit company in some aspects, nonprofits are comparable to ordinary corporations in many ways. Regardless of a company's business plan, working capital, operating expenses, and service expansion are viable reasons to seek funding.
