Nonprofit Business Loans: The Best Sources of Money for Organizations

For most businesses, the lending process is relatively simple: apply, then wait for a response. 

However, loans for nonprofit organizations have more variables. Finding out where to apply for funding and the standards lenders use to approve applications is crucial when searching for business loans for NGOs. We highly recommend using PaydayChampion when you want to apply for a loan.

After all, NGOs will use these funds to develop their infrastructure, pay their staff, promote their causes, and more. We’ll discuss the specifics of requesting a business loan as a nonprofit company and your various funding options.

Why are loans for nonprofit organizations challenging to get?

Loans for nonprofit organizations and charities are typically more challenging to get than loans for other kinds of for-profit companies. 

Here’s a summary of why you might find the process a little more complicated.

Collateral is probably required.

The lender will probably ask for collateral (properties they can seize to recover their money if you can’t repay the loan) since you are a nonprofit or charity. 

This could take the shape of financial reserves or tangible assets. 

Make sure to consider this because the seizure of collateral could jeopardize your nonprofit.

Lenders’ risky investment

Lenders see nonprofits as hazardous borrowers for commercial financing. What justifies this moniker?

Nonprofits are more likely to default on their loans if they lack the revenues and steady income to do so. This is especially true for nonprofit businesses that are losing money. Nonprofits are risky investments since the lender loses money.

On the other hand, profit-producing income streams are present in for-profit enterprises. 

Even though they don’t always get accepted, for-profits with solid income and cash flow are less risky to lenders.

This doesn’t necessarily imply that you won’t be able to obtain funding from conventional sources. Still, it frequently means that the interest rates on any loans you get for your nonprofit organization will be higher.

Strict specifications

Lenders have stringent criteria for business loans, as one might anticipate. Candidates with high revenue and cash flow are frequently sought after because they are more likely to repay their business loans. And that is why they are in business—to ensure that applicants repay their loans with interest, which is how these businesses make money.

One of the most critical aspects of your charity as a nonprofit is that you put all of your profits back into the business. 

You might even be losing money, as many nonprofit businesses do.

Best sources of money for nonprofits and charities

There is hope: Nonprofits have a variety of funding possibilities. There are many options to consider and numerous ways to raise money. Here are several alternatives to business loans, such as grants and government funding, that you might want to consider.

Commercial credit card

Although you might not consider a business credit card a loan, it can be. After all, you are using a credit line and must repay later. You can find business credit cards with low-interest rates by researching, which is helpful if you have trouble making your payments on time.

Another choice is to apply for a business credit card with an introductory APR of 0%. 

These cards stand out from other business credit cards because they provide a set amount of time during which you won’t be charged interest on any outstanding balances. These fixed durations are very lengthy, frequently lasting up to a year, allowing you to acquire the income necessary to settle the balance and design a payment schedule to do so.

Remember that paying off your credit card with a 0% initial APR by the end of the promotional term is essential for managing your company’s finances. A variable interest rate will take effect following the introductory period, based on your creditworthiness and the market Prime Rate.

Despite this, many nonprofits and for-profit organizations rely on business credit cards to launch and expand their operations.

Starting out: 

The best credit cards are frequently the same for other small businesses and nonprofits. 

Consider your options and benefits, such as cashback, welcome bonuses, and low APRs.

Loan money for nonprofits

How it works: 

Obtain finance for nonprofits from lenders who only deal with nonprofits and charities.

A select few businesses only provide loans to nonprofits and charities. These are frequently nonprofit organizations that exist solely to improve the communities in which they operate. Despite the limited availability of these nonprofit loan programs, those who do so frequently offer loans with favorable conditions or even no interest.

Starting out: 

To learn more about these organizations and see if they would be a good fit for your nonprofit business loan needs, start by contacting the Nonprofit Finance Fund and Propel Nonprofits.

Community development financial institutions (CDFIs)

In a similar line, CDFIs are lenders that focus on providing funding to nonprofit companies. 

Loans for charities and other charitable organizations fall under this category. Be aware that interest rates could be high, and loan amounts could be small (although occasionally, some lenders offer more considerable capital amounts). Still, looking into CDFIs may be a good alternative if you’re having problems getting a loan for your nonprofit.

Most CDFIs are nonprofit organizations, while some could be financial institutions like banks or credit unions. Since CDFIs frequently operate inside municipal or state jurisdictions, be careful to search locally for them.

Starting out: 

Look at the CDFI locator to get your quest going. 

Another option that connects small business owners with a network of nonprofit CDFI lenders eager to support businesses with a noble purpose and cause is the Connect2Capital platform.

Funding platforms

Utilize crowdfunding websites like GoFundMe to raise small sums of money from a large number of donors. 

The use of crowdfunding to raise money for NGOs is becoming more and more widespread. 

Crowdfunding is a method for raising small amounts of money from many individuals instead of receiving a huge sum all at once.

Which of the several crowdfunding platforms—Kickstarter, Indiegogo, and GoFundMe—do you pick? 

Typically, GoFundMe is popular among nonprofits and works well for raising money for deserving causes. GoFundMe campaigns have been set up by numerous charities and people to raise money for things like pet surgery, school diversity programs, and disaster assistance.

Crowdfunding can be a viable source of funding for your nonprofit if you’re willing to invest in its marketing.

Starting out: 

For information on launching a campaign and raising money for your nonprofit organization, see our GoFundMe guide.

Corporate charitable endeavors

Corporate giving initiatives might not raise as much money as a grant or loan, but every little bit helps. If your nonprofit has a good cause, you can approach nearby corporations and small businesses that want to support the neighborhood.

Corporate giving programs accept a variety of contributions:

Donations in cash.

Physical presents (e.g., free tickets if the small business is an entertainment venue).

Donations for charity activities.

You might be surprised by how many neighborhood companies are willing to assist your nonprofit if you make an effort. To bring about positive change in the world, socially conscious businesses like The Walt Disney Company collaborate with groups like The Make a Wish Foundation.

Starting out: 

Look at the websites of regional establishments and large firms to discover whether they support any nonprofit or charitable organizations. Another option is to call nearby companies and introduce your nonprofit organization to their PR or marketing departments.

Credit unions and banks

Speaking of banks and credit unions, you might consider submitting an application with these institutions for a “traditional” business loan, such as a business term loan or business line of credit. Please be aware that nonprofit organizations have difficulty obtaining bank loans. 

Candidates should generally have a solid financial history because bank loans are only given to the most qualified applicants.

If you have a solid credit history and your nonprofit is generating revenue, it’s worth applying for a loan through your bank. You will want to look for language in their materials that says that the bank or credit union lends to nonprofits. (You might have greater success with credit unions than huge banks; they are frequently established to serve a neighborhood or group exclusively and may be more accommodating to NGOs.) Expect higher than usual interest rates as well; remember that it all depends on how they assess your risk.

When applying, you’ll need to provide a ton of paperwork, including financial accounts, a history of sales, proof of incorporation, development plans, and more. 

Over-preparation is preferable to under-preparation because having the necessary documentation on hand will hasten the loan approval procedure.

Grants to charities

What it is: Free money from grant-making organizations to nonprofits that satisfy specific requirements.

Grants are a vital source of free money for charity groups, as you may already know. 

Many charities rely almost entirely on donations and grants, and raising these funds takes a lot of time and effort. Of course, the best thing about grant awards is that they aren’t loans; you don’t have to pay them back.

Don’t forget to apply for various grants while looking for nonprofit financing opportunities. 

Make sure to look into various federal, state, and corporate grant funding sources.

It’s important to remember that applying for grants takes time, so think about setting up a tiered approach for the awards you want to apply for. 

For instance, focus your time on the applications you believe have the most chance of success. 

When you and your team have time to work on applications, move on to the second tier once those priority grant applications are received. 

Your daily operations shouldn’t suffer due to too much time spent on applications.

SBA funding sources

What it is: U.S. Small Business Administration-backed financing options for nonprofit organizations.

SBA loans, provided by conventional lenders like banks and guaranteed by the SBA, may be an alternative for nonprofit applicants. Through its Program for Investment in Micro-Entrepreneurs, the SBA also awards funding to charitable organizations that work to aid marginalized people or communities (PRIME). Resources are available; 100 organizations in 44 states received $8 million in financing last year. Don’t hesitate to contact the SBA for more information, but keep in mind that researching their funding and resources may take some time.

The conclusion

It’s not always simple to find charity business loans. You might not be approved for many business loans due to how you must invest your profits back into your company and your likely low income or restricted cash flow.

But that doesn’t imply you have no other choices. Researching grants, donations from other NGOs and community development organizations, corporate giving programs, and other sources of funding is crucial. Even while it might take longer than a for-profit company’s loan search, it will be worthwhile to secure the cash your organization is seeking.