Non-Profit organizations, just like for-profit organizations, incur operating expenses. Therefore, your organization will need to pay employee salaries, pay for office spaces, and incur costs on equipment acquisition and maintenance. All these are either funded by donations you receive, and fees collected from services your organization offers.
However, despite the organization’s revenue generation initiatives, your non-profit organizations might be faced with cash shortfalls. To effectively manage these shortfalls, the organization will incur loans to help cover the cash shortfalls.
What are Non-Profit Organization Loans?
These are loans taken by your organization to help manage its cash shortfalls. These loans can either be short-term or long-term loans depending on the needs of your organization. It is important to note that each loan has its downsides, and it is prudent for your organization to analyze the implications before applying for the loan.
Factors to Consider During Loan Application
The organization providing the loan
Despite non-profit organization loans being hard to secure due to the limited number of loan lenders, a few organizations offer this type of loan. It would be best if you chose the right lender based on your operations and needs. For instance, if your organization is a church, you can acquire various loans through church financing options such as private money loans. These loans, unlike traditional loans for a for-profit organization, have greater loan terms and interest rates.
Loan application Process
Loan application processes are likely to vary from one lender to the other. Hence, it is always vital to get an insight into the lending institution’s loan application process. Always consider lenders with minimal procedures, as they are likely to approve your loans promptly.
Liabilities Your Organization is likely to Face
For every loan taken out on the name of your non-profit organization, it remains liable for any eventualities. It is a requirement that your organization submits collateral when securing a non-profit business loan. If your organization fails to repay the loan on time, the collateral would likely be repossessed.
Additionally, your organization needs to analyze the liabilities that it will incur during the loan repayment period. For instance, the impact the loan repayment would have on your operations and its investment activities. Therefore, it is essential that your organization analyses the loan repayment terms, including the loan approval fees and the interest the loan is likely to earn by the end of the repayment period.
Where to Get Loans for Your Non-Profit Organization
Most lenders always consider non-profit organization loans to be riskier since non-profit organizations have limited financial muscle to repay the loans. However, despite this notion, various lending institutions still offer this type of loan. Below is a description of the leading non-profit business loan lending institutions.
Community Development Financial Institutions (CDFIs)
CDFIs are institutions primarily formed to offer financial leverage to disadvantaged organizations. These organizations might act as a source of business loans for your non-profit organization. However, they mainly provide short-term loans with higher interests compared to other lending institutions. CDFIs usually require comprehensive documentation before approving loans for larger non-profit organizations and take a more extended period for the loans to be approved and processed.
Even though banking institutions are considered traditional lenders, your organization might find it challenging to acquire a loan. This is mainly attributable to the higher risks involved with non-profit business loans. Nevertheless, if approved, your organization’s loan is likely to attract higher interest than for-profit business loans. Just like the CDFIs, banking institutions also require numerous documentation that discloses your organization’s financial objectives and even financial data.
In case your organization is a new set-up, crowdfunding platforms would be a viable option. These platforms would allow your organization to receive online loans that require no repayment. Besides, no interest is generally charged on these types of loans. However, the loans are limited compared to those from the banks.
If your non-profit organization needs to cover its financial shortfalls, then business loans could be an option. Nonetheless, your organization needs to choose the right lending institution by considering the ones with the most favorable loan terms. Additionally, to ensure that the loans get approved, your organization needs to ensure that the documents presented are complete and accurate. It is highly recommended that you seek alternative ways of acquiring funds before opting for loans.