By: Leah Virzi
Nonprofit organizations are businesses that are not taxed by the federal government, and any donations put out towards such organizations can be tax-exempt, as well. These organizations include any company that provides services involving education, literacy, or science, and also include charities. Although most nonprofits make most of their revenue by receiving donations or by the generous work performed by volunteers, they can apply for loans to help their organization flourish. Suggested funding solutions include but aren’t limited to SBA loans, microloans short-term loans, and/or equity capital.
In order to qualify for these loans, lenders will review past records of the organization’s income and operation, as well as their business plan to foresee the likelihood that they will follow through with the goal they are trying to achieve in the community.
If the nonprofit organization does receive funding, the funding can be used to grow current and future projects. The funding can also allow for the organization to build a stronger campaign to gain a strong donor and volunteer following. Funding can also be used for regular business needs, such as purchasing inventory or equipment that can be used while providing their service of interest.
SBA loan: How much funding it offers and why they’re beneficial.
An SBA loan is usually used to purchase real estate, buildings, and machinery, but what sets these loans apart are the lower interest rates. The average amount taken out for such a loan is usually around $350,000 but with nonprofits, the amount needed for a loan is usually much lower. Nonprofit organizations typically utilize loans that are much lower than the average, and fall into the SBA Loan subcategory of a microloan. Microloans are loans that are accompanied with very low, or even no interest rates, which is especially beneficial for a nonprofit organization. Nonprofits make their revenue based off the needs of the community, and often that incoming revenue will be much lower than that of a regular business, attributable to their cost of services. The low cost of their services obviously makes loans with little to no interest rate most advantageous because of the lower incoming revenue.
Short-term loans: How can they be utilized for nonprofits?
Short term loans on the other hand, may be accompanied with a higher interest rate than that of a microloan. Because less money is being borrowed than what you would find with a medium or long-term loan, the lender is at a lower risk when providing funds. This in turn results in lower interest rates than long term loans. Lenders, in this situation, are still at risk because the monthly and annual revenue of nonprofit organizations can be less stable depending on the time of year, and they can be unreliable due to low revenue. To maintain security for their own company, lenders most often will require collateral. This is often not a huge deal, because the organizations are able to pay back smaller, short-term loans, just as easily as they would if they had taken out a microloan. The only difference is the amount of money being borrowed, and the amount of time allotted to pay the loan back. And if you are lucky enough to find a nonprofit lender, they can offer you a short-term loan, with little to no interest rates as well as provide guidance when it comes to building your business.
Equity capital: Riskier business.
With the use of equity capital, for any business, both the lender and the borrower are put at risk. If the organization flourishes, the lender will get a percentage of the revenue, which is how they earn their money back from what is borrowed. If the organization does not meet its full potential, the revenue earned will still be split with the lender, but the lender may not be paid back in full, or receive the profit they were looking for. The organization may also suffer because they will not be receiving the full income to continue to grow.
Bringing help to you, while you bring help to others, these suggestions include ways that you can fund your nonprofit organization with little to no interest rates, so you can afford to get your job done. With the funds provided, you can market your cause, provide funds for the service you are providing, or cover general costs such as restocking inventory. With these options available for you, you can bring your nonprofit organization to its full potential and help your cause, in no time.