When people talk about loans, they usually mean home or business loans. But nonprofits also sometimes need extra financial support. Whether it's to cover shortfalls, scale operations, payroll or restructure existing obligations, nonprofit loans are not uncommon.
Most nonprofits rely on fundraising and grants for operational funding. However, at times they may need an additional capital source, such as a loan from a financial institution.
Still, just because a nonprofit is mission-driven doesn’t mean banks will extend favorable loan terms. Like any other borrower, nonprofits are assessed based on their ability to repay.
So, can nonprofit organizations secure SBA loans? Here’s a guide to understand eligibility, requirements, and some of the top lending options available..
What Banks Look For: The Criteria
When approaching a bank for funding, a nonprofit is typically evaluated based on the following:
- Creditworthiness: Does the organization meet its financial obligations promptly?
- Capital: How much has already been invested in its operations? Will the loan fund a specific, impactful project?
- Cash Flow: Can the nonprofit sustain its operations and still manage loan repayments
- Collateral: Are these assets - like property, investments, or cash reserves - to back the loan?
Loan Options for Nonprofits
Assuming your organization meets the above benchmarks, here are four common options to consider:
1. Nonprofit Loan Funds
These are mission-aligned lenders that specialize in supporting nonprofit organizations. Often, nonprofits themselves typically offer:
- Pros: Lower interest rates, mission-driven approach
- Cons: Smaller loan amounts
Notable examples include the Nonprofit Finance Fund and Propel Nonprofits.
2. SBA Loans and Grant Opportunities
The U.S. Small Business Administration (SBA) primarily serves small businesses, but it also supports nonprofits in specific cases.
- During COVID-19, the CARES Act enabled the SBA to extend loans to nonprofits.
- SBA also administers grants, such as through the Program for Investment in Micro-Entrepreneurs (PRIME), for nonprofits aiding underserved communities.
3. Banks and Credit Unions
Traditional financial institutions are a valid path for nonprofit financing, but with stricter requirements.
- Begin with your organization's primary bank.
- Credit unions, which are mission-oriented and community-focused, may be especially supportive of nonprofits.
To apply, expect to submit detailed documentation including financial statements, IRS Form 990s, and annual reports.
4. Business Credit Cards
While not technically a loan, a business credit card offers a revolving line of credit for covering routine expenses.
- Tip: Use cards with a 0% introductory APR to minimize interest.
- Be cautious—interest charges can stack up if balances aren’t paid in full.
- Savvy users sometimes rotate balances across 0% cards to avoid long-term interest.
When Is the Right Time to Take Out a Loan?
Timing is key. The best time to secure a loan is when your nonprofit has a defined purpose, like expanding programs, hiring staff, or funding a new initiative, with a solid repayment strategy and buy-in from leadership.
When Not to Borrow
Avoid loans if your organization runs recurring deficits or intends to use new debt to patch over existing financial problems. In such cases, debt may compound instability. It might be wiser to revisit the nonprofit’s long-term mission, goals, and financial strategy.
