Connect with us

Finance & Accounting

Nonprofit Business Loans: Top Funding Options for Charities

Published

on

Business lending is pretty straightforward for most companies: Apply for a loan and get a decision. Nonprofit business loans, however, have more moving parts. As you’re looking for business loans for nonprofits, learning where to apply for financing and what criteria lenders use to approve applications is essential.

After all, nonprofits will use these funds to build infrastructure, pay employees, market their cause, and more. We’ll walk through the nuances of applying for a business loan as a nonprofit organization, as well as your available sources of funding.

Why are nonprofit business loans hard to obtain?

Business loans for a nonprofit organization or charity tend to be tougher to obtain than loans for other types of for-profit businesses. Here’s an overview as to why you might find the process slightly more challenging.

Strict requirements

As you might expect, lenders have strong business loan requirements. They typically seek candidates with strong revenue and cash flow, which makes them more likely to pay off their business loans. And that’s what they’re in business for—making sure candidates pay off their loans with interest, which is where these companies generate profit.

As a nonprofit organization, one of the key elements of your charity is that you invest all of your profits back into the organization. You might even be operating at a loss, which many nonprofit corporations do.

Risky investment for lenders

To lenders, nonprofits are risky candidates for business loans. What’s behind this designation?

Well, without the profits and consistent revenue to assuredly pay back their loans, nonprofits are seen as more likely to default on their loans. That’s especially true with nonprofit organizations that are operating at a loss. Since the lender loses money, nonprofits are risky investments.

On the flip side, for-profit businesses have revenue streams that lead to profit. They don’t always get approved for business loans, but for-profits with strong revenue and cash flow pose a lower risk in a lender’s eyes.

This doesn’t necessarily mean that you can’t get capital from traditional sources—it just often translates into higher interest rates on any loans you secure for your nonprofit organization.

Collateral is likely necessary

As a nonprofit or charity, the lender will likely request collateral to secure the loan (assets they’ll seize to recoup their money if you can’t pay back the loan). This could be in the form of physical assets or cash reserves. Make sure you think about this since the seizure of collateral could put your nonprofit at risk.

Top funding options for nonprofits and charities

Don’t worry: Funding options for nonprofits aren’t all doom and gloom. There are plenty of options to explore and different avenues to obtain capital. Here are some business loan options to consider and some alternatives, including grants and government capital.

1. SBA loans and grants

What it is: Financing solutions for nonprofits backed by the U.S. Small Business Administration.

Guaranteed by the SBA and offered by traditional lenders such as banks, SBA loans may be an option for nonprofit candidates. The SBA also issues grants to nonprofits dedicated to helping underprivileged individuals or communities through their Program for Investment in Micro-Entrepreneurs (PRIME). Last year, 100 organizations in 44 states received a total of $8 million in funding—so the resources are out there. Keep in mind that looking into SBA resources and funding might take a bit of time, but don’t hesitate to reach out to them for more information.

2. Nonprofit loan funds

What it is: Obtain nonprofit financing from lenders that work exclusively with nonprofits and charities.

There are a few organizations that offer loans exclusively to nonprofits and charities. Oftentimes, these are nonprofits themselves, whose mission is to better their communities. Although these nonprofit loan funds are not plentiful, those who offer nonprofit funding often provide preferable terms—or even zero-interest loans.

Getting started: Consider starting with the Nonprofit Finance Fund and Propel Nonprofits to get some information on organizations like these, and to figure out if they might be the right fit for your nonprofit business loan needs.

3. Nonprofit grants

What it is: Free funding available to nonprofits that meet certain criteria, obtained from grantmaking agencies.

You might already be aware, but grants are a significant source of free funding for nonprofit organizations. Many charities run almost exclusively on donations and grants—and many hours are spent in development to raise these funds. The best part about grant awards, of course, is that they’re not loans at all: You don’t have to pay back these funds.

In your search for nonprofit funding options, don’t forget to apply to an array of grants. Make certain that you explore several different sources of grant funding—federal, state, and corporate.

It’s worth noting that applying for grants is a time-consuming process, so consider creating a tiered system for the grants to which you want to apply. For instance, pick a few that you think you’re most likely to win and spend your time working on those applications. Then, when those priority grant applications are in, get to the second tier when you and your team have time to work on applications. You shouldn’t be spending so much time on applications that your day-to-day operations suffer as a result.

Getting started: Visit various nonprofit grant agencies, like the 3M Foundation and The Carnegie Foundation, and research their requirements to see if you qualify.

4. Community development financial institutions (CDFIs)

What it is: Financing generally in lower amounts from lenders that specialize in financially assisting nonprofits and charities.

In a similar vein, CDFIs are lenders that specialize in offering financial assistance to nonprofit businesses. This includes loans for charities and other nonprofit organizations. Note that loan amounts may be small—though, on occasion, some do offer higher capital amounts—and interest rates might be high. Still, if you’re having trouble finding a loan for your nonprofit, researching CDFIs could be a viable option.

CDFIs are generally nonprofits themselves, or some might be financial institutions, including banks or credit unions. Be sure to look locally for CDFIs, since they often operate within local or state jurisdictions.

Getting started: To kickstart your research, check out the CDFI locator. The Connect2Capital platform is another option connecting small business owners with a network of nonprofit CDFI lenders that want to support organizations with a worthy vision and cause.

5. Banks and credit unions

What it is: Traditional business loan options obtained from banks.

Speaking of banks and credit unions, you can look into applying for a “traditional” business loan, such as a business term loan or business line of credit, through these types of lenders. Please note that bank loans are challenging to secure for nonprofits. In general, candidates must present a strong financial profile, since bank loans only go to the most qualified candidates.

If you have a very strong 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 more luck with credit unions than large banks, which are often set up to serve a community or group specifically, and might be more friendly to nonprofits as a result.) Also, expect higher than normal interest rates—remember, it depends on how they evaluate your risk.

You’ll need to provide extensive documentation when applying—financial statements, revenue history, incorporation documentation, development plans, and more. It’s better to over-prepare than to under-prepare since having the right paperwork on hand will speed up your loan approval process.

Getting started: As we’ve mentioned, securing a loan for a nonprofit is challenging. To kickstart your research, the following guides break down the process and available options:

6. Corporate giving programs

What it is: Collecting contributions, either monetary donations or physical gifts or time spent volunteering, from local businesses and large corporations.

While corporate giving programs may not secure the bulk of capital that a grant or loan might, every amount helps. If you’re a nonprofit with a worthy cause, you can appeal to local small businesses and corporations who want to give back to their community.

Contributions in corporate giving programs can vary:

  • Cash donations

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

  • Sponsorships for fundraising events

If you take the time, you might be surprised to see how many local businesses are willing to support your nonprofit. In fact, socially responsible companies, like The Walt Disney Company, partner with organizations like The Make a Wish Foundation to create positive change in the world.

Getting started: View the websites of local businesses and big corporations to see if they offer any charity or nonprofit organizations. Also, consider calling local businesses and pitch your nonprofit cause to their marketing or PR team.

7. Business credit card

What it is: Draw against a line of credit that will be repaid over time—ideal for daily and fixed expenses.

You might not think of a business credit card as a loan, but it can be. After all, you’re drawing against a credit line that you need to pay back later. With some research, you can find business credit cards with low interest rates, which is beneficial if you cannot pay your bills on time.

There is also the option of applying for a 0% introductory APR business credit card. These cards are different than other business credit cards because they offer a fixed period during which you won’t have to pay interest on the balance you carry. These fixed periods are relatively long, often up to a year, which will enable you to generate the revenue to pay off the balance and create a payment plan to do so.

It’s worth noting that paying off your 0% intro APR credit card by the end of the introductory period is crucial for minding your organization’s money. After the introductory period ends, a variable interest rate will set in based on your creditworthiness and the market Prime Rate.

Even with this in mind, many nonprofits and for-profits alike rely on business credit cards to help them build and grow their businesses.

Getting started: The best credit cards for nonprofit organizations are often the same as for other small businesses. Consider the options and perks including cashback, sign-up bonuses, and low APRs.

8. Crowdfunding sites

What it is: Fundraise small amounts of capital from numerous people using crowdfunding sites like GoFundMe.

Crowdfunding has now an increasingly popular way for nonprofits to raise capital. Instead of securing a large lump sum from a loan or grant, crowdfunding focuses on collecting small donations from a large number of people.

There are many crowdfunding sites—Kickstarter, Indiegogo, GoFundMe—which do you choose? Typically, GoFundMe resonates with many nonprofits and is ideal at fundraising for worthwhile causes. Many nonprofits and individuals have created GoFundMe campaigns to raise relief funds for natural disasters, fund diversity programs for schools, and even pay for pets’ medical procedures.

If you’re willing to devote resources to marketing your campaign, crowdfunding can be a viable funding source for your nonprofit.

Getting started: Check out our GoFundMe guide to learn how to start a campaign and start raising funds for your nonprofit organization.

The bottom line

We won’t sugarcoat it: Finding nonprofit business loans isn’t the easiest process. Because of your unique circumstances surrounding the way you are required to reinvest your profits back into your organization and your potentially low revenue or tight cash flow, you might be ruled out as a candidate for many business loans.

However, that doesn’t mean you’re left without options. It’s important to do the legwork to look into grants, funds from other nonprofits and community development organizations, corporate giving programs, and more. While it may be more time-consuming than a for-profit business’s loan search, it’ll be worth it to get the funding for which your nonprofit is looking.

Advertisement

This post was originally published on this site

Continue Reading

Banking

Overdraft Protection: What It Is and Different Types

Published

on

Overdraft fees can be a major drain on your finances. Some banks charge more than $30 per overdraft and potentially charge that fee multiple times per day if you keep making transactions that overdraw your checking account. If you want to avoid these fees, you can typically opt out of overdraft coverage with your bank. It can be useful, however, to set up overdraft protection instead of opting out so you don’t find yourself unable to pay for something urgent.

What is overdraft protection?

Overdraft protection is a checking account feature that some banks offer as a way to avoid overdraft fees. There are several types of overdraft protection, including overdraft protection transfers, overdraft lines of credit and grace periods to bring your account out of a negative balance. Some other overdraft coverage programs might be a combination of these features.

Before you opt out of overdraft protection altogether — which means your bank will decline any transaction that would result in an overdraft — consider how you might need overdraft coverage in an emergency. For example, maybe you’re using your debit card to pay for gas on a road trip. You need enough fuel to get home but don’t have enough money in your checking account. Instead of dealing with running out of gas, you may want to deal with an overdraft.

How does overdraft protection work?

Here are more details about the main types of overdraft protection that banks tend to provide.

Overdraft protection transfers. When a bank allows you to make an overdraft protection transfer, you can link a savings account, money market account or a second checking account at the same bank to your main checking account. If you overdraft your checking, your bank will take the overdrawn funds from your linked account to cover the cost of the transaction. Many banks allow this service for free, but some banks charge a fee.

Overdraft lines of credit. An overdraft line of credit functions like a credit card — but without the card. If you don’t have enough money in your account to cover a transaction, your bank will tap your overdraft line of credit to cover the remainder of the transaction. Lines of credit often come with steep annual interest rates that are broken up into smaller interest charges that you keep paying until the overdraft is paid back. Be aware that a line of credit could end up being expensive if you use this option to cover your overdrafts.

Grace periods. Some banks offer grace periods, so instead of immediately charging an overdraft fee, the bank will give you some time — typically a day or two — to return to a positive account balance after overdrafting. If you don’t do so within that time frame, your bank will charge you fees on any transactions that overdrafted your account.

Other coverage programs. Some banks are taking a new approach to overdraft protection by offering what’s basically a free line of credit with a longer grace period for customers to bring their account to a positive balance. One example, Chime’s SpotMe® program, allows customers to overdraft up to $200 with no fees. The customer’s next deposit is applied to their negative balance, and once the negative balance is repaid, customers can give Chime an optional tip to help keep the service “free.”

Chime says: “Chime is a financial technology company, not a bank. Banking services provided by, and debit card issued by, The Bancorp Bank or Stride Bank, N.A.; Members FDIC. Eligibility requirements and overdraft limits apply. SpotMe won’t cover non-debit card purchases, including ATM withdrawals, ACH transfers, Pay Friends transfers or Chime Checkbook transactions.”

4 ways to avoid overdraft fees

  1. Set up low balance alerts. Many banks offer an alert option so you’ll get a text, email or push notification if your account drops below a certain threshold. These alerts can help you be more mindful about your balance so that you can put more money into your account or spend less to avoid an overdraft.

  2. Opt out of overdraft coverage. If your bank doesn’t offer overdraft protection — or if its only options cost money — you may want to opt out of overdraft coverage, in which case your bank will decline any transactions that would bring your account into the negative. Keep in mind that this option could put you in a sticky situation if you’re in an emergency and can’t make an important purchase because you don’t have overdraft coverage.

  3. Look for a bank that has a more generous overdraft policy. Many banks are reducing or eliminating their overdraft fees, so if overdrafts are an issue for you, do some comparison shopping to see if there are better options available.

  4. Consider getting a prepaid debit card. Prepaid debit cards are similar to gift cards in that you can put a set amount of money on the card, and once you run out, you can load it with more money. The prepaid debit card can’t be overdrawn because there isn’t any additional money to draw from once its balance has been spent.

Advertisement

This post was originally published on this site

Continue Reading

Business Ideas

Startup Business Grants: Best Options and Alternative Funding Sources

Published

on

Startup business grants can help small businesses grow without debt. But if you want free money to start a company, your time may be better spent elsewhere. Competition for small-business grants is fierce, and many awards require time in business — often at least six months.

Some grants are open to newer businesses or true startups. And even if you don’t qualify now, it can pay to know where to look for future funding. Here are the best grants for small-business startups, plus alternative sources of startup funding to consider.

How Much Do You Need?

with Fundera by NerdWallet

Government startup business grants and resources

Some government programs offer direct funding to startups looking for business grants, but those that don’t may point you in the right direction or help with applications:

Grants.gov. Government agencies routinely post new grant opportunities on this centralized database. If you see an opportunity relevant to your business idea, you can check if startups are eligible. Many of these grants deal with scientific or pharmaceutical research, though, so they may not be relevant to Main Street businesses.

Local governments. Lots of federal grants award funding to other governments, like states or cities, or to nonprofit economic development organizations. Those entities then offer grants to local businesses. Plugging into your local startup ecosystem can help you stay on top of these opportunities.

Small Business Development Centers. These resource centers funded by the Small Business Administration offer business coaching, education, technical support and networking opportunities. They may also be able to help you apply for small-business grants, develop a business plan and level up your business in other ways.

Minority Business Development Agency Centers. The MBDA, which is part of the U.S. Department of Commerce, operates small-business support centers similar to SBDCs. The MBDA doesn’t give grants to businesses directly, but these centers can connect you with grant organizations, help you prepare applications and secure other types of business financing.

Local startup business grants

Some local business incubators or accelerators offer business grants or pitch competitions with cash prizes. To find these institutions near you, do an online search for “Your City business incubator.”

Even if you don’t see a grant program, sign up for their email newsletter or follow them on social media. Like SBDCs and MBDAs, business incubators often provide business coaching, courses and lectures that can help you develop your business idea.

Startup business grants from companies and nonprofits

Lots of corporations and large nonprofits, like the U.S. Chamber of Commerce, organize grant competitions. Some national opportunities include:

iFundWomen. iFundWomen partners with other corporations to administer business grants. You can fill out a universal application to receive automatic notifications when you’re eligible to apply for a grant.

Amber Grant for Women. WomensNet gives two $10,000 Amber Grants each month and two $25,000 grants annually. Filling out one application makes you eligible for all Amber Grants. To qualify, businesses must be at lesat 50% women-owned and based in the U.S. or Canada.

National Association for the Self-Employed. Join NASE, and you can apply for quarterly Growth Grant opportunities. There are no time-in-business requirements for these grants of up to $4,000, but you’ll need to provide details about how you plan to use the grant and how it will help your business grow.

FedEx Small Business Grant Contest. This annual competition awards grants to small-business owners in a variety of industries. You can sign up to receive an email when each application period opens. To be eligible, you’ll need to have been selling your product or service for at least six months. Be mindful, though, that each grant cycle receives thousands of applications.

Fast Break for Small Business. This grant program is funded by LegalZoom, the NBA, WNBA and NBA G League and administered by Accion Opportunity Fund. You can win a $10,000 business grant plus free LegalZoom services. Applications open during the NBA season, which runs from fall to early summer each year.

Alternative funding sources for startups

New businesses likely won’t be able to rely on startup business grants for working capital. The following financing sources may help accelerate your growth or get your startup off the ground:

SBA microloans

SBA microloans offer up to $50,000 to help your business launch or expand. The average microloan is around $13,000, according to the SBA.

The SBA issues microloans through intermediary lenders, usually nonprofit financial institutions and economic development organizations, all of which have different requirements. You can use the SBA’s website to find a lender in your state.

Friends and family

Asking friends and family to invest in your business may seem daunting, but it’s very common. Make sure you define whether each person’s money is a loan and, if so, when and how you’ll pay it back. Put an agreement in writing if possible.

Business credit cards

Business credit cards can help you manage startup expenses while your cash flow is still unsteady. You can qualify for a business credit card with your personal credit score and some general information about your business, like your business name and industry.

You’ll probably need to sign a personal guarantee, though, which is a promise that you’ll pay back the debt if your business can’t.

Crowdfunding

If your business has a dedicated customer base, they can help fund you via crowdfunding. Usually businesses offer something in exchange, like debt notes, equity shares or access to an exclusive event.

There are lots of different crowdfunding platforms that offer different terms, so look around to find the model that works best for you.

Advertisement

This post was originally published on this site

Continue Reading

Finance & Accounting

Why Is Crypto Down?

Published

on

For crypto investors, any given day can feel like a roller coaster ride. The price of Bitcoin, for instance, regularly goes up or down by more than 5% in a day. In contrast, stock indices like the S&P 500 or Dow Jones Industrial Average rarely see swings that large.

During a bad turn for digital assets, it’s natural to wonder what caused the price drop — and what you can learn from it. Of course, each day on the market may bring a different answer for why crypto is down (or up), but understanding the basic mechanics behind crypto’s volatility can help you make better decisions.

Here are some of the many possible reasons behind big drops in prices:

  • Low liquidity. If a cryptocurrency is trading at lower-than-usual volumes, weird things can happen, like a single large trade throwing off the market by swinging prices closer to the value of that transaction.

  • Speculative trading dries up. High-risk trading with hopes of quick returns can end badly when momentum wanes.

  • Loss of trust. Trust in a product is a price driver. If it evaporates, prices can, too. In addition, because crypto is a novel asset class based on relatively new technology, signs of trouble such as cyberattacks or product failures can adversely affect the overall market.

Whatever the reason behind the crypto price trends of a single day, it’s important to remember that volatility has been a defining part of crypto investing.

Even Bitcoin.org, the website started by Satoshi Nakamoto to help explain Bitcoin, doesn’t shy away from that fact when it states: “relatively small events, trades, or business activities can significantly affect the price.”

Making sense of the bigger picture

In addition to dropping a lot in one day, cryptocurrencies are vulnerable to macroeconomic factors that can push down values for weeks or months.

In November 2021, a price decline turned into a sustained nosedive that continued until midway through 2022, when prices stabilized far below their lofty former highs.

Crypto’s drop coincided with price declines in many asset classes, but the declines in crypto were far steeper. For example, the S&P 500 dropped around 25% but has clawed back about half of those losses. Meanwhile, Bitcoin is still worth less than half of what it was before Thanksgiving 2021.

When explaining crypto’s drop, sometimes called “crypto winter,” experts point to the same root cause: Investors were looking to offload risky assets of all types amid economic uncertainty.

Adam Grealish, director of investment solutions and GM of advisory at Altruist, a software platform for financial advisors, said the scale of these big declines in crypto prices undercuts “the story about it being digital gold and a place where folks are moving to protect wealth.”

“While there’s an interesting theoretical argument for it, empirically it trades much more like a risky, high-volatility asset,” Grealish said.

The macroeconomic environment in 2022 hasn’t been kind to risky assets.

Red-hot inflation has driven prices up. In response, the Federal Reserve raised rates, which lifted the interest charged for all types of loans. When money is more expensive, stocks and other assets can suffer. As a result, investors tend to flee riskier investments, including crypto.

While this is bad news for investors and customers alike, Greg King, founder and CEO of crypto investment firm Osprey Funds, says this is part of an evolutionary process that will improve the industry in the long run.

“Our view is that it’s a positive in cleaning out some of the dead wood there,” he says. “All of the companies that went under that were in the press were centralized operations with poor risk management.”

It’s impossible to know what course the crypto market could take from here.

If interest in cryptocurrency investing recovers to the levels seen in 2021, that could benefit people willing to weather the tough times. But don’t confuse a volatile asset for a basketball; only with the latter can you expect a bounce back because it fell. Volatility means that prices could still go in either direction.

Advertisement

This post was originally published on this site

Continue Reading

Trending

SmallBiz Newsletter

Join our newsletter for the latest information, news and products that are vital to running a successful SmallBiz.