Nonprofit Financing Options: 8 Ways To Secure Funds

Nonprofits are an essential part of our society, providing a range of services to communities around the world. However, running a nonprofit organization has its challenges. One of the biggest obstacles many nonprofits face is finding adequate financing to sustain and grow their operations. Fortunately, various financing options available today can help nonprofits secure the funds needed to fulfill their missions.

What Is Nonprofit Financing?

Nonprofit financing is the process of securing funds to support a nonprofit organization’s mission and operations. Funds are generally used for specific projects or programs that help the organization achieve its goals and objectives.

Nonprofits often rely on donations from individuals, foundations, corporations, government agencies and other sources to finance their activities. However, these organizations may also obtain funds from traditional financial institutions like banks and credit unions.

Nonprofits can also utilize various forms of financing, including grants, small business loans, investments and contributions from generous donors. Grants are usually the most common type of funding available to nonprofits as they come with more accessible eligibility requirements and require no repayment. That said, each type of nonprofit financing carries associated risks, so borrowers should carefully consider all the available options before pursuing them.

8 Nonprofit Financing Options

Nonprofits have a variety of ways to secure funds, but every financing tool has its advantages and limitations. For that reason, it’s essential for nonprofit organizations to compare options and select the best fit for their organizational goals and mission.

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1. SBA Loans and Grants

U.S. Small Business Administration (SBA) loans and grants are government-backed sources of financing that can help nonprofits fund their work. Loans must be repaid with interest, while grants require no repayment.

SBA loans are available to some organizations through traditional lenders, but nonprofits can apply for grants directly through the SBA. Still, organizations must meet specific eligibility criteria—like helping underprivileged communities—to qualify for SBA grants. More information is available through Grants.gov.

2. Nonprofit Loan Funds

Some organizations, like the Nonprofit Finance Fund and Propel Nonprofits, specialize in lending to nonprofit organizations. This option can make it easier for organizations without the credit rating or collateral needed to get a traditional bank loan. Moreover, nonprofit loan funds also offer financing at lower interest rates than conventional lenders, with some rates as low as 0%.

3. Nonprofit Grants

Many foundations donate money to help nonprofits finance projects and operations through grants. Eligibility requirements for foundation grants depend on the organization donating, but nonprofits typically should have a well-defined mission that aligns with the goals of the foundation. The nonprofit should also demonstrate how the grant will help the organization meet its long-term goals.

4. Community Development Financial Institutions

Community Development Financial Institutions (CDFIs) are lenders that provide capital and financial services to underserved communities, vulnerable populations, nonprofits and charities. CDFIs include community development banks, credit unions, loan funds, venture capital funds and micro-lending programs.

While these loans may be more accessible to nonprofit organizations, loan amounts are often smaller and interest rates higher. Nonprofits can identify local CDFIs through the Opportunity Finance Network’s CDFI locator.

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5. Traditional Business Lenders

Like for-profit businesses, nonprofits can borrow money from banks and credit unions to help finance their operations. To qualify for this type of funding, nonprofits must provide the lender with information about why they need the loan and how much they want to borrow. Borrowers must also demonstrate a good credit rating, the ability to make on-time payments and, in some cases, adequate collateral.

6. Corporate Giving Programs

Corporate partnerships and donations are one of the most vital sources of financial support for nonprofits. Corporations often donate money or goods to support causes and organizations they believe in. Still, there are many different ways corporations can give, so nonprofits should research companies willing to donate and develop an effective fundraising strategy.

By partnering with businesses, nonprofits can benefit from their resources as well as their financial support. These partnerships also offer an excellent opportunity to showcase the work of nonprofits and gain visibility.

7. Business Credit Cards

Business credit cards can help nonprofits pay for daily expenses, cover the costs of fundraising events and otherwise manage operations. As with other business and personal credit cards, the organization must submit an application (usually online) to see the credit line they qualify for. Once approved, the borrower can charge expenses to the card and make monthly payments.

Nonprofit borrowers that avoid carrying a balance from month to month won’t encounter any interest charges, but rates typically range from around 10% to 35%. Organizations can also save money on interest by applying for 0% introductory annual percentage rate (APR) cards. These cards offer interest-free borrowing for up to 18 or 20 months, making them a great option for large purchases or other necessary expenditures.

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8. Crowdfunding

Individual donors can provide crucial support to nonprofits by making financial contributions. Crowdfunding platforms such as GoFundMe, Indiegogo and Kickstarter allow individuals to donate money towards a specific cause or campaign. Nonprofits can create campaigns that explain their mission and goals to appeal to potential donors. Once the fundraising goal is met, the nonprofit receives the funds, which they can use for their operations.

Is Nonprofit Financing Hard to Obtain?

Nonprofit financing can be challenging to aquire, but eligibility requirements and minimum qualifications vary by the type of financing and lender. Generally, nonprofit organizations need to have a good credit rating and demonstrate financial stability. These are some of the challenges faced by nonprofits when applyingy for financing:

  • Difficulty meeting qualification requirements. Nonprofits often find it challenging to meet the qualification criteria imposed by business lenders due to their unique financial standing. Unlike for-profit businesses, nonprofits usually generate a small portion of their income from commercial activities, and the majority of their funds come from donations, grants and fundraising.
  • Greater risk to lenders and investors. Nonprofits are considered to be at higher risk of default than for-profit businesses, making it harder for them to qualify for financing from traditional sources. This is because not-for-profit organizations spend all incoming funds on the organization and the community—and may even operate in the red.
  • Lack of collateral. Many lenders require collateral, such as real estate or other assets, to secure the loan they are providing. Nonprofits often lack these types of assets, making it difficult to qualify for a loan.