3 Tips for Securing Working Capital with a Strategic Nonprofit Loan
Nonprofit organizations play a vital role in addressing society’s toughest challenges. Just like a for-profit company, nonprofits need to pay expenses and strive to do better than breakeven.
The pandemic posed numerous challenges for nonprofits. Rather than trying to save during these years, it was a time to spend the rainy-day funds to meet community needs. It was also a time that put their strategic plans to the test. The 2022 Nonprofit Finance Fund survey showed that 88% of the nonprofits had to change the way they worked; 51% believed these changes are permanent. Therefore, nonprofit leaders need to take lessons learned from the pandemic and secure more reliable ways to fund the increasing demand for their services.
Often enhancing working capital with a strategic nonprofit loan can give them an extra boost or a way to pivot. Let’s look at 3 tips for securing working capital with a nonprofit loan at friendly rates and terms.
The pandemic posed numerous challenges for nonprofits. Rather than trying to save during these years, it was a time to spend the rainy-day funds to meet community needs. It was also a time that put their strategic plans to the test. The 2022 Nonprofit Finance Fund survey showed that 88% of the nonprofits had to change the way they worked; 51% believed these changes are permanent. Therefore, nonprofit leaders need to take lessons learned from the pandemic and secure more reliable ways to fund the increasing demand for their services.
Often enhancing working capital with a strategic nonprofit loan can give them an extra boost or a way to pivot. Let’s look at 3 tips for securing working capital with a nonprofit loan at friendly rates and terms.
1. Work With Nonprofit Focused Lenders
Whether your operation is simply getting started or has been serving your community for years, many nonprofit organizations find it difficult to gain financial assistance from traditional banks. While bankers are often supportive, banks are regulated to box loan applications into squares and are not always accommodating. On the other hand, nonprofit focused lenders, such as Community Development Financial Institutions (CDFI) and some community banks have stated missions to support their communities, giving them clear goals to help you succeed.
In recent years, some online lenders have also played a role. LENDonate is a platform that helps nonprofits source loan capital and donations in a streamlined process by connecting them with philanthropists and investors who are looking for investment opportunities that align with their own personal values.
Over the past decade, impact investing has experienced astounding growth. The increased push by more women and next generation wealth holders in investment decision making, along with heightened community service demand during the pandemic has underscored the perpetual need for essential nonprofit community services.
In recent years, some online lenders have also played a role. LENDonate is a platform that helps nonprofits source loan capital and donations in a streamlined process by connecting them with philanthropists and investors who are looking for investment opportunities that align with their own personal values.
Over the past decade, impact investing has experienced astounding growth. The increased push by more women and next generation wealth holders in investment decision making, along with heightened community service demand during the pandemic has underscored the perpetual need for essential nonprofit community services.
2. Budget Cashflow Carefully During Strategic Growth
There is a common concern among bankers: what if a nonprofit borrower defaults? The image of needing to foreclose on a school and parents protesting outside the bank sends chills up their backs, and unfortunately, also sends nonprofit loan applications under the microscope. So, when considering a strategic nonprofit loan, it is important to show your potential lender that you have a plan in place, including specific allocation for the funds that you are requesting and a clear source of repayment. The best financial projections show how a cash infusion can build up the long-term financial strength of the nonprofit.
For example, if you plan to expand a program that is expected to reach self-sufficiency in 3 years with $1M annual revenue increase starting in year 4, that is a good pitch. Another example is if cash flow projections reveal that the project will drain cash reserves by year 2, then a strategic working capital loan could deliver just-in-time cash to carry the project expansion to the finish line.
A clearly written strategic plan with well-defined repayment sources is key. Your cashflow roadmap matters!
For example, if you plan to expand a program that is expected to reach self-sufficiency in 3 years with $1M annual revenue increase starting in year 4, that is a good pitch. Another example is if cash flow projections reveal that the project will drain cash reserves by year 2, then a strategic working capital loan could deliver just-in-time cash to carry the project expansion to the finish line.
A clearly written strategic plan with well-defined repayment sources is key. Your cashflow roadmap matters!
3. Highlight Your Strengths: Telling Your Financial Story
Why do some banks reject your loan application while others welcome you with open arms? There are multiple factors at play at any given time, and it might surprise you to know that sometimes the primary reason may have little to do with you specifically.
For example, big bank appetite for nonprofit loans could ebb and flow. 2022 brought forth a rapidly rising interest rate environment, different from the pandemic years of low interest rates, which may have some banks cut back on approving nonprofit loans for fear of this increased debt burden. Therefore, you cannot afford to sell yourself short. Much like including a well-crafted cover letter with a resume, you need to highlight and showcase your organization’s strengths.
A casual review by a busy underwriter may overlook an offsetting cost not knowing a new expense will replace the old, for example, and double counting certain expense projections can result in a loan declination. Having a place to tell your financial and impact stories not only can reduce the chance of getting lost in the shuffle, but you can also garner attention from mission aligned investors who are looking for you or searching for nonprofits doing that work.
For example, big bank appetite for nonprofit loans could ebb and flow. 2022 brought forth a rapidly rising interest rate environment, different from the pandemic years of low interest rates, which may have some banks cut back on approving nonprofit loans for fear of this increased debt burden. Therefore, you cannot afford to sell yourself short. Much like including a well-crafted cover letter with a resume, you need to highlight and showcase your organization’s strengths.
A casual review by a busy underwriter may overlook an offsetting cost not knowing a new expense will replace the old, for example, and double counting certain expense projections can result in a loan declination. Having a place to tell your financial and impact stories not only can reduce the chance of getting lost in the shuffle, but you can also garner attention from mission aligned investors who are looking for you or searching for nonprofits doing that work.
The Bottom Line
Nonprofits play an increasingly critical role in society. If the sector were a country, it would have the 5th largest economy in the world. The sector has responded to the global pandemic, racial justice uprising, and growing unrest and unease in our country in tremendous ways. For this important and large sector to have access to affordable capital to operate strategically is not only essential, but the reach also needs to be broadened. When traditional bank loans leave a void, success stories like these showcase the importance of embracing nonprofit lenders and supporters in an innovative approach to collaboration. Money is just money until you make it strategic and use it for good.
Facebook
Twitter
LinkedIn
Email
You May Also Like
LENDonate is All About Nonprofit Financing
LENDonate’s mission is to create a dynamic market that allows capital to flow more freely in the nonprofit sector. We harness the power of nonprofit networks – a desire to contribute to social good – onto one single platform. This platform facilitates desired philanthropic actions, from offering grants and donations to making market-rate capital accessible to qualified projects. See Borrowers FAQ for more details.
