The Small Business Administration (SBA) offers attractive loans to help new and existing small businesses grow and thrive. The SBA, however, has strict guidelines on the type of companies that are eligible for their small business loan programs. SBA loans for most nonprofit organizations, for example, are unfortunately not easily accessible or available. But, don’t despair. If you operate a nonprofit and are looking for a nonprofit loan with the SBA, follow our guidance below and we’ll point you in the right direction to get the nonprofit financing you need.
Why SBA Loans for Nonprofits Are Scarce
Before we jump in, it’s important to first understand why nonprofits have a hard time accessing small business loans.
Most nonprofit organizations get funds for their operations from fees for service, grants, and donations. Any profit made from these streams of income is generally reinvested back into the organization. Some nonprofits operate on thin margins, and others even operate at a loss. For these reasons, traditional lenders won’t lend to nonprofit organizations. Lenders want the confidence that the money they extend to an organization—for-profit or not—will be repaid.
From their perspective, lending cash to a nonprofit is a risky business decision. However, in some cases, banks and credit unions will loan to a well-established nonprofit organization but charge higher interest rates due to the additional risk that’s involved in the transaction.
Where to Apply for a Nonprofit SBA Loan
While most nonprofits don’t qualify for SBA-backed loans, certain not-for-profit operations are eligible to apply for an SBA microloan through microloan intermediaries, such as a Community Development Financial Institution (CDFI).
A CDFI is a nonprofit institution that supports community growth by providing financial assistance to small businesses and nonprofits in low-income or disadvantaged areas. Most CDFIs are structured as traditional banks or credit unions and operate at a regional level.
Certified by the U.S. Department of Treasury, CDFIs generally offer microloans up to $50,000 to organizations that don’t qualify for typical bank loans.
Microloan funds can be used for working capital, inventory, equipment, machinery, and supplies. The repayment term for an SBA microloan is six years, and depending on the microloan intermediary, interest rates can vary between eight and 13 percent.
Find Out if Your Nonprofit Qualifies for an SBA Loan
If you’re not sure if your nonprofit organization is eligible for an SBA loan or if you want to explore additional creative financing options, contact the professionals at Growth Capital today. They will guide and support you in your efforts to secure the financing that your nonprofit needs.