Using Loans: A 101 Guide To Borrowing For Nonprofit Organizations
By the Nonprofit Assistance Fundvia Nonprofit Quarterly (NPQ)
Nonprofit organizations are founded and operated with a focus on a mission to serve their communities. This makes them different from businesses, which operate with a goal of making a profit for their owners. Yet nonprofits share many characteristics with businesses—both have revenues, expenses, personnel, and facilities. Like businesses, nonprofit organizations sometimes need cash in the form of a loan to operate their programs effectively. Astute managers and boards understand that loans can be a tool that can help their nonprofit grow and succeed.
USING BORROWED FUNDS WISELY
We know from juggling our own bills that it is never a good idea to borrow money that you cannot repay. Using loans wisely requires thought and planning about how the cash will be used and a realistic plan for repayment.
Consider an organization that has an opportunity to open a new site for their service. They research the location and find that it’s a good fit with their services and mission.
They develop a budget based on attainable fundraising and fees. The only obstacle is $20,000 of upfront costs to prepare the facility and buy furniture and equipment. They have several choices:
Decline the opportunity because they don’t have the necessary startup funds
Delay a decision for up to six months until a grant request for startup costs can be prepared and considered;
Arrange for a $20,000 loan with monthly payments for four years and start the program right away.
In this case, it would be unfortunate to miss the opportunity. Taking out a loan in this situation is demonstration of good management and planning.