The Best Time to Apply for A Nonprofit Line of Credit (and the Worst)

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At Financing Solutions, we get calls and applications from hundreds of nonprofit organizations across the country who are interested in setting up a nonprofit line of credit, and will sometimes hear the words after the nonprofit is approved, “We’re just not ready to move on the line of credit right now.” Or, “We were able to secure some funds from a board member, so we don’t need it anymore.” Or, even still, “Our funding check DID wind up coming in on time, after all, so we are all set for now.”

They Always Come Back Later in a Panic

Whatever the reason, these same nonprofits often come back to us a few months later, with an emergency cash need.  Sometimes they are about to miss payroll (which is illegal).  Sometimes, they’ve already delayed it (which is also illegal).

And, well, sometimes we can still help them quick enough, but unfortunately, sometimes we can’t.

Why Can’t We Help Them Now?

When applying for credit, lenders will qualify your creditworthiness based on your credit score, ability to repay, and information on your most recent financial statements (990).  When an organization applies for credit when they DON’T have a dire need, they are deemed less risky to potential lenders than an organization that needs money RIGHT AWAY.

Now, this doesn’t mean the “riskier” organization won’t be approved at all (though there is definitely a bigger chance of this happening), but if their financial statements are inconsistent, or credit score has gone down, there’s a really good chance that the approval amount and terms will be different than what they were initially offered.

Speed to Solve Your Problem

Although Financing Solutions moves super fast often the cash problem a nonprofit is having is very time-sensitive. When you already have your line in place it is easy to draw upon it. However, when your line isn’t in place, it usually takes a few days for you to get the paperwork together and to get board approval leading to panic at your nonprofit.

When is the Best Time to Set up A Nonprofit Line of Credit?

So, when’s the BEST time to apply for a line of credit? The simplest answer is, “When you don’t need one & your financials look good.” But, what does that look like?

  1. You have consistent deposits going into your main operating account that match past years.
  2. Your Executive Director, CFO or Board President has a credit score of 650 or greater. (Note: Financing Solutions does not require personal guarantees but uses credit checks to detect fraud)
  3. You haven’t missed paying your nonprofit’s bills over and over again.

What should you be looking for in a line of credit?

  1. Will you be charged for anything if you DON’T use the line? (Financing Solutions charges nothing to set up your line or if the Line is not being used)
  2. Is there an enrollment fee, application fee, maintenance fee, yearly renewal, annual fee?
  3. Is there an obligation to draw a minimum amount of funds within a specified period of time?

Why Wouldn’t You Setup Your Line of Credit IF IT Costs Nothing

A Line of Credit is nothing more than a cash backup plan and in the past, this financial tool was never available to nonprofits because commercial banks require collateral and personal guarantees.

Financing Solutions developed its Nonprofit Line of Credit program to take down the barriers so that a nonprofit can use its line of credit as a cash backup plan for emergencies and opportunities. That is why it is important to get the line set up in advance.

There are no fees to set up your line of credit and if you are not using your line of credit then there are also no fees. When you do use your line you can pay it back at any time and it is inexpensive. Financing Solutions has learned over the years that nonprofits are excellent customers and that they pay back their lines if used, therefore, the cost to use your line of credit is very low and often, it solves a major problem.

A Good Company

I am proud to work for Financing Solutions. Not only are we A+ certified by the Better Business Bureau but we have also been rated 5 stars on Google reviews. More importantly, I hear on a daily bases thank you’s from clients that have used their line of credit to avert a problem, continue needed programs or take advantage of an opportunity.

In my opinion, the best time to set up your nonprofit line of credit is when you don’t need it.