What You Need to Know About Nonprofit Loans and Borrowing
Posted by Robert Torella on September 17, 2025
Should your nonprofit take out a loan? It’s a big question, and one that deserves careful thought. Maybe you need new equipment, want to expand your facility, or are recovering from an unexpected financial setback. While borrowing can provide quick access to funds, it also comes with risks that nonprofits must weigh carefully.
Why Borrowing Is Different for Nonprofits
For-profit businesses often borrow to grow because they have steady cash flow to repay debt. Nonprofits, on the other hand, face more uncertainty. That makes loans riskier for both the lender and the borrower. Before you apply, anticipate lender scrutiny and perform thorough due diligence.
Pros and Cons of Taking a Loan
Cons
- You must repay the loan—with interest.
- Nonprofit loan rates are often higher than business loans.
- Additional costs like appraisals, closing fees, and legal expenses add up.
- A significant down payment may be required.
Pros
- Once approved, you have guaranteed access to funds.
- Applying for a loan can be faster than organizing a major fundraising campaign or securing grants.
Common Loan Options for Nonprofits
Your financial needs will determine the best loan type. Here are three common options:
- Lines of Credit: Ideal for nonprofits with seasonal revenue fluctuations. A revolving credit line can help smooth out cash flow.
- Bridge Loans: Useful for short-term gaps caused by unexpected events—like a funding source drying up or an emergency expense. Typically lasts up to one year.
- Long-Term Loans: Best for major projects or purchases. If you’re running a capital campaign, a long-term loan can keep your project moving while fundraising continues.
Sometimes opportunities arise quickly—such as acquiring new office space or merging with a like-minded organization. In these cases, bridge or long-term loans can help you act fast.
Preparing Your Loan Application
Lenders will want detailed information, including:
- Several years of tax filings and audited financial statements
- Reports on pledges, receivables, accounts payable, and outstanding debt
- A description of major funding sources
- A board resolution approving the loan
You may also need to provide:
- Organizational history (articles of incorporation, bylaws)
- Details on leadership and governance
- Strategic plans and program descriptions
- Cash flow projections showing how you’ll repay the loan
The Bottom Line
Borrowing can be a lengthy and demanding process, and not every nonprofit will qualify. Higher interest rates mean borrowing can be expensive, especially if your organization is considered high-risk. Keep thorough records and explore all financing options before committing. Loans aren’t the only solution—grants, partnerships, and fundraising campaigns may offer less costly alternatives.
Contact us to discuss loan applications and other financing strategies that fit your nonprofit’s mission and goals.
for more information
Bob has considerable expertise in auditing and accounting of exempt organizations, specifically educational institutions, arts and entertainment organizations, and other nonprofit organizations, as well as employee benefit plans, auto dealerships, and other commercial entities, where he manages and oversees the all services to these organizations. Additionally, he has significant experience in grant compliance, audits in accordance with Government Auditing Standards and the Uniform Guidance, financial reporting, and taxation of exempt organizations. Bob is a member of the Firm’s Accounting and Auditing Technical Committee and is the chairperson of the Financial Accounting Standards Board Subcommittee. He was named partner in 2024.