Non-Profit Lenders

Traditional for-profit lenders aren’t the only sources of capital for small businesses. There are a variety of non-profit lenders offer financing and other services to business owners. These lenders typically focus on small businesses in their community that have the potential to provide an economic impact—usually by empowering the business owners and creating jobs.

Many of these non-profit lenders focus on smaller loans of under $50,000. Because these lenders are mission-driven and target businesses with the potential to help the community, borrowers are often offered advice and mentorship to help the business owner maximize the value of the financing to his or her business.

A Good Business for a Non-Profit Lender

Non-profit lenders are useful options for non-profit entities that are seeking small loan amounts. A non-profit needs a small cash infusion of several thousand dollars that would otherwise be directed to charge those expenses to a credit card, which tends to be high in interest and potentially fees. A non-profit loan is a good alternative that can help a business bridge a shortfall in cash flow or foster growth and deepen impact towards the nonprofit’s mission. Sometimes a small amount of capital from a non-profit lender can help a non-profit go a long way.

For instance, an organization that provides training to young adults to become mechanics may need $5,000 to rent a garage for a year that would be able to accommodate more than 300 students. Those 300 students go on to secure meaningful, living wage jobs as mechanics, owed to their training. They support families and local businesses and contribute to the economy and community. That one, small loan from a non-profit lender went much further than its original form in a return on investment against the organization’s mission to train adults in new trades.

Working with a Non-Profit Lender

Non-profit lenders often offer favorable terms, including low-interest rates, to business owners unable to access capital from traditional sources. And many non-profit lenders offer advice and other business-related assistance, workshops, and loan decisions based on more than a business’s financial statements.

In furtherance of their mission to support community economic development, non-profit lenders tend to develop strong relationships with the small business owners they lend to. Through such engagement, they are often able to help a borrower navigate particular challenges before it’s too late to make a difference.

It is important to note, however, that non-profit lenders don’t typically have the same resources a large bank might have, limiting the amount of capital they have to lend and the number of businesses they can serve. Borrowers can sometimes also experience a time-consuming and quite “hands-on” application process.

Because many of the business owners that find success with non-profit lenders are some of the smallest small businesses, the micro-loan amounts and terms are often a perfect fit for business owners that don’t have large capital needs.

For example, the average loan size of an SBA loan is closer to $400,000 as compared to the less than $50,000, or even sub-$15,000 many non-profits offer their borrowers. Most any borrower going to a traditional bank looking for these smaller loans would likely be directed to a credit card, rather than a low-interest micro-loan.

Not All Non-Profit Lenders Work the Same

There is a wide variety of non-profit lenders and lending models. Non-profits like Kiva Zip offer online crowdfunded loans of less than $5,000 to businesses making a positive social impact in their communities. Kiva’s US chapter has been around since 2011 and, like most non-profit lenders, tries to apply a different lens in determining a borrower’s creditworthiness. They believe that a good network of support, strong relationships, and the integrity of the business owner is just as valuable when evaluating whether or not the business is viable as traditional financial metrics.

Federally-licensed Community Development Financial Institutions (CDFIs) access private and public funds when lending to small business owners and as the name implies, they focus on businesses that have the potential to impact developing communities and low-income borrowers. Some of the better-known and established CDFIs include Accion and City First Bank.

There are other non-profit organizations that serve the small business community and offer funding advice. The Association for Enterprise Opportunity (AEO) and The SCORE Foundation are two good options. The SBA’s Microloan Program also offers loan programs through CDFIs designed to help small business owners and can be a useful resource.

Each non-profit lender has different lending requirements, so it pays to do your homework. Depending upon the lender, business owners can use business loan proceeds for working capital, purchase inventory or equipment, ramp up a marketing campaign, expand, or other similar uses.

As with other alternative lenders, if your business has sufficient cash flow to support a loan payment, you haven’t declared bankruptcy in the last 12 months and have been current with personal obligations like rent or a mortgage for the last year, even if you otherwise have less-than-perfect credit you may qualify with non-profit lenders.

The smallest small businesses, particularly those in developing communities, often aren’t served well by traditional for-profit lenders—making non-profit lenders an important part of the small business lending landscape.

Many online lenders use technology to evaluate businesses differently from traditional lenders. For example, online lenders may access a business’ transactions and cash flow via their bank account’s website or examine other digital data points to analyze a business.

What is an Online Business Loan?

An online business loan is a source of funding that businesses can apply for and access via online lenders. Online business loans are useful options for small businesses in particular, because the application process is easier, and approval time can be shorter than traditional business loans.

Shorter Term Online Business Loans

This lender provides business owners with loans ranging from three to 24 months. These loans are often used for specific, shorter-term projects such as purchasing inventory, launching marketing campaigns, or general working capital. Some examples of shorter-term lenders are:

• OnDeck – works largely with “Main Street” businesses and offers loans of up to $250,000. OnDeck has loaned over $3 billion nationwide.

Longer-Term Online Business Loans

These lenders provide business owners with loans that range from 1 to 5 years with amounts up to $500,000. These loans are often used for longer-term projects such as major renovations or the opening new location. Some examples of these longer-term lenders are:

• Funding Circle – started in the U.K. and has lent over $700 million globally to small businesses; Funding Circle offers loans up to $500,000

Benefits of Online Business Loans

Online business loans present some benefits over traditional loans, including:

• Easier application process
• No need to go into a physical bank or lender’s office
• More options so business owners can choose the online business loan that best suits their business needs
• Flexible terms and repayment options
• Faster approval and access to funds

Best Uses for Online Business Loans

Online business loans can be used for a number of business needs, including:

• Working capital to cover operational and other expenses
• Cash flow to cover payroll or one-time gap payments
• Equipment purchases
• Technology or infrastructure investment
• Inventory scaling or purchasing
• Refinancing
• Real estate purchasing

Online Business vs. Traditional Business Loans

Online business loans are distinct from traditional loans in several ways, many of which are favorable for businesses, particularly small businesses, but there are some watch-outs.

Online Business Loans

• Flexible qualifications and terms
• Easier to qualify
• Quicker to get approved and get access to funds
• Streamlined underwriting process
• Higher fees and interest

Traditional Loans

• Require more documentation and collateral in most instances
• Specific qualification requirements
• More rigid underwriting process
• Potentially lower fees and interest

How to Choose the Right Loan For Your Business?

Choosing the right loan for your business will depend on several variables, including:

• How long you have been in business?
• Your business credit profile
• The financial health of your business
• How much money you need?
• What do you plan to use the funds for?
• Whether you have existing loans or other debt
• What repayment terms are you comfortable with, including time to repay, interest, and fees?

Services like kerfunding.com can help you compare what business loans are available to meet your needs and qualifications.

Rates & Repayment

Online business loans tend to have a higher interest rate relative to traditional bank loans. However, they also have much higher approval rates and can provide funding far quicker than traditional lenders. The rates will vary by lender, term, and risk and are typically lower than other options such as merchant cash advances. Repayment methods also vary depending on the lender, so make sure to do your research and find the best fit for your business. Some lenders require a fixed amount daily or weekly, while others require a traditional monthly payment.

Qualifications and Requirements for Online Business Loans

These both vary from lender to lender, but here are some general guidelines:

• Required Time in Business: Usually between 1-2 years
• Minimum Annual Revenue: $75,000 – $250,000
• Minimum Personal Credit Score: 500-650
• Industry: Industry requirements vary by lender, but restricted industries sometimes include financial services, home builders, real estate investors, etc.

The Best Online Business Loan Options

The type of business loan that’s right for your business will take into consideration the above factors as well as what lenders will approve your application. Some of the best online business loan options are:

• Fundbox: Loan amounts up to $150K with a minimum credit score of 600
• Funding Circle: Loans up to $500K with credit scores of 660
• Bluevine: Loans up to $250K with a credit score of 620 or up
• Ondeck: Loans up to $250K with a credit score of 600 or up

Application Process

A major benefit of online business funding is how easy it is to apply for a loan. Applications are usually just a single page and tend to be very straightforward. They can be completed online, over the phone, or via fax. However, there are certain things you’ll need for non-bank lenders, including:

• Your Social Security Number
• Your Business Tax ID
• Connection to your business bank account or paper bank statements (for certain lenders)
• Financial statements (typically for larger loan sizes)

Another advantage to working with online lenders is the quickness of their review process. The shorter-term lenders can often provide a decision in minutes or hours, while the longer-term lenders may have a decision within a few days. In a world where an application for financing in a traditional setting can take weeks or even months, the speed and simplicity offered by online business lenders are a major attraction for many business owners.