How to Get a Loan to Start a Non-Profit Organization

If you are looking to start a non profit organization, you may be eligible for very inexpensive funding or grants. Not all charity organizations will qualify, however, as there are strict legal requirements to meet along the way. Whether you are starting new or looking to expand, consider the SBA a source of potential financing for your loan.

Becoming a Non Profit Organization

You must be a 501(c)(3) organization in order to qualify for NPO grants and loans. This is a legal status allowing you tax-exempt benefits. There are a number or extensive legal requirements to set up a 501(c)(3), and many people do not realize how hard it truly is to meet these needs. You will need to speak with a lawyer or assistance group in your area in order to file the appropriate paperwork. Thankfully, you may have access to a Certified Development Company (CDC). CDCs are certified by the SBA and other organizations for the assistance they may provide business owners looking to establish non profits. You can gain access to classes and other resources to guide you along the way to setting up your company properly. You will also be able to approach the CDC for loans or lending advice.

The SBA 504 Loan Program

The 504 Loan Program is specifically designed for companies looking to establish long-term financial growth in their communities through a non-profit organization. The loans are directly funded by the SBA, which is very rare for SBA loan programs. They are handed down through CDCs, which receive and then distribute the funds to local organizations like yours. You will have to attend a class on running a business in order to be eligible. Then, you will need to:

  • Secure a private loan for up to 50% of your project cost
  • Secure a CDC loan up to 40% of the project cost
  • Contribute 10% of the cost yourself

Further Eligibility Requirements

You must be eligible for the loan a number of other criteria beyond your status as an NPO.

  • First, you must fall within the size standards for a small business. This means, for the 504 loan program, you cannot have a net worth over $7.5 million. You also meet an income cap of $2.5 million.

  • You may not be involved in real estate speculation in any way in order to qualify for this loan.

  • You must create or retain one job per every $65,000 worth of funding the SBA provides

  • The maximum debenture is $2 million when providing a public service.

Securing the Loan

Once you are certain you meet the qualifications, you should seek your private loan requirement. You can then approach a CDC in your area for the additional 40% needed. Your Chamber of Commerce will have a list of CDCs in your area to approach regarding the financing. Once you are approved, you should note that funds do not often come in one batch. Instead, you will have to petition for the release of funds directed toward specific projects over a period of time. This helps assure against losses for the SBA.