Traditional for-profit lenders aren’t the only sources of capital for small businesses. There are a variety of non-profit lenders that 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 typically mission-driven and targeting 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.
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 loan proceeds for working capital, to 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.