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Much of our work here at NFF focuses on easing nonprofits’ access to capital--both in sufficient quantities and the right kinds--for dealing with short- and long-term needs. Loans can be used to help meet such needs, but there are important distinctions between loans and other types of capital. What will a loan mean for your organization? How will you meet the terms of the loan once you’ve received one? With these questions in mind, NFF Associate Dana Britto assembled five introductory blog posts each providing a helpful tip that you should consider before applying for a loan. (All five tips will be available here)
Know your repayment source. This may seem like an obvious request from a lender. But nevertheless, the importance of knowing your source of repayment cannot be emphasized enough. If you are seeking a loan that will be paid off over a period of time through monthly debt service payments, you should have at least some understanding of your cash flow trends and capacity on a monthly and annual basis. A preliminary financial assessment from almost any lender can further determine and highlight an organization’s debt service capacity based on trends in operating performance and cash flows.
If repayment is coming from a specific grant, contract or pledge, be ready to verify that this funding is confirmed, most often through official documentation, and don’t be surprised if lenders want to contact the source of this funding to verify the security of these funds. Under these circumstances, many borrowers often fail to recognize that in the event that this repayment source is ever unexpectedly reduced or significantly delayed, operating cash flows essentially become the source of repayment. This is why many lenders cannot simply ignore an organization’s overall financials even if they are bridging a specific source.
Depending on a to-be-raised or unconfirmed source to cover repayment can be extremely risky, especially in the current economic environment. Under these circumstances, be sure that a secondary source of repayment is available, sufficient, reliable and/or confirmed.
We’re making it easier than ever to inquire about whether a loan from NFF is right for your organization. Please review the lending guidelines at our new loan inquiry form!
|Borrowing, borrowing-tips, capital, financial services, How To, LendingTips, Loans|