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.  (Read all five tips here!

One thing many prospective borrowers may not understand from the outset is that we really want to lend money to you.  Once we’re convinced of your basic fitness to take on debt, the next task is to advocate for your loan in front of a lending committee.  We become advocates for your interests, and you never want your advocate to be surprised by some relevant information you forgot to share. 

The questions we ask and the information we seek as lenders is required to ultimately protect the potential borrower while ensuring our ability to lend.  Throughout this process, developing and maintaining the trust of your lender is crucial. With this in mind, it is in your best interest to do all you can to provide information for your lender to help generate confidence in your organization, specifically with regards to your leadership team (including your board), financial health, fiscal and programmatic controls/protocols and of course, your repayment sources.  Attaining this information will only increase a lender’s ability to effectively advocate on your behalf, which ultimately increases your chances of securing a loan.

Many potential borrowers fail to recognize that withholding or falsifying information can be extremely costly.  It is never a good idea to tell your lender that a contract that will be used to fund repayment is confirmed and secured if that is in fact not the case. Chances are, a good lender will find out the truth and will decline your application.  In addition to damaging your relationship and jeopardizing trust with your potential lender, not disclosing any material events after a loan is secured, such as a leadership change or any event that significantly impacts an organization’s financial condition, can often constitute an event of default. This is essentially when you break the contractual terms of a loan agreement.  Under most agreements, a lender can demand repayment of the loan in advance of its normal maturity date when an event of default occurs.  And in cases where collateral is involved, inability to repay under these circumstances could force a borrower to hand over the assets that were pledged when the loan was originally secured.  Borrowers may feel reluctant to notify their lender when certain adverse changes occur, such as a loss of a significant revenue source that will significantly affect their ability to repay.  But under these circumstances, it is crucial to maintain communications with your lender in order to establish the most appropriate terms for repayment to prevent default while maintaining the financial stability of your organization.

Remember, transparency and honesty is the best policy with those individuals who are directly responsible for analyzing and assessing your potential loan.  They are your biggest advocate in the application process and are often tasked with supporting and defending your application when it is ultimately submitted for approval by their institution’s credit committees and senior reviewers. 

One final note to cap off this series of Borrowing Tips:  When applying for a loan, it is quite possible that after undergoing this due diligence process that your loan application is ultimately denied.  If this happens, you should not be afraid to ask your lender to explain why the loan was declined.  Understand the specific concerns of your lender and be sure to take the opportunity to gain feedback. This feedback can then be used to strengthen your organization and help better prepare for future applications.     
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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!