Top Four Questions Concerning Nonprofit Credit History
When it comes to establishing a line of credit for your up and coming nonprofit, it sometimes feels like an uphill battle. We want to give you the resources and tools you need to succeed, so below we have listed the five most prominent questions that nonprofits face concerning their credit history and our advice on how to address them.
Why is it important for nonprofits to establish a credit history?
Establishing a credit history is an important step for every business, including nonprofits. While many nonprofits rely on donations and fundraising initiatives to function, sometimes these efforts are not enough to cover transportation, payroll, and other operation costs. Establishing a credit history allows for nonprofits to make up for a short term lack of capital to cover the essential costs of running your nonprofit.
Credit can also be used to advance financial opportunities for your nonprofit. Once your nonprofit has established solid credit, your organization becomes more appealing for traditional large bank loans. Usually, banks are extremely reluctant to provide loans to nonprofits because they are considered high-risk borrowers. Nonprofits usually do not present a steady stream of revenue, and therefore banks have little faith that nonprofits can repay loans. If your nonprofit can present a solid credit history when applying for a large private loan, this will make your organization much more appealing to banks and credit unions.
Why is it so difficult for nonprofits to establish a line of credit?
Although both businesses and nonprofits benefit from establishing a credit history, the process of applying for a line of credit is much more difficult for nonprofit organizations. Unlike a traditional business, nonprofits do not have shareholders or board of directors that can provide collateral. Unfortunately, it often falls on the nonprofit’s founder or CEO to provide a personal guarantee and can be held financially responsible for the organization. This deters many nonprofits leaders, especially startups, from pursuing a line of credit for fear of destroying their personal credit score.
Okay, how do nonprofits go about establishing credit history?
There are a variety of methods through which nonprofits can establish a credit history. The first way that your nonprofit can go about establishing a line of credit is through registering for a D-U-N-S number. A D-U-N-S Number is a unique nine-digit number that is assigned to your company by Dun & Bradstreet. This allows other businesses and organizations to recognize your organization as a viable partner. It provides businesses with firmographic data (location, phone number, headquarters, and subsidiaries) and then allows you to build credit and relationships with large cooperations. For example, corporations such as Walmart provide grant funding and lines of credit for nonprofits when you provide your D-U-N-S number and your official 501c3 tax exemption form.
The other main method for nonprofits to establish a credit history is through opening a business credit card. There are many options available to nonprofit leaders looking for business credit cards, but (shameless self-plug) Charity Charge has an excellent option. By signing up for the Charity Charge Business Credit Card, nonprofits can establish a steady credit history while receiving unique benefits tailored to the specific needs of nonprofits. For example, our business credit card requires no personal guarantor, automatic cash back rebates, online expense reporting, and so much more. By having any business credit card, even if it isn’t the Charity Charge Card, your nonprofit can set up a reliable line of credit with a company that is dedicated to ensuring your financial success.
What are the best ways to make sure your nonprofit is maintaining a good credit history?
Once you have established a line of credit for your nonprofit, it is extremely important to maintain a positive credit history. There are many simple ways you can track and maintain a positive credit history. Firstly, always be sure to make your payments on time. Whether this is payments on a business credit card or an individual line of credit with a corporation, maintaining timely payments is the number one way your nonprofit can be sure to maintain a good credit history. The second way that you can maintain a positive credit history is tracking your credit score and financials through using programs such as the online expense reporting that is included with the Charity Charge business credit card and the credit report that is assigned to your nonprofit when you apply for your D-U-N-S number with Dun & Bradstreet. Finally, the third way you can ensure that your nonprofit’s credit history is to make sure that your data is protected. You can protect your data by putting fraud alerts on your business credit card, frequently checking your credit reports to ensure that fraud is not taking place, and making sure that you are working with a reliable company.
Yes, building a credit history for your nonprofit may seem daunting. But when you break down the big questions, the task at hand becomes much more manageable. The process of establishing credit for your organization takes time, but after it is established your organization can reap massive financial benefits!
- The Ins and Outs of Nonprofit Credit Card Processing - October 5, 2020
- Grow Ensemble’s Cory Ames on the Charity Charge Show - October 4, 2020
- Livestrong’s Suzanne Stone on the Charity Charge Show - October 1, 2020