What you need to know before Lending to Non Profits

Nonprofits are considering the real estate game due to a lack of control over rented property, high rent in desired areas, and stricter zoning requirements. Commercial real estate professionals, lenders, and nonprofits can gain a lot from learning the expectations of all parties involved in financing a purchase.

As nonprofit organizations transition from renter to owner, they may find themselves struggling to identify funds necessary to bridge the gap between money needed to purchase and renovate or construct on a property, plus the timing for receipt of donations and grants from a capital campaign or other sources. The pressure to meet contract deadlines, expiring leases, funding deadlines, and needed expansion can be significant. At this critical point, most nonprofits realize they must borrow funds to seal the deal.

Banks and financial institutions are realizing that it can make good business sense and positively impact the bottom line for them to lend to nonprofit organizations. Here are a few things you need to know when lending to nonprofit organizations.

Time for decision: Nonprofits have a longer decision process, as they must get buy-in from their board members, staff, and major donors before making any significant real estate commitment. They must often work through various committees to reach consensus—all of which takes time.

Unique Requirements: Nonprofit organizations have special needs that the traditional real estate market often cannot address. For example, many nonprofits often serve clients in the evenings and on weekends. They also frequently require access to public transportation or be located in underserved areas where there are few commercial properties, so traditional office buildings are not always available. This makes them ideal candidates for repurposing buildings such as churches, warehouses, grocery stores, and bowling alleys.

Financial mishaps: Because nonprofits typically operate on tight budgets, they often seek the lowest-cost real estate options available. Most nonprofit funding comes from multiple sources that must be renewed on an annual basis, and real estate is typically the organization’s second-largest budget item after payroll. Also, donors prefer funding programs versus rent or operating costs. The good news is that most nonprofits have audited financial statements and are used to preparing reports regularly for their boards and funders.