You're looking for funding for your business. There are so many different avenues for getting a loan, where do you start? Knowing the difference between a for-profit and a nonprofit lender will help you as you shop around.

You’re looking for funding for your business. There are so many different avenues for getting a loan, where do you start? Knowing the difference between a for-profit and a nonprofit lender will help you as you shop around.

What is the difference between For-Profit and Nonprofit?

The most technical difference is the way an organization is categorized and taxed. A nonprofit is typically a 501(c)3 organization, which means they have certain tax exemptions because they are serving the public without making profit beyond operating costs. Many nonprofits are volunteer-run.

There are other key differences such as leadership structure and the way they are funded, but the most relevant differences to you as a borrower are their purpose and their qualifications for getting a loan.

Their purpose

For-profit lenders’ purpose is very clear: to make a profit. This includes traditional banks as well as predatory “alternative” lenders. This purpose drives the goals and motivations of the employees and affects who is able to get a loan from them. Because a for-profit lender needs to make money, they are less likely to lend to small businesses they deem to be more of a risk.

Nonprofit lenders include credit unions and microlenders like Opportunity Fund. A common misconception is that nonprofits are charities, because they are driven by more than making money. Nonprofit lenders are community-oriented and support initiatives that focus on improving the lives of small business owners. This means that Opportunity Fund, a nonprofit lender, is more likely to lend to “risky” businesses that others often won’t touch, such as new businesses, recent immigrants, restaurants, food trucks, micro businesses, and those with poor or no credit.

Qualifications for getting a loan

Things we hear a lot from our clients is that banks won’t help them because they have financial history that doesn’t look great on paper. This could be for a variety of reasons, but the message is clear: for-profit lenders care the most about numbers. In addition to requirements that most lenders ask for, they can be more strict about FICO scores and credit reports.

Opportunity Fund takes the time to listen to you and understand you as an individual with unique business needs. Some Opportunity Fund loans don’t have minimum FICO score requirements, and having little or no credit history may be accepted.

The trade-off with a nonprofit lender who takes on “risky” businesses is you may pay a higher interest rate to cover the greater potential loss. That being said, always look for a trustworthy lender who is truly affordable and transparent about what their loans actually cost.

Find a responsible lender

While not every for-profit lender is trying to suck your bank account dry, there are many “alternative lenders” out there that use dangerous and predatory practices that you should avoid – such as Merchant Cash Advances (MCAs) and Confessions of Judgement (CoJ).

Opportunity Fund is a co-founder and signatory of the Small Business Borrower’s Bill of Rights, which aims to educate small business owners about responsible business lending. Your rights, not protected by law but important for you to understand and fight for, include:

  1. The Right to Transparent Pricing and Terms
  2. The Right to Non-Abusive Products
  3. The Right to Responsible Underwriting
  4. The Right to Fair Treatment from Brokers
  5. The Right to Inclusive Credit Access
  6. The Right to Fair Collection Practices

 

For information about Opportunity Fund’s small business loans, please contact us at 866-299-8173 or loans@opportunityfund.org.  For questions about your existing loan or other customer service questions, please contact us at 866-299-8173 or sbhelp@opportunityfund.org.

Loans are subject to credit review. Additional documentation may be required for credit approval. We are an Equal Opportunity Lender. Loans will be made or arranged pursuant to California Department of Corporations Finance Lenders License #6050609.

Opportunity Fund is tackling economic inequality so that hard work and perseverance means a shot at getting ahead, not just struggling to get by. Our programs are supported by a community of donors and investors whose contributions help to fund small businesses, support college students, and build stronger families and vibrant neighborhoods. Since 1994, the team has deployed $700 million and helped thousands of families earn, save and invest in their own futures. Opportunity Fund has earned a 4-star rating from Charity Navigator, America’s largest independent charity evaluator, for our commitment to accountability and transparency.

Visit us online at http://opportunityfundloan.org and follow us on Facebook and Twitter

Opportunity Fund. Working Capital for Working People. opportunityfund.org