Smart Business talked with Martinez, who is Wells Fargo’s business banking manager and team leader of relationship managers, and Yates, vice president and senior relationship manager for Wells Fargo Houston Business Banking. The discussion centered around how nonprofit organizations can work more effectively with lending institution to apply for loans that will stretch their dollars.
What organizations are considered to be ‘nonprofit’?
Yates: Any organizations with designations 501(c) (3), (4), (5) or (6). These include human services and arts organizations, housing organizations, foundations, civic organizations, associations, business leagues, and religious organizations.
All of these organizations may qualify for a lending institution’s many products and services that serve the nonprofit sector.
What types of services are available to nonprofits?
Yates: Look for a full range of turnkey solutions, and look for an institution that is willing to work with you to find the best ways to serve you. Look for an institution that will actually get to know your organization, one that doesn’t just look at financials and make assumptions.
Of course most nonprofits have cycles of giving, so a good lender should be willing and able to analyze how your organization operates and how your cash flows.
Martinez: A good lending institution will help a nonprofit to stretch its dollars further and can assist it in uncovering other resources.
How does a nonprofit go about applying for a loan?
Yates: One of the biggest myths is that the lending requirements and/or documentation requirements are looser for nonprofits. While underwriting standards may vary from lender to lender, the nonprofit should still be prepared when applying for credit.
Before approaching a lender, the director of a nonprofit should have the organization’s financial documents professionally prepared, presented in a manner that is easy to follow and have a specific objective. The lender will want to know who the leaders are, so the director should provide the names, titles and experience of board members. All information presented should be clear, concise and well organized.
What are some of the factors that lenders look at to determine whether to lend to a nonprofit?
Yates: First, lenders examine whether the nonprofit is operating effectively and efficiently. Is it producing results? Does it have a reputable name in the community?
Who sits on the board?
Nonprofits must be well managed and supported by their boards. The board needs a good mix of people, including professional business people such as accountants, lawyers, architects and public relations representatives.
What other advice do you have for nonprofits that might be seeking a loan at some point?
Martinez: Create internal endowments something to generate funds to cover fixed costs and other expenses year after year. Educate yourself. Make the board strong and viable so you can obtain financial products and services and increase the lender’s confidence in your organization.
Yates: However, nonprofits cannot survive off endowments and donations alone. They must create revenue streams. They must view, run and manage their organizations like businesses.
Martinez: The nonprofit will struggle if it continues to depend on the same types of revenues. Events, federal budget shortfalls (for instance, when Congress redirects money or cuts it off) and other factors can have a negative impact on revenue, so it is helpful to create annuitized streams.
Directors of smaller nonprofits would do well to find a mentor from a bigger nonprofit. That guidance will be invaluable.
Educate yourself on how to run the organization like a business. There are many resources available to help, such as the University of Houston Small Business Development Center.
CARY YATES is vice president and senior relationship manager for Wells Fargo Houston Business Banking. Reach him at (713) 284-5556 or firstname.lastname@example.org.
OSCAR MARTINEZ is the Wells Fargo Houston business banking manager and team leader of relationship managers. Reach him at (713) 284-5561 or email@example.com.