May 18, 2022

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Can NGOs Avail A Business Loan?

3 min read
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Even though NGOs don’t make profits, they require capital to forward their motive repeatedly. They depend on several funding resources to satisfy their needs. But can they avail of a business loan?

NGOs, as non-profit enterprises, require funding for training, equipment, office space, salaries, other operations, etc. Since NGOs need funds for their survival & success, activities related to fundraising are very critical for them. However, being a non-profit enterprise, they reinvest all the monies they earn from the organisation.

As an outcome, NGOs are considered high-risk borrowers. Although no laws express that NGOs can’t avail of business loans, the possibility of repayment is relatively more minor; availing of business loans is quite difficult for NGOs. 

Unfortunately, only a few lenders provide business loans since lending to NGOs is somewhat riskier for a lender than granting a loan to other organisations. The lender will evaluate their earnings, costs, fundraising activities & other financial documents before providing loans. If the lender presents a loan, it will likely be contrary to a sound financial standing, high-value collateral, and high business loan interest rates.

Alternate options

Various NGOs depend on meaningful donations & government funds to fund their projects, pay salaries & overhead expenditures, and facilitate operations. Some alternate options are:

  1. Non-profit donations: A non-profit gift is a financial grant provided to NGOs, sometimes called a fundraising donation. These donations are usually offered by government agencies, foundations, or corporations. These contributions are free funds that NGOs can avail of, barring any repayment promise or other clause. NGOs need to think about factors like the type of grant, type of service, geography, and their cause for availing donations. NGOs need to prepare and submit a grant offer to government agencies, foundations, or corporations for availing of grants. NGOs may also need to submit documents as required by donors.
  2. Membership fees: NGOs memberships are available to persons whose interests, activities, and backgrounds are consistent with the organisation’s purposes. Various NGOs form membership programs that incentivise giving and involvement within non-profit organisations and associations. The organisation extends additional engagement opportunities to members in exchange for donations in the form of membership fees. This can support their annual funds, keep their workspace running & operating, benefit their campaign, help to give scholarships for exceptional reasons, and cover their membership advantages.
  3. Corporate Social Responsibility activities: Corporate Social Responsibility (CSR) is the funding and grants procedure under which NGOs can avail financial & other support from the corporate sector. CSR is related to the companies’ efforts for environmental protection and encourages positive social & environmental changes. With the increase in CSR funding, this mandate has thus opened the doors for NGOs and has given them an excellent opportunity to be tapped. NGOs can start by visiting the web pages of various big businesses & companies to be aware of their CSR programs and charities.
  4. Government funding: NGOs can also avail funds from government agencies. The Government of India has various schemes for NGOs to raise funds and donations. Depending on the motive of the NGO, they can apply to different government departments such as the Ministry of Culture, Ministry of Health and Family Welfare, Ministry of Women & Child Development, Ministry of Tribal Affairs, Ministry of Human Resource Development, etc.

Conclusion

If NGOs need additional working capital, business loans could be the resolution that may be challenging to avail. However, it is essential to consider the terms and conditions of a business loan before availing. However, various other alternatives such as donations, government funding, etc., need to be considered.

If any NGO requires a business loan, apply for the same on Tata Capital to enjoy an attractive interest rate and simple business loan eligibility and quick withdrawals. NGOs can also utilise the business loan EMI calculator to compute their EMI amounts and repayments. Avail the business loan with Tata capital for the expansion, inventory needs, and many more.

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