Can a Nonprofit Lend Money?

Nonprofit lending is big but compassionate business. From credit unions that operate in a similar fashion to banks to grassroots organizations attempting to lend money for entrepreneurship, homeownership and other socially responsible causes, nonprofit organizations can and do lend money. They are often the only means a person on a low-income or a business in a distressed community can get access to credit. Around the world, nonprofit lending is helping alleviate poverty.

Credit unions are owned by members and operate on a nonprofit status. This saves them money, and they are exempt from paying most state and federal taxes. This status often translates into some of the best lending terms for people looking for financing. Credit unions may offer lower interest rates and somewhat more relaxed credit criteria when compared with banks.

With their nationwide surge starting with the administration of President Bill Clinton, community development finance institutions, or CDFIs, are community-based nonprofit lenders. They include credit unions that exist to promote homeownership and asset building in low-income neighborhoods. CDFIs also include nonprofit loan funds and nonprofit community development corporations that aggregate lenders who provide funding to other nonprofits, primarily those involved in housing developments that are eventually home to the elderly and people living on low incomes. These nonprofit lenders offer would-be homeowners and entrepreneurs more flexible lending terms than they might get with conventional financing. Counting on funding from the federal government, CDFIs had access to more than $345 million for loans in 2010.

Microfinanciers, like the well-known Grameen Foundation and Kiva, among dozens of others, support microenterprise. That is, nonprofit lenders pool money for lending to very small, often one-person business owners from economically depressed areas and who are unable to access traditional credit. Microfinance is credited with help lifting people in impoverished nations out of poverty through dignified business opportunities and reasonable credit terms.

Several nonprofits have formed community development venture capitalist programs, often called compassionate capitalism. Their mission is to help small and medium-sized businesses in depressed communities but show promise for growth. They fund companies to help them provide jobs or provide services that benefit people in low-income areas.