Nonprofit Financial Hub

Your Nonprofit Was Declined for a Loan or Line of Credit Now What?

Insights from B Generous

The Nations #1 Lending Marketplace Exclusively For Nonprofits

Being declined for a loan or line of credit can be frustrating for any nonprofit, especially when the funding was needed to launch a critical program, bridge an unexpected funding gap, or expand an important community service. But a “no” from a lender is not the end of the road. It’s an opportunity to understand what went wrong, strengthen your financial position, and come back with a stronger application.

In this guide, we’ll break down:

• The most common reasons nonprofits get declined for loans and lines of credit
• What lenders are looking for in a nonprofit loan application
• Steps and strategies for after a decline to improve your approval chances in the future
• How to prepare to re-apply successfully for a nonprofit loan or line of credit

Why Nonprofits Get Declined for Loans and Lines of Credit

Although the exact reasons for a loan denial will differ, the underlying issue is always risk. Lenders must minimize the possibility of not being repaid. While your nonprofit’s mission is important and no doubt meaningful, lenders are obligated to evaluate financial strength and stability above all else. Even when a lender shares your values, their credit standards do not change, because these are loans, not grants. No matter how much they support your mission personally, their primary concern is whether repayment is secure.

Some of the most common reasons for declines include:

1. Insufficient or inconsistent revenue
   If your revenue has been declining or is highly seasonal, lenders may worry about repayment.
2. Low net assets or reserves
   Many lenders want to see a healthy cushion of unrestricted net assets as a financial safety net.
3. High debt levels
   If your nonprofit already has significant debt, taking on more may be seen as risky.
4. Weak or negative cash flow
   Even if your gross revenue is high, irregular timing of funding can make it difficult to cover monthly loan payments, or perhaps your organization’s expenses are too high and therefore your net income looks weak to the lender. You may even have negative cash flow if you are spending more than you are making, and this is a red flag to any lender. 
5. Incomplete or inaccurate documentation
   Missing financial statements, outdated 990 filings, unrealistic projections, or unreadable budgets can result in an immediate decline.
6. Lack of loan purpose clarity
   Lenders prefer a clearly defined, financially sound use of funds, with a realistic repayment plan supported with sound documentation.
7. Compliance
   If your nonprofit loses its IRS tax-exempt status or fails to file required paperwork at the state level, your loan application will also be declined. Likewise, a recent bankruptcy or a significant pending lawsuit can create significant issues and lead to denial.

What Lenders Are Generally Looking For

Every lender has its own underwriting process, but most nonprofit loan applications are evaluated on a few key factors:

• Revenue Stability — Consistent, preferably diversified income sources over several years.
• Net Asset Strength — Healthy unrestricted reserves that could cover multiple months of expenses.
• Cash Flow Reliability — Predictable inflows that comfortably cover operating costs and loan payments. Most importantly, lenders are looking for “positive cash flow” meaning you need to make more than you spend. Ideally you should have a net income surplus, not deficit, or at least be balancing your budget annually. 
• Debt Service Coverage — Enough annual surplus to make loan payments without straining operations.  Do you have enough money coming in each month to be able to comfortably make your monthly loan repayments? If you revenue fluctuates from month to month, can you still comfortable make your loan repayments?
• Organizational Track Record — A history of financial responsibility and leadership experience.
• Clear Loan Purpose & Impact — A use of funds that advances the mission and supports repayment.
• Complete, Accurate Documentation — Up-to-date financial statements, on time 990 flings, and realistic budgets and forecasts. 
• Detailed Loan Repayment Plan – A plan to repay supported by financial documents and data, rather than a simple promise that you will repay out of future income. For an institutional lender, a vague promise to repay will just not be enough, they need to see some evidence that they will be paid back. That evidence can be in the form of a realistic budget projection based on sound accounting practices and financial forecasting. Generally past performance is an indicator of future performance, so if you can show that what you did in the past you can do again, and the numbers look good, then you will be in a good spot. Alternatively, if your past numbers were weak, then you will need to make a compelling case for why things have changed and why your organization is now lendable. 

Immediate Steps to Take After a Loan Decline

1. Review Your Financial Statements
   Make sure they are accurate, up to date, and formatted in a professional way that clearly shows your nonprofit’s health and financial metrics. CPA prepared (or audited) financial statements are always preferred by lenders. 
2. Identify and Address Weaknesses
   If the issue was low net assets, consider ways to build reserves before reapplying. If it was cash flow, look for opportunities to smooth income timing and generate a small surplus, or at least show you can balance your budget.
3. Check Your Internal Policies
   Lenders are often reassured by strong governance practices — like formal financial oversight, third party audits, board involvement in budgets, and documented internal controls.
4. Consider Other Types of Loans
   While you work on strengthening your loan application for a standard working capital term loan, you might explore a smaller or different types of loans, like a line of credit or a loan with a guarantor or co-borrower. See more on that below.
5. Consider A Cash Secured Loan
   This unique type of loan is one where the borrower pledges cash (or an equivalent, like a savings account, certificate of deposit, or money market account) as collateral to secure repayment. This type of loan allows you to access funds immediately while using cash you already have (or will deposit) as security for the loan. This can be useful to build or rebuild credit history and to establish a good relationship with a lender who might then consider your nonprofit for a different type of loan. Cash secured loans also tend to carry the lowest interest rates since the risk to the lender is reduced.
   
   Here is an example of how a $100,000 Cash Secured Loan works
   • You Deposit Your Cash
     • You place a set amount of your own funds into a secure account with the Lender, for example, $100,000.
     • This cash remains yours and serves as collateral for the loan.
   • You Get Immediate Access to Additional Capital
     • Based on your $100,000 deposit, the Lender immediately provides you with a $100,000 loan.
     • You now have $200,000 in total capital to work with — your deposit plus the loan proceeds.
   • You Use the Loan for Your Needs
     • You can use the loan funds for operations, programs, growth, or other strategic initiatives — without touching your original deposit.
   • You Pay Back the Loan Over Time
     • As you make scheduled repayments, your deposit remains safe in the secured account.
   • You Get Your Original Cash Back
     • Once the loan is repaid, your $100,000 deposit is returned to you. 
6. Build A Stronger Financial Profile
   Successfully repaying an existing loan on time or applying for a smaller loan and repaying that on time will likely improve your credit standing, making future financing easier for your organization.
7. Keep Your Paperwork Current
   Make sure your state and federal paperwork and filings are all current, including tax returns, 990s and licenses.
8. Reputation Management
   Look up your nonprofit on Google or another search engine to see what comes up. If you find negative information that isn’t accurate, take steps to get it corrected or be prepared to provide an explanation to the lender.

Strategies to Improve Your Chances Before Reapplying

1. Strengthen Your Financial Cushion

• Build up unrestricted reserves to at least 3–6 months of expenses.
• Diversify revenue streams to reduce dependence on one funding source
• Maintain consistent surpluses year-over-year if possible (aim for positive net income). This means you need to make more than you spend. 

Example: How Building a Surplus Can Unlock Bigger Impact

Hope Street Youth Services is a nonprofit running after-school programs and has a yearly budget of $1 million. Every year, they spend everything they raise and there is nothing left over at the end of the year (no surplus).

They apply for a $250,000 loan, but here’s the problem:

• They have no yearly surplus (extra money left after expenses).
• They have only $50,000 in savings, which would not even cover three weeks of expenses.

The lender says no. Why? Because if donations slow down or costs go up, there’s no cushion to make loan payments without cutting programs.

Now, let’s implement our recommendations from above. For the next year and a half, Hope Street decides to be a little more cautious. They cut spending by just 4%, not huge cuts, but enough to set aside money each month.

After 18 months, they have

• a $60,000 surplus (extra funds after expenses).
• Reserves of $110,000 (the original $50,000 plus the $60,000 above).

When they reapply for the loan, the lender says yes. This small shift in financial planning gives them the stability they need to borrow and expand their impact. Spending slightly less for 18 months didn’t hurt the mission. It strengthened the organization’s financial position, unlocked the loan, and allowed them to serve far more people in the long run.

2. Reduce Risk in the Lender’s Eyes

• Pay down high-interest debt to improve your debt-to-equity ratio.
• Refinance existing loans to free up monthly cash flow.
• Avoid taking on new commitments that weaken liquidity before applying.

3. Bring in a Loan Guarantor

• Finding a guarantor who is willing to pay back the loan in the event of default can make the difference.
• The guarantor could be a foundation, a financially strong supporter, a credit-worthy individual or a company or institution. The guarantor pledges to repay the loan only if your organization cannot. This reduces the lender’s risk, often leading to larger loan amounts and lower interest rates.
• This can be an unfunded guarantee, meaning the guarantor doesn’t provide any cash up front, just the commitment to step in if necessary.
• A guarantor signals to lenders that your loan has a safety net.

4. Find a Co-Borrower 

• Finding a co-borrower (individual, foundation, business, or nonprofit) with good credit can strengthen your application and give you access to funds that your organization would not qualify for on its own. 

Here is how it works: 

• You apply for the loan alongside a co-borrower.
• Both parties are legally responsible for repayment, but you can choose who makes the actual payments, and this strengthens the application and can help secure better terms for your organization. 

5.  Make Your Loan Narrative Irresistible

• Show exactly how the loan will be used, with measurable metrics.
• Include repayment projections based on conservative assumptions.
• Tie the request directly to mission advancement and financial sustainability.

6. Improve Timing

• Apply after a large grant is secured or a strong financial year closes.
• Avoid applying mid-deficit unless you have a documented turnaround plan.

How to Prepare a Strong Reapplication

When you’re ready to reapply for a nonprofit loan, either with the same lender or a different one, make sure you check these boxes:

• Updated and Accurate Financials — Last 3 years and year-to-date. (ideally prepared by a CPA or accounting firm)
• Clear Loan Purpose — Backed by realistic budgets, cash flow projections, and a solid repayment plan.
• Evidence of Risk Reduction — Debt paid down, reserves increased, positive cash flow, or try for a cash secured loan or a loan with a co-borrower or guarantor if needed. 
• Improved Governance— Strong Board engagement, leadership bios, and oversight processes in place
• Compelling Mission-Impact Story — Demonstrating both social and financial return.

FINAL THOUGHTS

Being declined for a loan can feel like a setback, but it’s often a temporary one. By addressing the reasons for the decline, whether that’s strengthening reserves, paying down debt, or bringing in a co-borrower or guarantor, your nonprofit can return to the table with a much stronger case.

The key is to treat the decline not as a rejection of your mission, but as a challenge to improve your financial readiness. When you’re able to show stability, planning, and reduced risk, you dramatically increase your odds of hearing “approved” next time.

B Generous is continually expanding our nonprofit lending marketplace with new lenders and loan products. We encourage you to strengthen your application by taking the steps above and reapply when you’re ready. 

If you are unsure whether your eligibility has improved, just email us for a no cost financial evaluation of your organization and a member of our lending team will review your nonprofit finances and get back to you with a preliminary application decision. You can reach us at: Credit@BGenerous.com or Applications@bgenerous.com