I’m on the board of a non-profit that wants to take a short-term loan. The executive director has asked us to approve taking it out, saying the bank is willing to give us a low-interest short term loan. Of course we said, “Okay, probably … but first, what is the interest rate?” She did not know, and several weeks later still doesn’t have an answer.
Is this typical? Is the loan rate something that requires long discussion/negotiation with a loan officer? If so, I can imagine that she hasn’t had time to do that yet. But I would have thought the question would have a straightforward answer.
Not sure it is relevant, but we were awarded a $100k grant on a cost-reimbursement basis. Rather than run down our very limited reserves, we’d like to take a short term loan to pay our upfront costs. Depending on the interest rate, of course!
I imagine that most banks probably have a “standardized” rate for short-term consumer loans (i.e., loans made to individuals), or perhaps a range of rates, based on the term of the loan, and the borrower’s credit rating, among other factors.
Your non-profit organization is probably not looking at that; you’re probably looking at some sort of a business loan (effectively). That might well be making it a more complex deal than a consumer loan, especially as it may be more difficult for the bank to determine the risk level of the loan (and the ability to repay) for a non-profit, as opposed to a “regular” business.
How big the bank in question is may also be a factor. Local bank? Big national bank? A bank with which your non-profit already works (i.e., has one or more accounts with them)?
You note that “She [your group’s executive director, I assume] did not know, and several weeks later still doesn’t have an answer.” How persistent has she been in communicating with the bank to learn more? Is the bank stringing her along, asking for more information, etc.?
My guess is not very persistent, because she has a lot on her plate. I think we can trust the bank to not “string her along” as this is a small community and I referred the ED to that officer based on a mutual friendship.
…and yes, I imagine this loan falls under the business rather than consumer category. Thanks for your comments, they are helpful.
Back when I was condo prez we needed to get a $5M loan (line of credit actually) to fund some construction work. We ended up dealing with a business bank that specializes in condo associations and HOAs. Ordinary banks we had had checking accounts with for decades simply could not comprehend how to lend us the money. We did not fit into any of the slots their national HQ bureaucracy had created. So no loan for us.
So we ended up switching all our routine business to them, which was a prereq for them starting our loan process. Once we gave them all our books going back a few years it took them about 6 weeks of analysis to come back with their first loan proposal. Which was the first time we learned what our rate would be.
The rate was decent versus ordinary rates of the time, and we took the deal. Have had no other issues with their loan servicing since. IIRC it was about 6 months from the date we first approached them until we first had access to our shiny new $5M line of credit. And we were very dioligent about rattling their cage weekly for progress reports. Had we ignored them, it might’ve taken a year.
Bottom lines:
Rates are highly variable based on your organization’s financial condition and on your bank’s risk tolerance. Both as an overall banking company and at the individual branch & individual lending staffer level.
This is not a fast process for weird non-businesses like yours or mine.
As this applies to you:
Not knowing how large or small this bank company is, you may find they eventually tell you “no thanks”. No matter how much your banker friend wants to help. I do not know if there are banks or bank groups which specialize in loaning working capital to the grant-driven non-profit sector. But I’d sure be looking into finding out ASAP. If your grant has any sort of time limit on using the funds, you could easily spend most of that time futzing with getting the loan you seem to need to begin spending. Catch-22, here you come.
I wish I could offer you better news, but this is the news I have from my experiences.