How Many Nonprofits Borrow, and What It Costs Them

Every guide to nonprofit loans explains how to apply. None of them says how many nonprofits actually borrow, what they pay, or what a lender sees when it sets your accounts beside everyone else’s. The tax returns answer all three.

Across 256,539 charities, 24.6% carry debt, 62,998 organizations, and the median implied interest rate on it is 4.1%. Three quarters owe nothing to anyone. The share rises steadily with size, from 12.4% of organizations spending under $250,000 a year to 58.4% of those above $25m.

Yes, a nonprofit can get a loan, and a quarter of them have one

We counted as debt the four balance sheet lines on Form 990 that are borrowing: tax-exempt bonds, secured mortgages and notes, unsecured notes, and money owed to officers and directors. Accounts payable, deferred revenue and grants payable are left out, because none of them is a loan. A drawn line of credit is a note payable, so it is inside the definition.

Secured borrowing, which is mostly mortgages, is the common form at every size: 16.9% of all charities have some. Unsecured notes run at 6.7%, which is where unsecured lines of credit and many loans from foundations and community lenders appear. Tax-exempt bonds barely exist below $5m and are held by 27.4% of organizations above $25m, which is where hospitals and universities finance buildings.

By value the picture inverts. Of $823 billion owed across the file, bonds account for $481.7 billion, 58.5%, against $242.8 billion secured, $96.0 billion unsecured and $2.5 billion owed to officers. An earlier estimate from 2012 data put bonds at $362 billion and mortgages at $195 billion, so both have grown and the ratio between them has barely moved.

How much they owe

The small organizations that borrow, borrow heavily. The median borrower under $250,000 owes $146,000, which is more than a full year of its spending, and 67.9% of those borrowers are property heavy, so the loan is usually a building. Above $1m, debt settles at roughly a fifth of annual expenses and between 14.9% and 19.3% of total assets, and stays there.

That makes the first column of the previous table and the last column of this one the two numbers to hold together. Few small charities borrow at all, but for the ones that do, the loan is the largest fact on the balance sheet.

What it costs, and who can cover it

The implied rate is interest expense for the year divided by the debt outstanding at year end. It is noisy for any one organization, because a loan drawn in December shows a full balance and almost no interest, but the median is stable, and it is close to flat, between 3.8% and 4.2% at every size. The spread narrows as organizations grow, which is what you would expect: larger borrowers get more consistent terms.

Read it as the cost of the debt organizations already hold, not the price of a new loan. The balances include mortgages fixed years earlier, so a loan taken out today may well cost more than this.

The last column is the one a lender cares about. We calculated interest coverage as the year’s surplus plus interest plus depreciation, divided by interest: roughly, whether operations generated enough cash to pay the interest. 27.8% of borrowers paying interest, 12,705 of 45,677, did not. The median borrower covered its interest between 3.6 and 6.5 times depending on size.

That is a generous test. A bank’s debt service coverage ratio also includes principal repayments, which Form 990 does not report, so the share of borrowers that would fail a lender’s version is higher than 27.8%, not lower.

Is borrowing a sign of trouble?

The obvious suspicion is that organizations borrow because they are struggling. Borrowers are also larger than non-borrowers, and size alone changes deficit rates and cash, so we only compared borrowers with organizations of the same size that owe nothing.

The answer is split. Borrowing barely predicts a bad year. Deficit rates for borrowers sit within a few points of everyone else’s, and above $5m borrowers run slightly fewer deficits than organizations with no debt.

It strongly predicts a thinner balance sheet at small sizes. Under $250,000, 19.0% of borrowers report negative net assets without donor restrictions against 2.3% of organizations with no debt, and between $250,000 and $1m it is 20.2% against 3.2%. Borrowers also hold 35.8% less cash than non-borrowers under $250,000 and 36.5% less between $250,000 and $1m. The gap closes with size and has disappeared above $25m.

Put the two measures together and the difference is clear. 27.4% of borrowers, 17,219 organizations, ran a deficit and held under three months of cash in the same year, against 17.6% of organizations with no debt.

Which kind of debt comes with the weak balance sheet

There is an innocent explanation for part of that gap, and it had to be tested. A building depreciates every year while its mortgage falls only as principal is repaid, so a mortgaged building can push net assets negative with nothing wrong operationally. If that is the whole story, the negative balances should sit with property owners.

Property heavy means land, buildings and equipment are at least a third of total assets. The depreciation explanation holds up: mortgage holders who are property heavy report negative unrestricted net assets at 17.5%, nearly double the 9.6% of mortgage holders who are not, and they run more deficits too, because depreciation is charged as an expense.

But it is not the whole story. Organizations whose only lender is an officer look just as strained, with no building to explain it: 46.8% ran a deficit, 16.9% have negative unrestricted net assets, and 67.1% pay no interest on the loan. That is a founder keeping the organization afloat, and it is a different situation from a mortgage. The documentation it needs is set out in what a founder can and cannot do with their own nonprofit.

Across all borrowers, 27.4% report no interest expense at all, 17,235 organizations. Interest free loans from officers account for 12.2% of them. The rest are likely to be zero interest loans from governments and foundations, and interest capitalised into a building under construction, which is added to the cost of the asset rather than expensed; the return does not say which.

How to get a loan for a nonprofit organization

The tables above are the comparison a lender will make, whether or not it says so. Your Form 990 is public, and anyone assessing an application can read three years of it before the first meeting.

What the lender reads. Expect to provide two or three years of financial statements, the current year’s budget and a cash flow projection. From those the lender works out three things: whether operations cover debt service, how many months of cash you hold, and whether your net assets without donor restrictions are positive. Negative unrestricted net assets are reported by 19.0% of borrowers under $250,000 and by 2.3% of organizations that size with no debt, so an applicant in that position should expect to explain why.

Which kind of loan. A line of credit is for timing, typically a gap between delivering a government contract and being reimbursed for it. A term loan is for equipment or a vehicle. A mortgage is for property. A bridge loan borrows against money already committed, such as a grant award letter or capital campaign pledges. Matching the loan to the purpose matters, because using a line of credit to cover a structural deficit converts a cash problem into a debt problem.

Where to borrow. Start with the bank or credit union that holds your accounts, since the relationship and the transaction history do half the work. Community development financial institutions and nonprofit loan funds lend specifically to organizations a bank will not, often at lower rates and with more patience about collateral. For large capital projects, tax-exempt bonds are issued through a state or local conduit issuer, which is why they only appear at the top of the size range. Foundations sometimes make program related investments, which are loans at below market rates to organizations whose work fits their mission. The SBA’s main loan program requires a for-profit business, so most nonprofits cannot use it, although private nonprofits can apply for its disaster loans.

Who has to approve it. Check your bylaws for who has authority to borrow. Most lenders will ask for a board resolution authorising the loan and naming who signs. Some will ask for a personal guarantee from a director or the executive director, which moves the risk from the organization onto one person, and the board should discuss that openly rather than let it be signed quietly.

Whether you should. Borrowing for an asset that pays for itself, or to bridge money that is genuinely coming, is ordinary financial management, and most of the large organizations in this data do it. Borrowing to fund a deficit that will recur next year is the pattern behind that 27.4%, and a lender will usually spot it before you do.

Method and limits

Source is the IRS Statistics of Income annual extract of tax-exempt organization financial data, Form 990, processing year 2024. It covers every processed return, so it is a census rather than a survey, and the analysis script is published so every figure here can be reproduced.

The population is 501(c)(3) organizations with total functional expenses of $25,000 or more, 256,539 organizations. Debt is Part X lines 20, 22, 23 and 24. Implied rates above 30% were dropped as mismatches between the balance and the interest, which removed 1,306 organizations.

Five limits. All balances are at year end, so a loan taken and repaid within the year is invisible. Form 990 does not report principal repayments, so coverage here is an upper bound on a lender’s ratio. Organizations filing Form 990-EZ or 990-N are absent, and so are the smallest charities. The extract has no state or field, so a hospital and a youth club of the same size share a row. And processing year is not tax year, so a minority of returns cover earlier periods.