Can Nonprofits Get SBA Loans? Disaster Loans and Microloan Exceptions

Nonprofits generally cannot get SBA loans through the agency’s flagship 7(a) and 504 business loan programs, which are closed to them by federal regulation.¹ Where nonprofits do have access is through SBA disaster assistance and, in one narrow case, the Microloan program for not-for-profit childcare centers. Knowing which door is actually open saves months of wasted applications.

The Business Loan Programs That Exclude Nonprofits

Federal regulations state plainly that nonprofit businesses are ineligible for SBA business loans.¹ That covers the 7(a) program, the SBA’s most popular general-purpose loan with amounts up to $5 million, and the 504 program used for real estate and heavy equipment. The SBA’s own 504 page confirms that “loans cannot be made to businesses engaged in nonprofit, passive, or speculative activities.”²

One narrow exception exists inside the business loan world. A for-profit subsidiary of a nonprofit can apply on its own.¹ If your nonprofit runs a revenue-generating for-profit entity as a separate legal business, that subsidiary may qualify for 7(a) or 504 financing under the same rules as any other small business. The parent nonprofit cannot be the borrower.

Disaster Loans: The Main Path for Nonprofits

The SBA’s disaster assistance programs are where nonprofits have real eligibility. Federal statute authorizes the SBA to make disaster loans to “any small business concern, private nonprofit organization, or small agricultural cooperative located in an area affected by a disaster” when the organization has suffered substantial economic injury.³ Two programs are relevant.

Economic Injury Disaster Loans

EIDLs provide working capital to nonprofits that cannot meet financial obligations because of a declared disaster. The money covers operating expenses the organization would have been able to pay had the disaster not occurred. This is not a replacement for lost revenue or a drop in donations. The SBA defines “substantial economic injury” as the inability to meet obligations and pay regular operating expenses.⁴

Current EIDL terms include a 12-month deferral on the first payment with no interest accruing during that initial period. The interest rate will not exceed 4 percent for qualifying applicants, and repayment terms extend up to 30 years depending on the borrower’s ability to repay.⁴ There are no prepayment penalties. The 2.75 percent rate sometimes cited for nonprofit EIDLs applied specifically to the COVID-19 EIDL program, not the standard disaster program.

Physical Disaster Loans

When a disaster damages a nonprofit’s building, equipment, or other physical property, the Physical Disaster Loan program can fund repairs or replacement. Most private nonprofit organizations in a declared disaster area are eligible. The terms mirror the EIDL structure: up to 30 years of repayment, a 12-month payment deferral with no interest during that period, and no prepayment fees. Interest rates cap at 4 percent for applicants who cannot obtain credit elsewhere, and at 8 percent for those who can.⁵

The Microloan Program’s Childcare-Only Opening

Outside disaster assistance, the only SBA loan program with any nonprofit eligibility is the Microloan program, and the opening is narrow. The program provides loans up to $50,000 to “small businesses and certain not-for-profit childcare centers.”⁶ If your nonprofit runs a childcare center, you may qualify. Other nonprofits, whether social services, advocacy, arts, or education, do not meet the criteria.

Microloans go through nonprofit intermediary lenders in the community rather than directly from the SBA, and those intermediaries also provide management and technical assistance to borrowers.⁷ Interest rates generally fall between 8 and 13 percent, depending on the intermediary’s costs and the borrower’s creditworthiness.⁶ Funds can cover working capital, inventory, supplies, furniture, fixtures, and equipment.

What a Nonprofit Must Show to Qualify for a Disaster Loan

Being a nonprofit in a disaster area is necessary but not sufficient. Several additional requirements apply.

Tax-exempt status recognized by the IRS under 26 U.S.C. § 501(c). Common qualifying categories include 501(c)(3) charitable organizations, 501(c)(4) social welfare groups, 501(c)(6) business leagues, and 501(c)(19) veterans’ organizations. The IRS Determination Letter confirming this status is a core application document.⁸
Private operation. Government-owned or government-controlled entities are not eligible.
Substantial economic injury, for EIDL specifically. The organization must show it cannot meet financial obligations and pay regular operating expenses because of the disaster, not simply that revenue declined.⁴
Location in a declared disaster area, based on a declaration by the President, the SBA Administrator, or the Secretary of Agriculture, or certification by the state governor.³
Credit not available on reasonable terms from other sources. This is what keeps the interest rate low; applicants who can find financing elsewhere face the higher 8 percent cap on physical disaster loans rather than 4 percent.⁹

Faith-Based Nonprofits

Religious nonprofits were historically in a gray area for SBA programs. In 2022, the SBA finalized a rule removing the religious-activity exclusion from 13 CFR § 120.110, citing constitutional concerns under Supreme Court decisions on religious liberty.¹⁰ Nonprofits remain ineligible for business loans regardless, so that change matters most for for-profit subsidiaries of faith-based organizations. For disaster loans, faith-based nonprofits are explicitly included. The SBA confirms that its EIDL program is “available to eligible small businesses, small agricultural cooperatives, nurseries, and PNPs including faith-based organizations.”¹¹

Activities and Character Issues That Disqualify Any Applicant

Even a nonprofit that falls into an otherwise eligible category can be blocked. Organizations primarily engaged in political or lobbying activities are ineligible.¹ So are organizations deriving more than one-third of gross annual revenue from legal gambling, organizations engaged in illegal activity under federal, state, or local law, and private clubs that restrict membership for reasons other than capacity.

Leadership matters too. If any associate of the organization is currently incarcerated, serving a sentence for a criminal conviction, or under indictment for a felony or a crime involving financial misconduct or false statements, the organization is ineligible.¹ Organizations that previously defaulted on a federal loan or guaranteed one that defaulted, causing a loss to the federal government, also face disqualification, though the SBA can waive this for good cause.

How to Apply

Disaster loans work differently from standard SBA business loans. Nonprofits do not go through private lenders or the Lender Match tool. They apply directly to the SBA through the agency’s disaster loan assistance portal, typically at disasterloanassistance.sba.gov, once a disaster declaration is in effect for their area.

The SBA will ask for a thorough picture of finances and legal standing. Plan to provide the IRS Determination Letter confirming tax-exempt status under 26 U.S.C. § 501(c), Form 990 filings covering the previous three years, current balance sheets and income statements, and insurance information for any damaged property (the SBA will not duplicate insurance payouts).

One document catches many nonprofits off guard: the board resolution. Unlike a sole proprietor who can sign on their own authority, a nonprofit must show that its governing body formally voted to authorize the debt. The SBA’s standard Resolution and Certification form requires the board to authorize specific officers to execute the loan application, sign promissory notes, and pledge organizational assets as collateral. The resolution must be recorded in the minutes, certified by the secretary or record keeper, and must specify the maximum loan amount the officers are authorized to seek.¹² If the board does not meet regularly, scheduling a special session early avoids delays.

On collateral, the SBA will not decline a disaster loan solely because collateral is insufficient, but it does require borrowers to pledge whatever is available. For loans over $25,000, the SBA generally takes a security interest in the organization’s real estate and other business assets. Organizational property used for mission-critical programs can still be pledged. Personal guarantees are not required from nonprofit officers and board members the way they are from 20 percent owners of a for-profit borrower, though the SBA may still require guarantees from individuals with significant control depending on loan amount and circumstances.

Where Else to Look

Because most SBA programs are closed to nonprofits, the financing options for these organizations look different from what small businesses have. Several alternatives are worth exploring.

Community Development Financial Institutions. CDFIs are mission-driven lenders serving underbanked communities and organizations. Many lend directly to nonprofits at reasonable rates and with flexible terms. The U.S. Treasury’s CDFI Fund certifies these institutions nationwide.
USDA programs. Nonprofits in rural areas may qualify for grants and loans through USDA Rural Development, including the Community Facilities Direct Loan and Grant Program.
State and local government programs. Many states operate their own lending programs for nonprofits, particularly for affordable housing, community health, and social services. Terms vary widely by jurisdiction.
Program-related investments. Some foundations make below-market-rate loans to nonprofits as PRIs that advance their charitable mission while expecting repayment.
New Markets Tax Credits. Nonprofits operating in low-income communities may benefit from the New Markets Tax Credit program, which incentivizes private investment in qualifying projects.

Building relationships with CDFIs and mapping state-level programs before a crisis hits gives a nonprofit far more options than scrambling for financing after the fact.

1
eCFR. 13 CFR 120.110 – What Businesses Are Ineligible for SBA Business Loans?
2
U.S. Small Business Administration. 504 Loans
3
Office of the Law Revision Counsel. 15 USC 636 – Additional Powers
4
U.S. Small Business Administration. Economic Injury Disaster Loans
5
U.S. Small Business Administration. Physical Damage Loans
6
U.S. Small Business Administration. Microloans
7
eCFR. 13 CFR Part 120 Subpart G – Microloan Program
8
Office of the Law Revision Counsel. 26 USC 501 – Exemption From Tax on Corporations, Certain Trusts, Etc.
9
eCFR. 13 CFR 120.101 – Credit Not Available Elsewhere
10
GovInfo. Federal Register Vol. 87, No. 125 – SBA Final Rule on Faith-Based Organizations
11
U.S. Small Business Administration. SBA Offers Relief to California Small Businesses and Private Nonprofits
12
Small Business Administration. Resolution and Certification – ODA Form P-022