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A business credit card offers a number of advantages over a personal one, such as rewards for business spending and higher credit limits. Having one of these cards can also help you build business credit when you’re just starting out. But is it one of those catch-22s, where you can’t get a business card until you have a business?

Not necessarily. To get approved for a business credit card, you generally need to be earning some type of independent income. However, you don’t need to already have a business. Here’s a closer look at how business credit cards work, their pros and cons, and how to get one even before you officially open a business.

What Is a Business Credit Card?

Business credit cards are similar to personal credit cards except they are more geared toward business owners and people who have business-related expenses. They typically come with higher credit limits than personal cards, and structure their rewards around business-related spending, such as travel, dining, and office supplies.

Unlike personal credit cards, which only report your payment history to the consumer credit bureaus, business accounts primarily report to the commercial credit bureaus. As a result, getting and using a business credit card can help you build a business credit profile, which may help you qualify for other types of business financing in the future.

How Business Credit Cards Work

Business cards work in a similar way to personal cards. You get a maximum spending limit, or credit line, and can charge expenses to the account up to that amount. You also have a minimum payment due each month. As you pay off your balance, your available credit is replenished. If you carry a balance from one month to the next, you will typically pay interest on that balance.

The best business credit cards offer rewards, such as travel points or cash back, for spending in certain categories. Many also offer business-centric tools to track your business spending. In many cases, expense information can be downloaded and easily imported into your business accounting software. Business cards may also allow you to get free cards for employees and set individualized spending limits.

Qualifying for a Business Credit Card

Anyone who operates a business can apply for a business credit card. This includes any type of business structure, including a sole proprietorship, partnership, corporation, or limited liability company (LLC).

Also, you don’t need to have an existing business credit history before you can apply. Business credit card issuers will look at your personal credit history and credit scores. If you do have a business credit history, they will likely look at both your personal and business credit.

Whatever your business set-up, you will likely need to provide information about your business when you apply for a business card, including how long you’ve been in business, the industry you’re in, and your annual business income, plus provide supporting documents.

Recommended: What Are the Tax Benefits of a Limited Liability Corporation?

Are You a Business Owner or Independent Contractor?

You don’t have to be a registered LLC or corporation in order to apply for a business credit card. You can be an independent contractor or simply have a side hustle. As long as you earn money from the work you do, you may be able to qualify for a business credit card.

Do You Have an EIN or SSN?

When filling out an application for a business credit card, there is typically a section asking what kind of business you have and a space to put your business tax identification number.

If you own a business, you can put in your employer identification number (EIN). If you’re a freelancer, you can choose to answer that you’re a sole proprietor. Generally, you can enter your Social Security number as your tax ID number.

Pros and Cons of Business Credit Cards

While you may be able to get a business card without owning a business, the question remains: Should you? Here’s a look at the pros and cons of getting a business card.

Pros

One of the biggest benefits of a business credit card is that it allows you to keep your personal and business spending separate, which can dramatically simplify your life come tax time. In addition, using a business card can help you build business credit, which can help you if you decide to apply for a small business loan down the road.

Another plus is that business cards typically come with higher credit limits than personal credit cards. This is because issuers generally consider both your income and the business’s revenue when determining the credit limit. They will also likely consider both your business and personal credit scores. A higher limit could be useful if your business has steep operating costs, such as high inventory expenses each month.

Many business cards also offer bonus rewards for business-related spending, such as phone bills, online advertising, or office supplies. They may also provide tools that can help you better manage your company’s finances, such as integration with your accounting software and year-end itemized spending reports.

Cons

Business credit cards with generous rewards typically charge an annual fee. So, it will be up to you to decide if the benefits outweigh the cost.

Also keep in mind that business cards generally come with fewer legal protections than personal cards. The CARD Act of 2009 gave a number of consumer protections for personal credit cards, such as limitations on interest rate hikes and fees and prevention of double-cycle billing.

Business card issuers often offer these protections as a courtesy, but they may not in every case.

Though business cards are for business spending, they can still affect your personal credit.
When you apply for a business credit card, the application will likely show up as an inquiry on your personal credit report, which can temporarily cost you a few points on your credit scores. In addition, some business card issuers will report your account payment history to both the consumer and commercial bureaus.

Also be aware that you will likely have to sign a personal guarantee when you get a business card, which means you will be personally responsible for repaying that debt should your business run into financial trouble.

Recommended: What Is Purchase Order Financing?

Alternative Forms of Business Credit

Business credit cards offer a number of perks and can be a convenient way to pay for business expenses. However, they aren’t your only option for business financing. Here are some others to consider.

Small Business Loans

Banks, credit unions, and online lenders offer all types of small business loans. While banks and credit unions typically require at least two years of business history to qualify for a loan, online lenders often have more flexible requirements. These alternative lenders also tend to offer easier applications and faster financing. However, funding amounts may be smaller and interest rates are typically higher.

Equipment Financing

If you’re planning to purchase equipment for your business, you may be able to qualify for equipment financing without already having a business. Because the equipment you’re buying serves as collateral for the loan, this type of financing is less risky for lenders. If you can’t pay the loan, the lender can seize the equipment to cover your debts.

Merchant Cash Advances

If your business generates credit or debit card sales, you may be able to get a merchant cash advance (MCA). With this type of financing, an MCA provider gives you an advance on future business sales, then automatically deducts a daily (or weekly) percentage of your debit and credit card sales until the advance is repaid, with interest. MCAs can provide quick capital to cover cash-flow shortages or short-term expenses, but generally carry a high interest rate.

Recommended: Startup Credit Card Funding

The Takeaway

Business credit cards can make it easier to manage business expenses and are available to all types of businesses, including sole proprietors.

Business cards typically offer business-friendly features, like higher spending limits, bookkeeping tools, and bonus rewards for business-related spending. However, they often come with annual fees and may require signing a personal guarantee.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

FAQ

Can you get a business credit card if you don’t have a business?

Yes. You don’t have to have a registered LLC or corporation in order to get approved for a business credit card. Any income-producing endeavor, whether its dog-walking or freelance web design, can help you qualify for a business credit card.

Is qualifying for a business credit card easier than for a personal one?

Not necessarily. The qualification requirements for either a business or personal credit card will depend on the credit card company. Either way, the issuer will likely look at your income, whether it is from a business or other source, as well as your credit history.

Do business credit cards have to have a name on them?

Typically, business cards will have the name of the business on them, as well as the company owner or an authorized user’s name (which may appear above or below the company name). So if you issue cards to employees, they will have their names on them as well as the company name.

However, if you apply for a credit card as a sole proprietor and your business doesn’t have a registered DBA (doing business as) name, you will only have your name on your business credit card.

Photo credit: iStock/dragana991

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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For entrepreneurs and startups with big business plans, taking the next step to raise capital can require a serious leap of faith. How will the project be funded? Who can help weed out the strong ideas from the weak ones? What will potential customers think of the product itself?

Crowdfunding sites can be a great way to answer those questions and more. These platforms provide access to a large number of potential investors (a.k.a., “the crowd”) who may choose to invest in your project, idea, or business — or not. They provide an alternative route to funding while also allowing you to test-market your business idea.

Read on to learn more about crowdfunding for business, including how it works, pros and cons, and platforms you may want to consider.

What Are Crowdfunding Sites?

Crowdfunding sites are online platforms that allow investors to fund a business or project. So rather than securing an investment from one or two large sources, an entrepreneur can appeal to a larger group of individual investors to raise the capital they need to grow their businesses.

However, that capital doesn’t necessarily come free. In exchange for their investment, investors may receive something in return, such as a reward or equity in the business. In addition, these platforms generate revenue by taking a percentage of the funds raised through the site.

Recommended: What Is Crowdfunding? Definition & Examples

What Are the Different Types of Crowdfunding?

There are four main types of crowdfunding:

1.    Donation-based crowdfunding: With donation crowdfunding, people give money to a person, company, or campaign without receiving anything in return. For example, if someone needs an expensive piece of equipment for a mission-based startup, they might ask for donations to help them make that purchase.

2.    Peer-to-peer lending: With this crowdfunding model, also known as loan or debt-based crowdfunding, backers pledge money as a loan to help a company or campaign get off the ground. The loan accrues interest and has to be repaid within a set period of time.

3.    Reward-based crowdfunding: With rewards crowdfunding, donors receive something in return for their donations. That can range from a discounted product or service to a branded perk like a t-shirt or coffee mug.

4.    Equity-based crowdfunding: With equity crowdfunding, startups or small businesses give away equity or shares of their company in exchange for investment funding from backers. Usually, the more the backers give, the more shares they receive.

What Are the Benefits to Using Crowdfunding?

A few of the advantages of using crowdfunding for a startup business include:

•   Access to nontraditional funding: Entrepreneurs and small business owners may be able to get funds outside the standard sources and avoid the sometimes rigid requirements that accompany them.

•   Sites are often user-friendly: Especially with some of the more popular crowdfunding platforms, it can be easy to tell your startup’s story, feature compelling media and messaging, offer incentives and rewards, and have a one-stop-shop for potential backers to find you.

•   A built-in brain trust: Customers (and backers) are only ever a click or two away. This gives you the chance to call on them for feedback and ideas and field their questions, concerns, and complaints. This continuous communication loop creates a built-in brain trust.

•   Added marketing and media exposure: The more popular the crowdfunding platform, the more eyes on your campaign, and the higher the potential for press coverage and building brand awareness. This can help create buzz about your brand and build your customer base.

What Are Sites for Crowdfunding?

There are many different crowdfunding sites that help you raise funds for your venture. Here’s a look at a few popular crowdfunding sites for small businesses, including pros and cons for each.

Kickstarter

Kickstarter is one of the most popular and best-known crowdfunding sites. Since launching in 2009, it has funded over 200,000 projects and helped people raise over $7 billion. It use an all-or-nothing funding model, which means you have to meet the goal you set within the allotted time or everyone gets their money back.

Kickstarter Pros

•   Massive marketplace with many users

•   High visibility, exposure, and familiarity as a platform

•   Transparent, all-or-nothing funding

Kickstarter Cons

•   A massive marketplace means massive competition

•   You can’t keep your funds if you don’t reach your crowdfunding goal

•   Focused on consumer-facing products

Indiegogo

Indiegogo has helped bring more than 800,000 innovative ideas to life since 2008. Indiegogo lets people solicit funds for an idea, charity, or startup company, and backers can evaluate campaigns and support entrepreneurs and their innovations from the earliest stages of product development.

Indiegogo Pros

•   Campaign creators have options to continue to raise money after a successful fundraiser

•   Two types of funding options: all-or-nothing or keep-what-you-raise

•   Charges competitive fees

Indiegogo Cons

•   May not be the best choice if you do not have consumer products

•   Large site with many competing projects

•   If using flexible funding, you must ship rewards even if you don’t reach your goal

WeFunder

WeFunder is an equity crowdfunding site that, since 2012, has raised hundreds of millions for thousands of founders. Startups can raise anywhere from $50,000 to $5 million through the platform. However, companies often bring around half of their own investors to the campaign, so it helps to already have some traction before turning to the site.

WeFunder Pros

•   Fees are competitive

•   Connects you with a large network of investors

•   Can start raising money in as little as 15 minutes

WeFunder Cons

•   Not a good fit for early-stage startups with limited experience

•   Often need to bring 50% of funds from your own network

•   Equity crowdfunding comes with complex rules and regulations

Fundable

Fundable is a software as a service (SaaS) crowdfunding platform dedicated to getting funding through either rewards or equity. Businesses using its platform have raised more than $570 million since 2012.

Fundable’s main claim to fame is offering hands-on support to startups and small businesses as they navigate the fundraising process.

Fundable Pros

•   Offers a hands-on approach from staff during every step of the process

•   Give you the option of reward-based or equity-based crowdfunding

•   Minimal fees for successful equity campaigns

Fundable Cons

•   Entrepreneurs with rewards campaigns don’t receive any funding if they don’t meet their goals

•   Flat monthly fees can get costly for unsuccessful campaigners

•   Charges a subscription fee that’s required to fundraise

Patreon

If you’re searching for a crowdfunding platform that lets you raise money for your artistic endeavors, Patreon might be a solid fit for you.

Patreon helps artists give their fans exclusive access to their content and insight into their creative process. In doing so, artists can create a recurring revenue stream, feature work their audience loves, and build a connection with their fanbase.

Patreon Pros

•   Helps creators crowdfund continuously

•   Offers rewards-based crowdfunding opportunities and multiple subscription plans

•   Keeps it light on the restrictions in comparison to other crowdfunders

Patreon Cons

•   Some creatures have complained about issues in collecting funds

•   There aren’t any built-in promotional tools

•   Has received criticism for its customer service

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Alternatives to Crowdfunding for Your Business

For some startups, aspirers, and creators, crowdfunding may seem like an ideal way to raise seed funds. However, it’s not for everyone. Here’s a look at some alternatives funding options for your business.

•   Small Business Grants: Grants for small businesses can be a great way to gather funds for a product or project. Grants are lump sums that are awarded to a business or business owner by government, nonprofit, and corporate entities. Unlike loans, grants don’t have to be repaid, although they may have stipulations about how the money can be spent. If you visit Grants.gov, you can find a list of small business grants and search them based on a variety of criteria.

•   Small Business Loans: There are a variety of small business loan options for entrepreneurs and startups that need to borrow funds to grow their company. These include bank loans, Small Business Administration (SBA) loans, business line of credit, online loans, cash advances, and equipment financing.

The Takeaway

Crowdfunding sites are websites that allow investors to select from hundreds of startups and business ventures and invest just a small amount on their growth. There are four main types of crowdfunding: donation-based, debt-based, reward-based, and equity-based.

For a business or entrepreneur, crowdfunding offers a nontraditional funding route that can also help you test-market a business idea and build brand recognition. However, it can take a fair amount of time and effort to run a successful crowdfunding campaign. And, in some cases, you won’t be able to keep any of the funds if you don’t meet your fundraising goal.

In addition to crowdfunding, you can also explore small business grants and small business loans for your business.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

Photo credit: iStock/Prostock-Studio

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Cash flow disruptions can happen to the best-run small businesses, and it’s smart to have a financial plan to weather these times. Small business cash flow loans offer the opportunity to bridge the revenue gap when you’re waiting for invoices to be paid or for other types of funds to come in.

What Is a Cash Flow Loan?

A cash flow loan is a type of financing that allows you to borrow against future revenue. It can be structured in a number of different ways to suit your needs and your business model.

Traditional banks typically focus on eligibility criteria when approving small businesses for loans, such as credit, time in business, and financials. These things may still be considered by a cash flow lender, but not to the same extent that they would be for a more traditional business loan.

Instead, for a cash flow loan, lenders typically judge your ability to repay the loan based on revenue projections. Depending on the financing structure, your loan payments could be based on a percentage of future credit card transactions or your unpaid invoices. Alternatively, you might apply for a business line of credit to help with cash flow or a small business loan with a fixed repayment term.

Recommended: Personal Loan Alternatives

How Do Cash Flow Loans Work?

There are several types of cash flow loans, each of which comes with its own structure for receiving funds and repaying them.

Overall, small business loan rates are usually more expensive for this kind of financing than for other types of small business loans (like SBA loans). But the eligibility requirements are usually more relaxed.

Different Types of Cash Flow Loans

Some of the most common types of cash flow loans include:

•   Online Loans: It’s possible to find online business loans for small businesses that offer help with cash flow. With these loans, typically you’ll receive a lump sum and then make payments on a regular basis. You can find online loans with terms lasting just a few months up to several years, depending on the lender.

•   Merchant Cash Advance: A merchant cash advance lets businesses borrow a sum of cash based on projected credit card transactions. You’re charged a factor rate instead of interest, which is combined with the amount you borrowed to calculate your total debt. Payments are then automatically deducted as a percentage of your credit card sales. In some cases, payments can also be automatically deducted from a business bank account on a fixed schedule.

•   Invoice Factoring: Invoice factoring advances a portion of a company’s unpaid client invoices. Depending on your industry, you might receive anywhere up to 90% of the outstanding invoice amounts. In many cases, the factoring company then takes over the collection process. Once the invoices are paid, you receive the remaining balances, minus the lender’s fees.

Recommended: Small Business Ideas

What Is Asset-Based Business Lending?

Asset-based lending is any type of financing that uses property as collateral to secure the loan. Examples of the kinds of assets that might be used include equipment, inventory, invoices, and real estate.

Because the loan is backed by collateral, interest rates and terms are typically more favorable. Small businesses struggling with credit or revenue may also have an easier time qualifying for this type of financing because it’s less risky to the lender. If you aren’t able to pay back the loan, the lender is able to seize your collateral.

How Can a Cash Flow Loan Be Used?

Funds borrowed through a cash flow loan are typically used for ongoing operating expenses, such as:

•   Payroll

•   Inventory

•   Rent

•   Marketing

•   Insurance

Different lenders may have their own guidelines on how the funds may (or may not) be used.

How to Find a Cash Flow Loan

Once you understand the types of cash flow loans for small businesses, narrow down your choices to the ones that make sense for your business model.

For instance, merchant cash advances are designed for companies with regular credit or debit card transactions.

Invoice factoring, on the other hand, is suited for companies that regularly invoice customers.
A cash flow loan or line of credit usually suits a broad range of business types.
You can use a lender platform to access multiple loan offers and find the one that suits your company.

Also, you may want to consider exploring other funding opportunities, such as small business grants, which don’t have to be repaid.

Recommended: Business Credit Card Without a Business

Cash Flow vs. Asset-Based Loans

Although asset-based loans may be used for some of the same purposes as cash flow loans, they’re not the same. This table helps summarize some of the similarities and differences.

Loan Process

The biggest difference between cash flow and asset-based loans is what the lender focuses on when reviewing your application (cash flow versus assets that will be used as collateral).

For both types of financing, you typically don’t have to worry about meeting the definition of a small business the way you would with an SBA loan. Lenders can create their own eligibility criteria rather than adhering to SBA requirements.

Processing Time for the Loan

Processing time varies by lender, but both types of loans typically feature fast funding times. This is especially true if you apply with an online lender.

Collateral for the Loan

Cash flow loans generally don’t require collateral beyond the projections for the revenue that will be used to repay the loan.

Asset-based loans, on the other hand, require some type of collateral to secure the loan. These assets could be in the form of inventory, equipment, or real estate.

Repayment of the Loan

Repayment depends on the structure of the loan.

Asset-based loans usually have a fixed repayment schedule, while cash flow loans are likely to rely on your future revenue in some way. Oftentimes, you’re required to enroll in some type of automatic payment linked to your business bank account or point of sale system if you’re using a merchant cash advance.

Can You Get a Cash Flow Loan with Bad Credit?

Cash flow loans are primarily based on sales performance and projections. Potential lenders typically review your company’s transactions and other data, as opposed to your credit score and business history, to determine your ability to repay the loan. Each lender differs in terms of how much it weighs both business and personal credit scores.

Recommended: Best Crowdfunding Sites

The Takeaway

If your company has a good revenue history, a cash flow loan could be an option when your business needs help covering operating expenses. As you weigh the pros and cons, you can search for small business loan offers to see what is available.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

FAQ

What are the different kinds of cash flow loans?

Cash flow loans may include term loans, lines of credit, merchant cash advances, and invoice factoring. Each one has its own pros and cons, as well as its distinct requirements based on how your business brings in income.

In what situations is a cash flow loan the best option?

A cash flow loan is ideal for businesses that don’t qualify for traditional bank or SBA loans. But interest rates and fees for a cash flow loan are typically higher, and this type of financing doesn’t always help build your business credit history. It’s important to explore all of your options and feel comfortable about your company’s ability to repay the loan.

Who qualifies for a cash flow loan?

Compared to a startup, a company with a history of revenue is better positioned to get approved for a cash flow loan for small businesses. Your company typically needs a history of revenue in order to demonstrate your ability to repay the loan based on future sales.

Can I get a cash flow loan with bad credit?

Credit history is weighed less heavily than your revenue data when you’re applying for a cash flow loan. That doesn’t mean your business and personal credit scores aren’t reviewed at all, but it does mean you could still potentially get approved even with bad credit.

Photo credit: iStock/AsiaVision

SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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While you may think that “foundation” and “nonprofit” are the same thing, there are distinct differences between the two. They both serve the needs of millions of Americans, and people in other countries too. The goal of a nonprofit and a foundation are often laudable.

How the two entities receive their funding differs, and how foundation vs. nonprofit operates too. There are important tax differences. Read on to learn the differences between a nonprofit vs. foundation.

What Is a Nonprofit?

A nonprofit organization is dedicated to furthering a social cause or advocating for a shared point of view. It is a business/corporation that has been given tax-exempt status by the Internal Revenue Service (IRS) because it pursues a religious, scientific, charitable, educational, literary, public safety, or cruelty-prevention mission or area of work.

How Nonprofits Work

Once you’ve registered your nonprofit, you must file IRS Form 1023, which is the formal request that the IRS recognize you as a 501(c)(3) organization eligible for tax exemptions under this rule.

Nonprofit organizations receive their funds from governments, various institutions, and individuals. The surplus received is mainly funded in its operations. None of the members or employees are supposed to get the benefit from surplus.

It’s called a nonprofit for this reason. Employees are not supposed to “profit.” In fact, many of the people who work for a nonprofit are volunteers.

Recommended: Funding Sources for Nonprofits

Pros and Cons of Nonprofits

Nonprofits can be highly fulfilling. You are pursuing a mission you believe in. When your organization has nonprofit status, particularly when recognized at the federal level by the IRS, it can take advantage of tax and financial benefits:

•   When donations to an organization are tax-deductible, donors have an incentive to contribute.

•   Nonprofit organizations may be given favorable terms and discounts by landlords, service providers and retail companies.

•   IRS-recognized nonprofit 501(c)(3) public charities do not have to pay corporate income tax

However, fundraising is difficult and you may find yourself in fierce competition for donations. You will also come under pressure to be very open, even revealing financial statements to the media and general public. This type of accountability can result in unflattering press coverage, particularly if your organization is experiencing some financial or administrative challenges.

Recommended: What Are Nonprofit Business Loans?

What Is a Foundation?

Foundations are charitable organizations, but they don’t qualify as public charities. Often funded by a person, married couple, family, or corporation, foundations enjoy tax-exempt status as long as they meet certain state and federal requirements.

Foundations are similar to nonprofits, except money for a foundation usually comes from a family or a corporate entity. In fact, the foundations can donate money to a nonprofit from their revenues, often in the form of grants or gifts.

How Foundations Work

Foundations make grants to other charities and nonprofit organizations. They can take the money they started out with, invest it, and then distribute it.

There are subsets of private foundations: operating and nonoperating. A private nonoperating foundation grants money to other charitable organizations and is the more common form. Foundations don’t directly perform charitable programs or services either. A private operating foundation distributes funds to its own programs that exist for charitable purposes.

Recommended: How to Start a NGO

Pros and Cons of Foundations

It’s easy to see why anyone would want to start a private foundation. Perhaps you want to support an important cause or establish a family legacy. Individuals who already donate large sums to charity may wonder if they could make a bigger impact by starting their own foundation. A foundation allows you to strengthen and focus your philanthropic ideas.

However, setting up a foundation requires a lot of work. You will usually need to hire outside professionals — such as attorneys and accountants — who can provide expert advice on how to form and run your foundation.

Private foundations must pay a 1% to 2% annual excise tax on their net income. The exact percentage depends on a foundation’s annual grantmaking. Your records will need to be meticulous.

While different states may have different annual reporting requirements, the IRS mandates annual reporting by all private foundations. This process typically takes eight hours to complete and often requires an accountant or attorney to finalize and submit the necessary paperwork.

Recommended: Nonprofit Financial Statements

The Takeaway

A nonprofit differs from a foundation in key ways. How you receive money is not the same – and what you do with the money you receive. Foundations often award grants to nonprofits and charities.

Like businesses, nonprofit organizations sometimes need cash to achieve their objectives and to expand. Many nonprofits qualify for grants, which is money you will not need to pay back.

Cash can also come in the form of a loan. Loans are a tool that can help a nonprofit grow and succeed. Nonprofits may qualify for small business loans, which are offered by banks, credit unions, and online lenders.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

FAQ

What is the difference between a foundation and a nonprofit organization?

A nonprofit is a charitable organization with a specific social goal that uses its revenues and surplus to fund its operations rather than benefiting the organizations’ members, shareholders, or employees. A foundation refers to a charitable organization that sources funds from its founders, which could be a corporate entity or a family.

Is a foundation a nonprofit?

Yes, a foundation is a nonprofit corporation or a charitable trust that makes grants to organizations, institutions, or individuals for charitable purposes such as education, culture, education, science, and religion.

Can a nonprofit have “Foundation” in its name?

Yes, but it’s not recommended, because it could create confusion and deter donors. Foundations usually can’t accept private donations. It’s even more important to never imply that your nonprofit is a government entity. Refrain from using names that include words like “national” and “federal” as they are used for government purposes.

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SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

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North Carolina has about 964,000 small business owners who can apply for small business grants. Submitting an application and competing for N.C. small business grants can help you grow your small or medium-size enterprise in the Tar Heel State.

North Carolina’s economy has a gross domestic product of $771 billion as of the 3rd quarter of 2023. That’s the 10th largest GDP in the United States out of the 50 states and the District of Columbia.

Learn more about some of the top small business grants in N.C. that you can explore.

Grants for Small Businesses in NC

If you’re looking for small business grants in North Carolina, here are some potential options:

Job Development Investment Grant (JDIG)

•   Program description: The JDIG program provides cash grants to companies that create new jobs filled by full-time employees who work on a project in North Carolina.

•   Incentive: Receive annual grant payments for up to 12 years based on performance factors. Grant awards will generally represent a fixed percentage of withholdings from the wages of employees in eligible positions.

•   General requirements: Here are some of the general requirements for this grant:

◦   Be a business that creates a minimum number of eligible positions in North Carolina ranging from 10 to 50 new employees depending on your development tier area

◦   Develop an eligible project (projects that consist solely of retail facilities are not eligible)

◦   Provide health insurance for all of the applicable full-time employees of the project

◦   Have no citations under the Occupational Safety and Health Act that have become a final order within the past three years for willful serious violations or failing to abate serious violations

•   How to apply: Contact the Economic Development Partnership of North Carolina Inc. if you are interested in applying for the Job Development Investment Grant .

One North Carolina Small Business Program Fund

•   Program description: This One North Carolina Fund provides grant funding to businesses that stimulate economic activity in the Tar Heel State, including small business owners who develop and commercialize new technologies.

•   Incentive: Receive up to $200K in state matching funds for receiving a federal Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) award. Small businesses can also receive up to $12K in reimbursement for costs incurred in preparing a federal SBIR/STTR proposal.

•   General requirements: Here are some of the requirements if you’re seeking state funds toward a federal SBIR/STTR project:

◦   Be an N.C.-based small business

◦   Submit a qualified SBIR or STTR Phase I proposal to a participating federal agency

◦   Meet all federal SBIR/STTR program eligibility requirements

◦   At least 51% of the SBIR/STTR proposal development and operations must take place in North Carolina

•   How to apply: You can apply for One North Carolina Small Business Program funds online when the application opens.

On-The-Job Training (OJT) Program

•   Program description: The OJT program can provide partial reimbursement to employers who hire and train new employees who work in skilled positions.

•   Incentive: Participating employers can receive reimbursements ranging from 50% to 75% of a trainee’s wages.

•   General requirements: Here are some of the general requirements for this grant:

◦   Be registered or licensed to do business in North Carolina

◦   Have a bona fide job vacancy or workforce expansion plan

◦   Be in compliance with all applicable licensing, taxation, and insurance requirements and not in violation of any local, state, or federal labor laws

◦   Have no history of frequent layoffs and no current labor disputes

◦   Agree to retain your OJT trainees who complete individualized training plans

•   How to apply: Anyone interested in the OJT program can contact the NCWorks Career Center, state Division of Workforce Solutions (DWS), or a local N.C. Workforce Development Board (WDB).

Incumbent Worker Training (IWT) Grant Program

•   Program description: IWT is a competitive training grant program that provides eligible employers with monetary awards for upgrading the skills and knowledge of their existing workers.

•   Incentive: Businesses can receive up to $25K per program year ($100K lifetime maximum) for training existing staff to learn new skills.

•   General requirements: Here are some of the general requirements for this grant:

◦   Be an N.C. business in operation for at least one year

◦   Have an employer-employee relationship with your trainees

◦   Have at least five employees

◦   Provide training to eligible incumbent workers with at least six months of employment history at your company

◦   Be current on all federal and state obligations

◦   Be financially viable

◦   Employers in the health care, information technology, construction, and advanced manufacturing industries can receive special consideration for a grant award

•   How to apply: Contact your local WDB to apply for the IWT grant .

North Carolina Passport to Export Grant Program

•   Program description: N.C. Passport to Export is North Carolina’s State Trade Expansion Program (STEP) that can help you export your goods and services from the Tar Heel State to foreign markets.

•   Incentive: Receive up to $16K in reimbursements for eligible business expenses, including international marketing and booth costs of exhibiting at a qualifying trade show.

•   General requirements: Here are some of the general requirements for this grant:

◦   Be registered to do business in North Carolina

◦   Have 500 or fewer employees

◦   Have at least one year of business experience

◦   Be an export-ready U.S. company

◦   Have a product or service consisting of at least 51% U.S. content

◦   Be in good standing with the federal government (have not been debarred)

◦   Ability to bear the costs associated with trade

◦   Operating profitably as a U.S. business

•   How to apply: Contact the Economic Development Partnership of North Carolina Inc. if you wish to apply for N.C. Passport to Export STEP grant funding.

Who Provides Small Business Grants in North Carolina?

The N.C. Department of Commerce and Economic Development Partnership of North Carolina offer a variety of small business grants in North Carolina.

Do You Have to Pay Back a Small Business Grant?

A small business grant typically comes with terms and conditions, and you may be responsible for paying back the grant if you violate those terms. In general, small and midsized business owners are not required to pay back an SMB grant absent any violations.

You typically have to sign a funding agreement to accept a small business grant. As mentioned above, the grant may come with certain conditions. Using the grant for an illegitimate purpose may violate the agreement and require business owners to pay back the grant.

Small business grants may require you to spend the money by a certain date. You may also have to provide proof of payment and a written statement detailing how you’ve spent the grant.

Recommended: Small Business Loan Rates and Fees

Who Is Eligible for Small Business Grants in North Carolina?

Local business owners or operators of an enterprise with fewer than 500 employees may be eligible for small business grants in North Carolina.

The U.S. Small Business Administration’s Office of Advocacy generally defines a small business as an independent business having fewer than 500 employees. A small business, including individuals with freelancing business ideas, may be eligible for small business grants.

What Industries Does NC Support With Grants?

North Carolina offers a variety of grants supporting the following industries:

•   Advanced manufacturing

•   Aerospace

•   Biotechnology

•   Construction

•   Health care

•   Hospitality

•   Information technology

NC Resources for SMB Owners Looking for Funding

Here are some resources for small and medium-sized businesses looking for funding in the Tar Heel State:

NC Small Business and Technology Development Center (SBTDC)

The North Carolina SBTDC is a statewide program affiliated with the University of North Carolina System that provides N.C. small business owners with the following services:

•   Educational events

•   Export-related guidance

•   General business counseling

•   Market research

•   Online training

•   Technology development and commercialization assistance

SBA District Office in North Carolina

The U.S. Small Business Administration (SBA) is a federal agency that provides resources and support to small business owners. The SBA North Carolina District Office serves the entire Tar Heel State with a main office in Charlotte, satellite office in Raleigh, plus virtual offices in Asheville and Wilmington.

Recommended: Applying for Small Business Loans

Alternative Funding Sources for Small Businesses in NC

Here are some alternative funding sources for small businesses in North Carolina:

North Carolina State Small Business Credit Initiative (SSBCI)

North Carolina’s SSBCI is a federally funded program for small business owners in the Tar Heel State. Federal law — the American Rescue Plan Act of 2021 — allocates about $201.9 million to North Carolina’s State Small Business Credit Initiative program.

Here’s how North Carolina plans to use the SSBCI funding:

•   NC Loan Participation Program — $160 million. This program uses SSBCI funds alongside private funds to support loans to eligible borrowers, including socially or economically disadvantaged individuals who own small businesses in North Carolina.

•   NC Venture Capital Program — $31.9 million. This program can help eligible startups access venture capital.

•   NC Capital Access Program — $10 million. This program uses SSBCI matching funds to support portfolio insurance on small business loans.

NC Microloan Lenders

Community-based nonprofits may offer microloans of up to $50,000 to small business owners in North Carolina, including microloans for women-owned small businesses. In general, microloans can range from $500 to $50K and may be available to startups.

North Carolina SMB Loans from Private Lenders

Banks, credit unions, and private lenders may offer different types of small business loans to N.C. business owners.

Here are some of the funding products you may consider depending on your needs:

•   Commercial real estate loans

•   Equipment financing

•   Small business loans for startups

•   Working capital lines of credit

The Takeaway

North Carolina small businesses can take advantage of all sorts of grants, ranging from those from state or local governments to private sources.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

FAQ

How do you get a small business grant in North Carolina?

You can apply for N.C. small business grants, but there’s no guarantee you’ll get approved for one. You may have to submit a grant application as a qualified small business owner to be considered for a small business grant in North Carolina.

How hard is it to get a business loan in North Carolina?

You may have difficulty getting a small business loan in North Carolina if you have bad credit or insufficient business experience. You generally have to pay back business loans with interest.

What is the easiest SBA loan to get approved for?

There’s no guarantee you’ll get approved for any SBA loan, but SBA microloans may be one of the easier ones to get if you’re a new business owner. Startups may be eligible for SBA microloans of up to $50K. If you’re looking for a streamlined application process, SBA Express working capital loans are an option you may consider.

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SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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