Identifying and Managing Conflicts
A conflict of interest could arise if a board member loans money to their nonprofit. The IRS states that a nonprofit board member cannot receive excessive benefits from the nonprofit. If the loan includes interest payments, the board member financially benefits. The board should vote to accept loans from members. Members lending money should not vote. If most members lend money, have the board accept the loans through a roll-call vote. Consult an attorney before lending money.
There are risks with board member loans. Have attorneys review documents. Members may lend money to help during cash shortfalls or fund new programs. Nonprofit incorporation offers limited liability protection to board members. Members have limited personal liability for legal actions against nonprofits. Creditors can only pursue corporate assets.
Loan Opportunities for Nonprofits
Can a Nonprofit Receive a Loan?
Yes, non-profits can apply for a bank loan or line-of-credit, just like any other individual or company. However, they will first need some collateral, or someone to guarantee the loan, and some evidence of a viable business, like receivables and inventory.
The SBA is offering low interest federal disaster loans for working capital to small businesses and non-profit organizations that are suffering substantial economic injury as a result of COVID-19.
Challenges in Obtaining Nonprofit Business Loans
Why are Non-Profit Small Business Loans Hard to Obtain? Lenders have stringent business loan requirements.
Nonprofit business loans all have different loan applications and eligibility requirements to qualify, so spend time researching loan programs you’re interested in. Make a list of those you qualify for, then find out what’s required to apply.
- Tip: Only borrow what you can afford to pay back.
Conflict of Interest Policy
Definition and Ramifications
What constitutes a conflict of interest for a nonprofit board member? When a board member’s personal interests conflict with their responsibility to act for the nonprofit, it creates a conflict of interest. Nonprofit boards should be aware of any state laws that govern conflict of interest policies and any potential penalties for not abiding by conflict of interest standards. Using a template for conflict of interest policies is crucial to make sure your nonprofit adheres to the law.
Policy Contents
What should be included in a conflict of interest policy? An outline of possible conflicts that could arise in the course of business; details about disciplinary actions that will be taken if an employee is found to have violated the policy; the procedure for handling potential or actual conflicts.
Common Misunderstandings
As widely used as the phrase is, conflict of interest may be among the least understood governance challenges. A nonprofit board of directors must evaluate the material facts of any interested director transaction and then vote on whether or not to approve that transaction.
State Prohibitions and Special Cases
While states differ on what they disallow for nonprofits, here are two actions every state prohibits:
- Financial Loans – No nonprofit may lend money to a board member.
Should family members serve on the same board? The rules for private foundations don’t restrict board composition as much as public charities, often allowing an entire board to be members of one family.
If a board member also owns a private healthcare company, there is a conflict of interest as their personal financial gain may influence decisions that prioritize their business over the nonprofit’s beneficiaries. Establishing robust policies and procedures is essential to effectively manage conflicts of interest in non-profit organizations.