Non for profit organizations are bound by the rules and regulations detailed in the United States Internal Revenue Code (IRS) entitled 501(c)(1) – 501(c)(28). The discussion that follows focuses specifically on those organizations that fall within the definition of 501(c)(3) in accordance to the federal law (26 U.S.C. 501). This portion of the IRS code permits nonprofit organizations (i.e. public charities or private foundations) to take advantage of a federal tax exemption. The United States Department of Treasury oversees the 501(c)(3) regulation through the IRS. The regulations that delineate the rules of a credit cards for nonprofits do not differ from credit cards issued for a for-profit businesses. The manner in which a business uses their their no profit credit card may have a definite impact upon the status of your nonprofit, if you are not careful. It is also noted that the way in which a nonprofit processes donations must be, at all times, transparent and meet nonprofit guidelines. Nonprofit corporations must provide clear policies so their employees know when it is acceptable to use a credit card and remain compliant with their nonprofit status.
A 501(c)(3) organization is able to take advantage of a tax-exempt status with regarding to the IRS. In order to reach and maintain this tax-exempt status, an organization is prohibited from 1) generating a profit and 2) it must offer religious, charitable, educational or comparable public interest services. While using a non profit credit card to purchase needed supplies from vendors is perfectly acceptable, it can, with one wrong move, remove this tax exemption if the card is used for personal gain. At its most basic level, this would include flowers for your spouse.
Credit cards are a necessary part of business. Credit cards are a smart way to simplify payments to vendors. In fact, prudently using a credit card actually builds a credit profile that will likely come in handy in the nonprofit’s future. However, it is important to read the fine print (or reach out to a customer service representative) to determine if the creditor actually reports to the credit bureaus that compile business credit profiles.
Some banks report the credit usage for nonprofit organizations on the personal credit history of the guarantor. This will not establish a business credit history and leaves the guarantor open to risk if members of the nonprofit behave irresponsibly. Lenders typically underwrite a credit card for non profit organization using both personal and business credit backgrounds. However, if your objective is to build a business credit profile for your nonprofit, take the time to confirm your payment will be reported to business credit repositories.
There are credit cards for nonprofits that allow you to begin to build business credit without the need for a personal guarantee. The Community Business Credit Account offered by Wal-mart is a great way to secure credit for nonprofits that include hospitals, schools, charities or religious entities. Financial gurus encourage their clients to separate their business credit from their personal credit. It is just a smart financial maneuver. If you make the decision to offer your personal guarantee, do so with your eyes wide open.
Lenders come up with all sorts of gimmicks to lure nonprofit organizations to choose their credit cards. Lenders view a nonprofit as a business. Start-up nonprofits typically ask their business leader to use their personal credit profile to qualify for a business credit card. As your business credit builds, your nonprofit will be poised to obtain a credit card WITHOUT a personal guarantee. It just takes patience. If the nonprofit has an excellent credit rating – obtained from the leader’s credit profile or the nonprofit’s credit profile – there are several small business cards to consider as you begin to explore this option.
Visa® CommUNITY Credit Card
The Visa® CommUNITY Credit Card is specifically designed for municipalities and nonprofits. Many lenders now offer this credit card. Primarily, its benefits include no annual fee, assistance with the management of cash flow and high credit limits. Additionally, the bank offers the availability of multiples cards for associates and a rewards program dedicated to goods and services typically used by nonprofits.
If your nonprofit entity has no credit history (or a bad credit history) – where there are no financial statements to provide, the following credit cards can be used to pay vendors electronically.
PayPal™ Prepaid MasterCard®
The Pay Pal™ Prepaid MasterCard can be likened to Western Union’s prepaid credit card. This prepaid card dovetails nicely especially if you are a user of PayPal’s other products. Bancorp Bank is institution that manages this card which even offers cash back for specific stores. The card can be reloaded through Western Union or a reoccurring direct deposit.
If you have managed to build and maintain an excellent credit profile, you can take advantage of additional nonprofit credit opportunities. Note though that creditors revise their credit card offers with little notice, so it best to check with the lender to make sure the offer is still available.
Capital One® Spark® Cash Select for Business
The Spark Cash Select doesn’t have an annual or foreign transaction fee. The Cash Select from Capital One provides cash back up to 1.5% and a $200 bonus when you spend $3,000 during the first three months. The APR is 0% for the first nine months.
SimplyCash® Business Card from American Express
Amex offers the SimplyCash® credit card with no yearly fee. The credit cardholder can select from eight categories that all earn 3% cash back. The card also offers a comprehensive list of perks.
Discover it® Card
If your nonprofit is required to purchase many items online from well-known retailers, the Discover it® Card just might be the non profit credit card for you. Discover it® provides a 5% cash-back based upon a category rotation that occurs every three months for a variety of popular retailers. Note though, the rewards are doubled during the first year without a yearly fee.
Capital One® QuicksilverOne® Cash Rewards Credit Card
The QuicksilverOne® is popular because the underwriting standards are easy to meet. While the card pays 1.5% cash rewards on each purchase (and the cash reward never expires), the card has a $39 yearly fee and an interest rate of 24.74%.
As noted above, there are several credit cards for nonprofits to meet the needs of the new nonprofit or the well-established nonprofit entity. To select the card that would suit your needs best, take the time necessary to understand where your nonprofit falls on the credit history continuum. Then apply and start charging!