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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Legal
Satisfied Customers: 118789
Experience:  JA Mentor -Attorney Labor/employment, corporate, sports law, admiralty/maritime and civil rights law
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I have been searching number of days trying to find an

Customer Question

I have been searching for a number of days trying to find an answer from the IRS are from other entities involving a facet of the 501.3c nonprofit law.
A bout 15 years ago. My family had a nonprofit organization called Clothes and Feed the Poor in Mableton, Georgia. There was an incident that involved a person that needed help. Now my memory is cloudy on the situation because of the time distance, but this situation holds the scenario of my question. This person owned a day care in a strip mall. A fire consumed the whole building burning all of the items she had for the children at the day care and she had no insurance. My father was going through all of the information for the 501. c 3 to find out about any provisions laid out the manual for the nonprofit to be able to give a interest-free/low interest loan to this individual. At that time they were in the process of doing this, but the person moved away in the loan was never given, to my recollection this was something that my father felt that we could do in the future. So my question is this. Is it still possible to give out a loan if so, what are the particulars? Is there a specific amount that can be given and specific time that it needs to be paid back? I know I have found information on the Internet where nonprofits are giving small loans to compete against the high interest payday loans to people involved in a church and also have found nonprofits where they have pooled money together to pay off debts. I am trying to find out what size the envelope is for any loan that could be given from a nonprofit to help people with larger expenditures such as farmers about to lose their farming equipment, etc . If you have any information that you can share. I would definitely appreciate it.
Submitted: 2 years ago.
Category: Legal
Expert:  Law Educator, Esq. replied 2 years ago.

Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.

A non-profit can make a loan to a non-board member, but if they charge any interest and the purpose of the non-profit is not formed for the purposes of making these loans to the community, any interest they charge would still be considered unrelated business income and they must pay tax on the interest they collect. Typically, this is why some non-profits form a separate non-profit corporation which handles that type of non-profit service of lending money, it is the other non-profit corporation or foundation which makes the loans and as long as the interest is used for the non-profit purpose, then it is possible.