What advantage do not-for-profit entities have when it comes to borrowing?

Not-for-profit entities, particularly those in the healthcare sector, benefit from tax-exempt interest on bonds, which is a significant advantage when it comes to borrowing. This means that when these entities issue bonds to raise funds, the interest that investors earn on those bonds is exempt from federal taxes. This tax exemption makes the bonds more attractive to investors, allowing not-for-profits to issue bonds at lower interest rates compared to for-profit entities. Consequently, not-for-profits can access capital at a lower cost, enabling them to finance various projects, expansions, or improvements without incurring excessive debt service costs.

The other options do not reflect the typical financial advantages associated with not-for-profit borrowing. For instance, while tax-deductible donations can provide crucial funding, they are not directly related to borrowing capacity or terms. Higher interest rates on loans is contrary to the generally lower rates that not-for-profits can access due to their tax-exempt status. Unlimited borrowing capacity is not a realistic portrayal, as borrowing capacity is generally limited by factors such as cash flow, financial health, and market conditions, rather than being unlimited. Thus, tax-exempt interest on bonds stands out as a critical advantage for not-for-profit entities regarding their borrowing capabilities.