Transcript "Traditional" Bank Financing

“Traditional” Bank Financing
Sobel & Co. LLC - NFP Webinar
September 14, 2011
Brad Thomson
Points to Cover
•
The Imperfect Storm
•
Non-profits – Who we serve
•
Non-profits – What we offer
•
What a Bank Looks For – It Isn’t Rocket Science
•
Reverend Grigg’s Story
•
What we’ll need from you
•
Lines of Credit
•
HERA Line of Credit
•
Term Loan/Lease
•
Mortgage
•
Solar Financing
•
EDA
•
Free Money
2
Imperfect Storm
Recession of Confidence –
•
•
•
•
Feeling Glum?
Unsure of the Future?
Putting Plans on Hold?
Hoarding Cash and Buying Gold?
Welcome to 2011
•
2010/2011 has been an economic mess
• Non-profits may find themselves pinched, especially in a down
economy: trying to meet payments, providing increased service and
sustaining or upgrading technology and facilities
• You may feel that banks have decreased lending and you can’t get the
credit you need.
•
Corporate earnings are down so corporate donations slow down.
•
Government funding for programs is not as readily available.
•
Individuals concerned about their financial well-being/future - Donations
decrease
3
Non-profits – This is who we serve
•Churches/Religious Organizations
•Educational Institutions
•Community Development Organizations
•Foundations and Endowments
•Social Service and Cultural Arts Organizations
•Advocacy Groups
•Major Membership Organizations and Museums
4
Non-profits – This is what we offer
•Construction Loans
•Permanent Mortgages
•Lines of Credit
•Capital/Equipment Financing Loans/Leases
•Tax Exempt Loans
•Tax Exempt Bonds (NJEDA)
5
What a Bank Looks For
Credit is Not Rocket Science – Still love the 5 C’s
Capacity/Cash Flow – Can you repay the loan? Proving a reliable and
sufficient cash flow is one of the biggest obstacles for a non-profit seeking
a loan.
Collateral – How can the bank repaid if cash flow is insufficient? Very
important as there are no personal guarantees with non-profits.
Capital – Non-profits are not like a manufacturing business or most
business. Not a lot of excess capital.
Character – How long have you been in operation? Payment history?
Background and experience of employees? Liens, suits, judgments?
Conditions – Focus on the intended purpose of the loan. What will it be
used for – bridge financing, equipment, mortgage? Local/national economic
conditions
6th C – Connections – Who you know can help
Disclaimer - Every Deal is Different
Only General Guidelines/Indicative Pricing in this presentation
6
Reverend Grigg’s Story

Reverend Grigg’s is a long-time minister.

Congregation has 500 members and rising

Has a small church, but has found the perfect building for his growing flock – Needs a
$5,000,000 mortgage.

Knows that banks pay very close attention when dealing with churches and non-profits
because if there is a default – may be many issues in foreclosing on/selling the property.
Reverend Griggs knew what the bank would want to see and had it ready –

Three years of tax returns (CPA prepared reviewed/audited statements are appreciated).

History of Church – When founded – Older churches have survived many ups and downs.

History of Building Programs – Loans not repaid from the past.

Families – Ties run deep, indication of commitment.

Membership Trends – Churches go through stages of start-up, growth, maturity and decline?

Demonstrated the request made sense as membership is growing and new programs are
anticipated.

Emphasized the quality/experience of the staff – Years of service, his background, # of
associates, and success in prior building programs.
7
What We’ll Need From You

Purpose of the loan –What needs are you seeking to be financed?

Three years of financial statements (requests < $50,000 may not
require statements)

History of the organization

Details on current leadership/bios

History of grants/aid and those expected

Fund raising programs

Account Receivable and Accounts Payable aging.

Business plan (if available)

For Machinery/Equipment/Technology – Copy of invoice (hard costs
and soft costs).

For Construction/Permanent Mortgage – Plans/Specs/Costs will need
to be reviewed. Construction draws will be monitored. Will need
appraisal, environmental study, possibly flood insurance and
assignment of P&C insurance.
8
Lines of Credit
Purpose
Working Capital or Bridge Situations
Minimum History
Three years of Operation
Maximum Term
Generally one year
Amount
$50,000 - ?
Prepayment
None
Rate
Based on WSJ Prime
Guarantors
Generally, no guarantee required
other than Government where
appropriate.
Collateral
First security interest in business
assets
Advance Rates
Up to 80% of Accounts Receivable
Up to 50% of Finished Goods
Grants, Payments, etc. – Case-ByCase
Covenants
Cash Flow Coverage – Preferred minimum
of 1.20:1
Insurance
Loss payee on Property & Casualty Insurance
9
HERA Line of Credit – Must be CRA
Eligible
Purpose
Acquisition of Property and Soft Costs
Minimum History
Three years of Operation.
Development experience.
Completed five projects.
Maximum Term
2 – 3 years with possible 1 year extension
Amount
$100,000 - $1,000,000
Prepayment Fees
Breakage Cost
Rate
Based on WSJ Prime or Libor
Guarantors
Generally, no guarantee required other than
Government where appropriate
Collateral
Full Floating Lien, 1st Mortgage
Assignment of Public Funds
supporting project
LTV/Advance Rates
Up to 100% of cost or appraisal of RE
Up to 100% soft costs (not > 50% of total
loan)
Covenants
Cash Flow Coverage – Preferred minimum of
1.20:1
Others as required
Insurance
Loss payee on P & C, Flood Insurance (if required)
10
Term Loans/Leases
Purpose
Financing of equipment, technology
Minimum History
Three years of Operation
Maximum Term
Seven years or life of the equipment (possible
six-month drew period)
Amount
$50,000 - ?
Prepayment Fees
Yes – Swapped loans subject to “make-whole”
provision
Rate
Floating, Fixed or Swapped
Guarantors
Generally, no guarantee required other than
Government where appropriate.
Collateral
Full Floating Lien, PMSI, liquid collateral
and/or real estate
LTV/Advance Rates
New Equipment – 80% of Invoice
Used Equipment – 60% of Orderly
Liquidation Value
Covenants
Cash Flow Coverage – Preferred minimum of
1.20:1
Others as required
Insurance
Loss payee on P & C, Flood Insurance (if required)
11
Mortgage
Purpose
Purchase, Construction or Refinance
Minimum History
Three years of Operation
Maximum Term
10/25
Amount
$125,000 - ?
Prepayment Fees
Yes – Swapped loans subject to “make-whole”
provision
Rate
Generally swapped to a fixed rate
Guarantors
Generally, no guarantee required other than
Government where appropriate.
Collateral
First mortgage, assignment of leases and rents (where
appropriate)
LTV/Advance Rates
80% with Amortization of 20 years or less
75% with Amortization of 25 years
Covenants
Cash Flow Coverage – Preferred minimum of
1.20:1
Maximum Leverage
LTV Maintenance
Insurance
Loss payee on P & C, Flood Insurance (if required)
12
EDA
•
Wonderful benefit of operating in New Jersey
•
Provides Loans, Loan Guarantees and Tax-exempt bond financing starting at
$500,000 for a 501(c)(3)
•
Financing for land and building acquisition, construction, equipment, fixtures,
renovation, refinancing, etc.
Look for an EDA Preferred Lender
Tax-exempt Bonds for Building Acquisition/Refinance –
Benefits –
Possible longer amortization – up to a 10/25 (most are in the 5/20 or 7/20 range).
Lower Interest Rates –
In today’s market a 7/20 mortgage with a 2.50% spread -
4.50%
Using the EDA Tax-exempt Bond Program -
3.88%
Savings of $395,683 on a $5,000,000 mortgage
13
Solar Financing- We Love Solar Deals
Downside –
30% Federal Tax Credit or Grant does apply for non-profits.
Upside –
Significant energy savings.
Type -
Term Loan or Lease ($1.00 buy-out at end of lease)
Tenor -
Maximum of seven years
Rates -
Floating during the construction period
Then Fixed for life of the loan
Advance
Rates -
Up to 100% if you qualify for Federal Grant
Up to 75% if you do not qualify
Collateral/Docs •
•
•
•
•
•
•
UCC filing on the solar system
Assignment of the grant proceeds (if applicable)
Assignment of the roof license
Assignment of the power purchase agreement
Assignment of the SRECs
Assignment of the debt service reserve (if applicable)
Possible 2nd mortgage on building and non-disturbance agreement from 1st mortgage
holder.
14
$ Free Money $
Affinity Membership Program – Open an account at TD and the bank
will make an annual contribution to your organization based on the
average balance in members’ accounts – Checking, Savings, Money
Market, CD and IRA. Totally confidential – members’ accounts not
affected in any way.
TD Charitable Foundation (www.tdbank.com) - $73,000,000 in
grants/contributions.

Non-Profit Training Resource Fund - $200,000 for community-based
organizations to have employees attend classes/courses to enhance
job performance.

Housing for Everyone Grant Competition - $2,500,000 to be awarded
to local non-profit organizations that make a meaningful difference in
meeting affordable housing needs.
New Jersey Neighborhood Revitalization Tax Credit (NRTC) Program $1,000,000 donated in 2011 to non-profits involved in community
development in economically struggling communities –

Women Rising – Jersey City - $350,000

Housing and Neighborhood Development Services (HANDS) – Orange
- $397,500
15
Questions or Additional Information
Brad Thomson
201-236-2738 (office)
973-445-2913 (cell)
[email protected]
16