Transcript Slide 1

Financing
Social Enterprises
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A Focus on Low-Income
Communities & Special Needs
Populations Throughout the Midwest
Number of closed loans
1,103
Total real estate projects
558
Total loan volume
$451.9 MM
Total project costs
$1.4 Billion
Jobs created/maintained
54,592
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Building better futures for families, children,
students, patients, and individuals with disabilities
Capital Solutions Program
• Accessible capital for nonprofits
• Tailored solutions for community facilities
• 5-year to 15-year loans
• Financing from $10,000 to $1.5MM
Real Estate Services
• Affordable facilities planning and project
management
• Effective community development
Capital
Solutions
Community
Strategies
Real Estate
Services
Research
• Community investment analysis
• Nonprofit financial health studies
Public Policy
Community Strategies
Public
Policy
Research
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What is driving the creation of social enterprises?
4 factors:
Federal budget
Emphasis on outcomes
Foundations want to demonstrate
outcomes
Re-examination of how charitable activities
are helping or hurting those being served.
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Factors to consider when contemplating a social
enterprise
Does the proposed social enterprise provide employment or training
opportunities for your clients?
Can it provide quality goods or services at a competitive price?
Will it be profitable for the nonprofit?
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Strategic
Plan
Laying
Groundwork:
Assessing
Readiness
Predictable
Future
Project
Readiness
Board
Buy-In
Financial
Health
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Sample Space Plan
PROGRAM SPACE
# of rooms
SqFt. per room
Total SqFt. needed
Classroom/Training
2
800
1,600
Counseling rooms
6
100
600
Conference room
1
400
400
ADMINISTRATION
# of employees
#SqFt. per employee
Total SqFt. needed
Executive Director
1
150
150
Director of Counseling
1
100
100
Social workers
8
80
640
Reception Area/Admin Area
1
300
300
MISCELLANEOUS
# of rooms
SqFt. per room
Total SqFt. needed
Kitchen/Pantry
1
300
300
Toilet Rooms
3
75
225
Maintenance
1
150
150
Circulation @ 30%
1,340
TOTAL SPACE NEEDED
5,805 Square Feet
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• Current clients
Client • Potential customers
Laying
Groundwork:
Location
Considerations
Area
• Geographic/community boundaries
• Residential vs. commercial
• Access to site/public transit
Access • Access to funding by geography
• Real estate market/conditions
Market • Distance to competitors and collaborators
Laying
Groundwork:
Location
Considerations
Current
Population
Potential
New
Population
Ideal
Target
Area
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Property Acquisition
Construction (“Hard” Costs)
Project
Development
Budget
Soft Costs
• Architecture/Engineering
• Financing, legal
• Developer/project manager
Furniture and Equipment
Other
• Contingency
• Construction Interest
• Organizational/ramp-up costs
Technical Assistance Worksheet #8: Creating a Project Development Budget
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Sample
Development
Budget
Acquisition
$1,382,327
Hard Costs
$373,038
Soft Costs
$78,469
Furniture, Fixtures, and
Equipment
$72,000
Contingency
$78,526
Total
$1,984,360
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Project Revenue
Developing
A Program
Expansion
Budget
• New/expanded program revenue
• New revenue sources
• New fundraising
Project Expenses
•
•
•
•
•
New personnel
Added costs based on more activities
Increased facility size and occupancy costs
Reserves
Start up costs
Compare New Revenues and Expenses
• Is there a surplus?
• How does it change over the projection period?
Technical Assistance Worksheet #2: Projecting New Operations and Monthly Cash Flow
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Revenues
Government Contracts
Laying
Groundwork:
Sample Program
Expansion
Budget
Current
Operations
New
Operations
$489,600
$734,400
$48,960
$73,440
$538,560
$807,840
$389,180
$511,253
Program Expenses
$98,000
$130,000
Other Expenses
$47,500
$71,250
$534,680
$712,503
$3,880
$95,337
And Service Fees
Fundraising (10%)
Total Revenues
Expenses
Personnel & Benefits
Total Expenses
Revenues Minus
Expenses
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What is the surplus?
Laying
Groundwork:
Evaluating
Feasibility
Revenues - Expenses = $95,337
What debt can that support annually
(with a debt coverage ratio of 1.2)?
$95,337 / 1.2 = $79,448 annually
What is the monthly payment?
$79,448 / 12 = $6,621 monthly
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LEASE
No upfront costs
Flexibility for future
Less responsibility
for maintenance
Laying
Groundwork:
Lease vs. Buy
Adds to landlord
assets
Renovation
costs
Landlord pays for
improvements
BUY
Long term solution
More control over
property
Significant upfront
costs
Renovation costs
Adds to agency
assets
Real estate
appreciation
Technical Assistance Worksheet #6: Making A Facility Decision
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Grant funds or foundation program related
investments
• Location-specific
• Initiative-focused (example: Illinois Clean Energy
Community Foundation for “green” projects)
Capital campaign
Financing:
Potential Sources
of Funds
Bank or CDFI financing
Government resources:
• Historic Tax Credits, TIF funds, Community
Development Block Grant (CDBG) funds, New
Market Tax Credits (NMTC), and many others
Agency equity
• Tenant build out allowance
• Rent escalation
• Utilities and common area maintenance
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Project financing can be as simple as securing a
single loan or grant …
Financing:
Sourcing
Project Costs
$ Amount
Sources of
Funds
$ Amount
Acquisition
275,000
Agency equity
300,000
Renovation
300,000
IFF loan
275,000
Total
$575,000
Total
$575,000
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… or more complicated involving many layers of financing.
Project Costs
$ Amount
Acquisition
Financing:
Sourcing
1,900,000
Construction
Soft costs
Reserves
1,300,000
10,950,953
LIHTC equity
8,071,727
1,486,083
HOME loans
3,250,000
Ground lease
1,900,000
1,574,844
Coordinating the
timing of financing
sources and
construction
timelines is critical
to project success.
Bank legal equity
50,000
Foundation grant
600,000
Government grant
239,082
Donation tax credits
258,000
Energy tax credits
Total
$ Amount
IFF loan
339,050
Developer fee
Sources of Funds
$16,250,930
36,632
Federal loan
252,000
Deferred developer fee
293,489
Total
$16,250,930
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Management experience and track
record
Important Five
Factors:
Organizational
Capacity
Board composition, structure and
engagement
Business model and program outcomes
Industry reputation and standing
Policies, procedures, systems and
controls
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Revenue mix, operating costs
and profitability
Important Five
Factors:
Financial
Capacity
Liquidity and Cash Flow
Leverage
Credit experience and track
record
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Readiness
Indicators:
•
•
•
•
•
•
Liquidity/Cash
Working Capital
Net Assets
Debt Coverage
Days Receivable
Days Payable
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Cash Investment or Contribution to
Project
Important Five
Factors:
Capital
• Sourced from existing reserves
• Sourced from grants
Cash or other resources to support
project risk
Cash to support start up expenses
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Building at project site
Important Five
Factors:
Collateral
“Second Way Out”
Equipment
Other assets (buildings, pledges,
cash)
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Market demand
Competitive landscape
Important Five
Factors:
Conditions for
opening a social
enterprise
Legislative concerns
Sector risks for agency
Demographic served
Economy
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Assess your strengths and weaknesses from a lender’s
perspective using the five factors
What if I
am not
ready?
Determine what steps can be taken to strengthen your
organization’s application
Work with your board and leadership team to establish
benchmarks to achieve access to capital
Seek specific input and guidance from your bank or real
estate expert to acquire potential resources or external
expertise
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Questions?
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