Presentation on theme: "1 Financing Social Enterprises. 2 Number of closed loans1,103 Total real estate projects558 Total loan volume$451.9 MM Total project costs$1.4 Billion."— Presentation transcript:
2 Number of closed loans1,103 Total real estate projects558 Total loan volume$451.9 MM Total project costs$1.4 Billion Jobs created/maintained54,592 A Focus on Low-Income Communities & Special Needs Populations Throughout the Midwest
Capital Solutions Real Estate Services Research Public Policy Community Strategies 3 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 Research Community investment analysis Nonprofit financial health studies Public Policy Community Strategies
What is driving the creation of social enterprises? 4 factors: 4 Federal budgetEmphasis on outcomes Foundations want to demonstrate outcomes Re-examination of how charitable activities are helping or hurting those being served.
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? 5
Laying Groundwork: Assessing Readiness 6 Project Readiness Strategic Plan Board Buy-In Financial Health Predictable Future
7 PROGRAM SPACE# of roomsSqFt. per roomTotal SqFt. needed Classroom/Training28001,600 Counseling rooms6100600 Conference room1400 ADMINISTRATION# of employees#SqFt. per employeeTotal SqFt. needed Executive Director1150 Director of Counseling1100 Social workers880640 Reception Area/Admin Area1300 MISCELLANEOUS# of roomsSqFt. per roomTotal SqFt. needed Kitchen/Pantry1300 Toilet Rooms375225 Maintenance1150 Circulation @ 30%1,340 TOTAL SPACE NEEDED5,805 Square Feet Sample Space Plan
Laying Groundwork: Location Considerations Client Current clients Potential customers Area Geographic/community boundaries Residential vs. commercial Access Access to site/public transit Access to funding by geography Market Real estate market/conditions Distance to competitors and collaborators
9 Current Population Potential New Population Ideal Target Area Laying Groundwork: Location Considerations
Project Development Budget 10 Technical Assistance Worksheet #8: Creating a Project Development Budget Property AcquisitionConstruction (“Hard” Costs)Soft Costs Architecture/Engineering Financing, legal Developer/project manager Furniture and EquipmentOther Contingency Construction Interest Organizational/ramp-up costs
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 Sample Development Budget 15
Developing A Program Expansion Budget 12 Technical Assistance Worksheet #2: Projecting New Operations and Monthly Cash Flow Project Revenue 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?
RevenuesCurrent Operations New Operations Government Contracts$489,600$734,400 And Service Fees Fundraising (10%)$48,960$73,440 Total Revenues$538,560$807,840 Expenses Personnel & Benefits$389,180$511,253 Program Expenses$98,000$130,000 Other Expenses$47,500$71,250 Total Expenses$534,680$712,503 Revenues Minus Expenses $3,880$95,337 13 Laying Groundwork: Sample Program Expansion Budget
What is the surplus? 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 = $6,621 monthly Laying Groundwork: Evaluating Feasibility 18
Technical Assistance Worksheet #6: Making A Facility Decision No upfront costs Flexibility for future Less responsibility for maintenance Landlord pays for improvements Adds to landlord assets Renovation costs Long term solution More control over property Adds to agency assets Real estate appreciation Significant upfront costs Renovation costs Laying Groundwork: Lease vs. Buy LEASE BUY 21
16 Financing: Potential Sources of Funds Grant funds or foundation program related investments Location-specific Initiative-focused (example: Illinois Clean Energy Community Foundation for “green” projects) Capital campaignBank or CDFI financingGovernment resources: Historic Tax Credits, TIF funds, Community Development Block Grant (CDBG) funds, New Market Tax Credits (NMTC), and many others Agency equity Tenant build out allowance Rent escalation Utilities and common area maintenance
Project financing can be as simple as securing a single loan or grant … 17 Project Costs$ AmountSources of Funds $ Amount Acquisition275,000Agency equity300,000 Renovation300,000IFF loan275,000 Total$575,000Total$575,000 Financing: Sourcing
18 Project Costs$ AmountSources of Funds$ Amount Acquisition1,900,000IFF loan1,300,000 Construction10,950,953LIHTC equity8,071,727 Soft costs1,486,083HOME loans3,250,000 Reserves339,050Ground lease1,900,000 Developer fee1,574,844Bank legal equity50,000 Foundation grant600,000 Government grant239,082 Donation tax credits258,000 Energy tax credits36,632 Federal loan252,000 Deferred developer fee293,489 Total$16,250,930Total$16,250,930 Financing: Sourcing … or more complicated involving many layers of financing. Coordinating the timing of financing sources and construction timelines is critical to project success.
19 Important Five Factors: Organizational Capacity Management experience and track record Board composition, structure and engagement Business model and program outcomesIndustry reputation and standing Policies, procedures, systems and controls
20 Important Five Factors: Financial Capacity Revenue mix, operating costs and profitability Liquidity and Cash FlowLeverage Credit experience and track record
Readiness Indicators: Liquidity/Cash Working Capital Net Assets Debt Coverage Days Receivable Days Payable 44
22 Important Five Factors: Capital Cash Investment or Contribution to Project Sourced from existing reserves Sourced from grants Cash or other resources to support project risk Cash to support start up expenses
23 Important Five Factors: Collateral “Second Way Out” Building at project siteEquipment Other assets (buildings, pledges, cash)
24 Important Five Factors: Conditions for opening a social enterprise Market demandCompetitive landscapeLegislative concernsSector risks for agencyDemographic servedEconomy
Assess your strengths and weaknesses from a lender’s perspective using the five factors 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 25 What if I am not ready?