Access to Capital: Strategies and Considerations for Financing Clinic Expansion

Transcription

1 Strengthening nonprofits and the communities they serve Access to Capital: Strategies and Considerations for Financing Clinic Expansion October 25, 2013 Agenda Welcome & Introductions Understanding Capital Access for expansion projects Sources/Types of Capital Private vs Public Is My Center Ready to Expand? Project & Loan Ratios Who is Successful? Examples of Use Questions & Contact Info 2 How IFF Supports You Increase understanding of available capital solutions and benefits. Expand knowledge of what makes a CHC loan ready. Identify key action steps a CHC can take to ensure a smooth loan due diligence and closing process. 3 1

2 Who We Are One of America s leading community development financial institutions, IFF strengthens nonprofits and the communities they serve through lending and real estate consulting. Operates in Illinois, Indiana, Iowa, Missouri and Wisconsin with investment and support from banks, insurance companies, religious investors, foundations and government 4 What We Do Capital Solutions Accessible capital for nonprofits Tailored solutions for community facilities 5-year to 15-year loans Financing from $10,000 to $1.5 million Real Estate Services Affordable facilities planning and project management Effective community development Research Community investment analysis Nonprofit financial health studies 5 Impact of Our Work Data as of Q Number of closed loans 1,043 Total loan volume $423.4 MM Total health care loans $37.5MM New patient visits 183,

3 Local Impact Community Health Care, Quad Cities Rock Island: IFF assists CHC in restructuring its balance sheet and provides financing for CHC s Rock Island facility East Moline: CHC officially opens new 8,000 square foot clinic with support of IFF and a grant from HRSA East Moline: With solid financial footing, CHC acquires a $1M loan from IFF to establish a reserve fund and operating capital for new East Moline clinic Why Access Capital? Two Types of Capital Liquidity Backstop Sustain daily operations Weather the unexpected Fund start up expenses Facility Investment Maintain or replace fixed assets Capacity expansion 8 Where s the Money? Short term liquidity working capital Operating cash reserves from Net Assets Operating grants from Government/Foundations Lines of credit from Banks Facility investment Capital grants from Government/Foundations Loans from Banks and CDFIs (Community Development Financial Institutions) Other financing options Bonds, New Market Tax Credits 9 3

4 Expand Your Capacity Various Expansion Strategies Acquire and build out a new site Expand or refurbish an existing clinic Build out and equip a new facility 10 Ownership Model Site Expansion Acquisition/Purchase Construction Renovation/Remodel Expand Current Space Energy Efficient Upgrades 11 Leasing Model Leasehold Improvements Expand/Build-Out Space Renovate or Remodel Energy Efficient Upgrades Heating Cooling Insulation Windows Roof 12 4

5 Equipment Needs Equipment Needs Dental/Medical Computer/Printers Electronic Health Records Furniture Vehicles Security 13 Facility Expansion Considerations Why What How Articulate business purpose Determine project plan and costs Identify funding sources 14 The Why- Business Purpose Ask: Is it consistent with our strategy? Who s being served? What s the source of revenues? What are the costs of service delivery? Can we afford it? Why now? 15 5

6 The What- Project Plan & Costs Discuss: The Uses Project description work scope and timeline Project budget and operating proforma Key documents contract of sale, leases, construction and architect s agreements Key players GC, subs, project management Visit: 16 The How- Funding Sources Identify: Funding options or The Sources Grants Fundraising Net assets Debt If debt, is need short or long term? Short term bridge to HRSA/pledges Long term when can expansion repay debt 17 I.F.F= Important Five Factors 1. Organizational Capacity 2. Financial Capacity 3. Capital 4. Collateral 5. Conditions 18 6

7 Important Five Factors 1. Organizational Capacity Management experience and track record Board composition, structure and engagement Business model and program outcomes Industry reputation and standing Policies, procedures, systems and controls 19 Important Five Factors 2. Financial Capacity Revenue mix, operating costs and profitability Liquidity and Cash Flow Leverage and Capital Adequacy Credit experience and track record 20 Is Your Organization Loan Ready? Readiness Indicators Liquidity/Cash Working Capital Net Assets Debt Coverage Days Receivable Days Payable Visit:

8 Important Five Factors 3. Capital Cash Investment or Contribution to Project Sourced from existing reserves Sourced from grants (HRSA/other) Cash or other resources to support project risk Cash to support start up expenses 22 Important Five Factors 4. Collateral- Second Way Out Building site and new project Equipment Other assets (buildings, pledges, cash) 23 Important Five Factors 5. Conditions Market demand Competitive landscape Legislative concerns Sector risks Demographic served Economy 24 8

9 What s My Capacity? How much do I need to borrow? Facility expansion project costs Start up expenses operating losses What are the Uses and Available Sources? USES SOURCES LAND ACQUISITION 500,000 BORROWER CASH? CONSTRUCTION/ EQUIPMENT 1,750,000 GRANTS/ FUNDRAISING? SOFT COSTS/OTHER 250,000 DEBT? TOTAL $2,500,000 TOTAL $2,500,000 What s My Capacity? What are the drivers of borrowing capacity? Cash flow to support debt payments Net assets to support total debt Collateral to secure debt What s My Capacity? Operating Statement $ Government grants & contracts 1,000,000 Net patient revenue 3,000,000 Total Revenue 4,000,000 Salaries & benefits 3,000,000 Other including occupancy 650,000 Interest 50,000 Non Cash (depreciation/amortization) 200,000 Debt Service Proxy $ Net Surplus 100,000 Interest 50,000 Non Cash 200,000 Available for Debt Service 350,000 Maximum annual 280,000 payment at 1.25 Debt Service Coverage Monthly payment 23,333 Total Expenses 3,900,000 Net Surplus 100,000 9

10 What s My Capacity? How much debt will $23,333 support? Interest Rate Term of Loan in Years % $1,236,000 $2,199,000 $2,950,000 7% $1,178,000 $2,009,000 $2,595,000 9% $1,124,000 $1,841,000 $2,300,000 What s My Capacity? Potential sources given debt capacity USES SOURCES LAND ACQUISITION 500,000 BORROWER CASH 100,000 CONSTRUCTION/ 1,750,000 GRANTS/ 400,000 EQUIPMENT FUNDRAISING SOFT COSTS/OTHER 250,000 DEBT 2,000,000 TOTAL $2,500,000 TOTAL $2,500,000 Am I talking to the right lender? Capacity: What is my lender s willingness to lend in my sector/business? Can they provide access to a variety of credit solutions? Understanding: How well does my lender understand my business? Will they be a long term partner? Community/Market Expertise: Do they understand my community/market? Terms: Do they have competitive terms? Response: Is the application process adequately responsive? 30 10

11 What if I m not ready? 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 Seek specific input and guidance from your bank or lender to acquire potential resources or external expertise Work with your board and leadership team to establish benchmarks to achieve access to capital 31 Additional information also available at iff.org Lanie Wasserman Director of Lending lwasserman@iff.org (414) Strengthening nonprofits and the communities they serve Questions? 11