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How to Get and Use Capital in a Tight Credit Market

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  • 1.
    • How to Get & Use Capital
    • In a Tight Credit Market
    • CHCANYS Clinical Forum
    • & Statewide Conference
    • October 16, 2009
  • 2.
    • Moderator – CHCANYS CHCANYS organizes, educates and advocates on behalf of more than 70 federally qualified community health centers located throughout New York State that provide high quality, affordable and accessible primary and preventive care to more than 1.2 million New Yorkers at over 445 sites in urban, suburban and rural settings.
    Moderator & Presenters
  • 3.
    • Presenter – Capital Link Capital Link is a nonprofit technical assistance firm dedicated to assisting health centers nationwide in accessing capital for building and equipment projects. Working out of eight offices nationally, Capital Link is currently providing assistance to more than 150 health centers and 16 PCAs in more than 30 states and territories. To date, Capital Link has assisted health centers in obtaining grants and loans for capital projects totaling more than $553 million.
    Moderator & Presenters (continued)
  • 4.
    • Presenter – Primary Care Development Corporation PCDC is a nonprofit Community Development Financial Institution that has supported the expansion of primary care for residents of underserved communities since 1993. PCDC offers low-cost financing that has, to date, leveraged a total investment of $240 million in 77 health center projects in low-income communities across New York State. PCDC also provides an array of Technical Assistance services to primary care providers, PCAs and foundations across the country, to strengthen and expand primary care delivery nationwide.
    Moderator & Presenters (continued)
  • 5.
    • Update on FIP Applications
    • Project Development – Keys to Success
    • Project Financing – How & Where to Access Low-Cost Capital
    • Q&A
    Presentation Overview
  • 6.
    • The HRSA Facility Investment Program (FIP) application process was highly competitive, with 600 applications, totaling $3.2 billion submitted
    • HRSA expects to award approximately 100 grants totaling $500 million
    • Awards are expected to be distributed evenly between rural & urban centers & nationwide
    • Current word – November 1 st announcement
    Update on FIP Applications
  • 7.
    • Plan Your Project Carefully
    • Take the Time to Get it Right
    • Recognize the Costs & Benefits of Your Development & Funding Options
    Project Development – Keys to Success
  • 8.
    • Plan Your Project Carefully
    • Dream Practically
      • Decide on your key objectives
      • Inform yourself & your project – look to others
      • Prepare a business plan to determine an affordable project size, in terms of both capital & operating costs
    • Get the Right Team On-Board
      • Assess your internal capabilities & capacity for managing the project
      • Augment your internal team; anticipate funders’ requirements
      • Understand what it takes to be a good “owner” & “client”
    Project Development – Keys to Success (continued)
  • 9.
    • Take Your Time to Get it Right
    • Think Different
      • Marry new patient flow & operating processes with new facilities design − do not reproduce operating shortcomings in new space
      • Plan for future expansion in making layout & outfitting decisions
    • Be Methodical, Make Decisions & Stick to Them
    • Simultaneously, Be Creative & Opportunistic in a Manner That is Consistent With Your Objectives
    • Keep the Momentum
    Project Development – Keys to Success (continued)
  • 10.
    • Recognize Costs/Benefits of
    • Development & Funding Options
    • Prepare a Realistic Development Plan
      • Keep the project simple
        • Understand the implications of tying your health center project to a multi-part project, particularly one you don’t control
        • Have base design & clear augmentation options
      • Detail all approvals needed & incorporate approval processes into your overall timetable
      • Pinpoint long-lead development aspects
    Project Development – Keys to Success (continued)
  • 11.
    • Recognize Costs/Benefits of
    • Development & Funding Options (continued)
    • Prepare & Implement a Funding Plan
      • Develop a realistic & complete project budget
      • Determine the availability of internal resources to support project development & start-up operations
      • Initiate fundraising & financing activities
    Project Development – Keys to Success (continued)
  • 12.
    • What’s a Health Center to Do?
    • Be Creative in Patching Together Funding From Multiple Sources
      • Most health center projects are funded with a combination of equity & debt
      • Recognize the costs of avoiding debt
      • Understand what it will take for YOU to be able to secure debt
    Project Financing
  • 13. Project Financing (continued)
    • Sample Funding Plan for a $1.4 Million Project
  • 14. Project Financing (continued)
    • Lack of Equity
    • Limited experience and/or success with fundraising
    • Limited local donor base
    • Lack of cash reserves
    • Low property values & limited collateral
    • Limited Debt Capacity
    • Losses or Slim margins
    • Low cash reserves
    • Limited lending options & debt track records
    • Hard for lenders to understand the business & assess credit risk
    • High % of government payors
    • Why Health Center Projects are Difficult to Fund
  • 15.
    • Types/Sources
      • Health Center Cash Reserves
      • Government Grants
        • Federal: ARRA, CDBG, EDA, EZ/EC
        • State/Local Government Grants/Appropriations
      • Foundation Grants – Private or Corporate
      • Local Fundraising – Capital Campaigns, Donations
      • Other Contributions – Hospital or Other Partners
    Project Financing - Equity Equity = Funds You Bring to the Project
  • 16.
    • Costs/Benefits of Equity
      • No interest expense
      • NOT Free – staff time on cultivation, applications, monitoring, reporting
      • Use of reserves may leave a center cash poor
    • Best Uses
      • Professional fees associated with project development
      • Start-up operations
    • Information on Availability
      • Capital Link Funding Database
    Project Financing – Equity (continued)
  • 17.
    • Types/Sources
      • Conventional Lenders
      • Bond Market – publically offered & privately placed
      • Tax Credits
      • Community Development Financial Institutions (CDFIs)
      • Other Programs/Partnerships
    • Best Uses
      • Project development costs; seldom available for operating costs
    Project Financing – Debt Financing Debt Financing = Funds You Borrow
  • 18.
    • Conventional Lenders
    • Sources – Local & National Banks
    • Costs/Benefits
      • Interest at market rates
      • Potential to leverage local banking relationship for quicker turnaround, lower rates, or more flexible terms
    • Information on Availability
      • Approach YOUR bank first
    Project Financing – Debt Financing (continued)
  • 19.
    • Bond Market
    • Sources – State or Local Authorities
    • Costs/Benefits
      • Fixed & variable interest rates
      • Long terms
      • Lower rates & higher transaction costs
    • Information on Availability
      • PCDC or local authorities
    Project Financing – Debt Financing (continued)
  • 20.
    • Tax Credit Financing
    • Sources – Tax Credit Allocatees
    • Costs/Benefits
      • Fixed & variable interest rates
      • Long terms
      • Lower rates & higher transaction costs
    • Information on Availability
      • www.cdfifund.gov for New Markets Tax Credits
      • Federal/state websites for Historic Tax Credits
    Project Financing – Debt Financing (continued)
  • 21.
    • CDFIs
    • Sources – Development corporations, community development banks, credit unions, micro-enterprise loan funds at local or national level
    • Costs/Benefits
      • Specialized lenders working in market niches historically underserved by conventional lenders
      • Fixed & variable interest rates
      • Flexible terms & structuring
    • Information on Availability
      • PCDC (a CDFI)
    Project Financing – Debt Financing (continued)
  • 22.
    • Other Sources
    • Sources – USDA Rural & Community Facilities Development Program, Hospital Partners, Landlords
    • Costs/Benefits
      • Can be lower cost sources
      • Terms vary based on property status (own vs. lease)
    • Information on Availability
      • www.usda.gov
    Project Financing – Debt Financing (continued)
  • 23.
    • PCDC’s Financing Options –
    • All Designed for Health Centers
    • Short-Term Loans
      • Pre-Construction & Subordinated Construction Loans
      • Bridge Loans – jump start HEAL projects
      • Target Loans – equipment & minor renovation up to $250,000
    • Long-Term Loans
      • New Markets Tax Credit Loans
      • Tax-Exempt Bond Financing (NYC only)
      • Primary Care Capital Fund
    Project Financing – Debt Financing (continued)
  • 24.
    • PCDC’s New Markets Loan Program
    • Long-Term & Below-Market Fixed Rate
      • Term of up to 25 years
      • Interest rate down to ~5%
      • Fixed rate fits with Medicaid capital reimbursement
      • Potential for ~25% of loan to be forgiven at end of term
    • Limitations
      • Center must own the facility
      • Facility must be located in federally designated low-income census tract; contact us, we will check!
    Project Financing – Debt Financing (continued)
  • 25.
    • Sources
      • Loan Guarantee Programs
      • Bank Letter of Credit or Bond Insurance
      • Hospital/Partner Guarantee
    • Costs/Benefits
      • Can improve a center’s ability to obtain a loan, lower the interest rate &/or improve loan terms
      • Can enhance loan-to-value
      • Adds another player in the deal & steps in the process
    • Information on Availability
      • PCDC for HRSA/BPHC Loan Guarantee
      • www.usda.gov for Rural & Community Facilities Development Guarantee
    Project Financing – Credit Enhancement
  • 26. Project Financing Considerations Financing Source Complex? Time to closing Upfront Costs Interest Rates Size of Borrowing Term Commercial Loan Low -Medium 1-3 mos. Medium Medium Small-Large 5-10 yrs. Tax Exempt Bond High 4-6 mos. High Low Med-Large 20-30 yrs. NMTC Loan High 4-6 mos. Low-Med Low-Med Med-Large 7 yrs+ Community Dev. Loan (CDFI) Medium 1-3 mos. Low Low-High Small 3-7 years Government Program High 4-6 mos. or more Low Low Small – Medium 3-40 years Owner Financing Low 1-2 mos. Low Low-High ? ?
  • 27. Project Financing Considerations (continued)
    • Location/Eligibility
      • Urban or Rural?
      • 330 or not?
      • NMTC or Empowerment Zone-eligible or not?
    • Size of Loan Needed
    • Interest Rate & “All-In” Rate
    • Credit Strength – Need for Credit Enhancement
      • Spotty financial performance?
      • Much larger loan than center could have supported historically?
      • Loan-to-Value issues?
    • Length of Term Needed – Long-Term vs. Short-Term
    • Need to Interface with Capital Campaign
  • 28. Development & Financing: Putting it Together
    • Though Sooner is Better Than Later, Do NOT Shortcut Your Initial Planning
    • Be Realistic About Your Internal Capacity & Resources & Where You Need to Supplement
    • Know Your Debt Capacity & Predicate Your Project Budget & Funding Plan On That
    • Understand What You Need to Do to Become Credit Worthy – Improved Operations & Credit Enhancement
    • Drive the Fundraising/Financing Process
      • Consider all options
      • Analyze all parameters – it is not only about the rate
  • 29.
    • Your Turn To Talk!
    Q&A
  • 30. For More Information
    • CHCANYS
    • Beverly Grossman 518-434-0767 [email_address]
    • Capital Link
    • Laura Brogni Koundinya 301-347-0453 [email_address]
    • Primary Care Development Corp (PCDC)
    • Nancy Lager 212-437-3922 [email_address]
    • Tom Manning 212-437-3920 [email_address]