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FinancingSocial Enterprises

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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

A Focus on Low-IncomeCommunities & Special Needs Populations Throughout the Midwest

Capital Solutions

Real Estate

Services

ResearchPublic Policy

Community

Strategies

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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

Research• Community investment analysis• Nonprofit financial health studies

Public Policy

Community Strategies

What is driving the creation of social enterprises?

4 factors:

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Federal budget

Emphasis 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?

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Laying Groundwork: Assessing Readiness

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Project Readine

ss

Strategic Plan

Board Buy-In

Financial Health

Predictable Future

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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

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

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Current Populatio

n

Potential New

Population

Ideal Target Area

Laying Groundwork:

Location Considerations

Project Development Budget

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Technical Assistance Worksheet #8: Creating a Project Development Budget

Property Acquisition

Construction (“Hard” Costs)

Soft Costs• Architecture/Engineering• Financing, legal• Developer/project manager

Furniture and Equipment

Other• Contingency• Construction Interest• Organizational/ramp-up costs

Acquisition$1,382,32

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Hard Costs $373,038

Soft Costs $78,469

Furniture, Fixtures, and Equipment $72,000

Contingency $78,526

Total $1,984,360

SampleDevelopment Budget

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Developing

A Program Expansion Budget

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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?

Revenues Current 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

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LayingGroundwork:Sample ProgramExpansion 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

LayingGroundwork:EvaluatingFeasibility

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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

LayingGroundwork:Lease vs. Buy

LEASE

BUY

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Financing: Potential Sourcesof Funds

Grant funds or foundation program related investments• Location-specific

• Initiative-focused (example: Illinois Clean Energy Community Foundation for “green” projects)

Capital campaign• Historic Tax Credits, TIF funds,

Community Development Block Grant (CDBG) funds, New Market Tax Credits (NMTC), and many others

Bank or CDFI financing• Tenant build out allowance

• Rent escalation

• Utilities and common area maintenance

Government resources:

Agency equity

Project financing can be as simple as securing a single loan or grant …

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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

Financing: Sourcing

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Project Costs $ Amount Sources of Funds

$ Amount

Acquisition 1,900,000 IFF loan 1,300,000

Construction 10,950,953 LIHTC equity 8,071,727

Soft costs 1,486,083 HOME loans 3,250,000

Reserves 339,050 Ground lease 1,900,000

Developer fee 1,574,844 Bank legal equity 50,000

Foundation grant 600,000

Government grant 239,082

Donation tax credits 258,000

Energy tax credits 36,632

Federal loan 252,000

Deferred developer fee

293,489

Total $16,250,930 Total $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.

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Important Five Factors: OrganizationalCapacity

Management experience and track record

Board composition, structure and engagement

Business model and program outcomes

Industry reputation and standing

Policies, procedures, systems and controls

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Important Five Factors: FinancialCapacity

Revenue mix, operating costs and profitability

Liquidity and Cash Flow

Leverage

Credit experience and track record

Readiness Indicators: • Liquidity/Cash• Working Capital• Net Assets• Debt Coverage• Days Receivable• Days Payable

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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

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Important Five Factors: Collateral “Second Way Out”

Building at project site

Equipment

Other assets (buildings, pledges, cash)

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Important Five Factors: Conditions for opening a social enterprise

Market demand

Competitive landscape

Legislative concerns

Sector risks for agency

Demographic served

Economy

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

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What if I am not ready?

Questions?

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