Financing Capital Assets:
An Array of Options
Kate Barr, Nonprofits Assistance Fund
Steve Fenlon, Midwest Healthcare Capital
Presenters
 Kate Barr, Minnesota
Primary Care Loan Fund
 a program of Nonprofits
Assistance Fund
 Loans for working capital
and bridge funds for health
care organizations in MN
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Support from Robert
Wood Johnson
Foundation, Otto
Bremer Foundation,
Medica Foundation,
The Minneapolis
Foundation
 Steve Fenlon, Midwest
Healthcare Capital
 Discount tax-exempt
financing for Minnesota
nonprofits
 Represents borrowers
 18 years experience
Capital projects use many sources
 Grants and contributions
 Bonds
 Loans and loan guarantees
 Bridge financing
 Program-related investments
 New Markets Tax Credits
Selecting the right financing tools
 Project size and complexity
 Availability of grant funds
 Availability of local or targeted funds
 Operating budget and cash flow available
 Flexibility needed for repayment terms
 Project timeline and time available to arrange
financing
Bonds
 Debts issued by government entity
 Tax-exempt issues
 Eligibility for tax-exempt treatment
 Bond repayment from project or
organizational cash flow – revenue bond
 Rates and terms reflect risk of the project
 Require a government agency to issue, bond
underwriter, and legal counsel
Bank direct bonds
 What is a bank placement note
 Financing multiple projects – in multiple
locations
 Initiating tax-exempt financing
 Restriction for tax-exempt financing - fixed
assets
 When not to use tax-exempt financing
 Determining and evaluating the costs
associated with tax-exempt financing
Loans and loan guarantees
 Bank loans are often simple to negotiate and
cost effective
 Bank considerations in financing:
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Debt service coverage
Net asset/equity balance
Liquidity and cash reserves
Collateral value
Bank loan capacity – legal lending limit
Loans and loan guarantees
 Loan guarantee programs
 Assures the bank of repayment in case of
default
 Guarantor will review for risk and program fit
 Local, state and national guarantee programs
 Direct loan programs
 Local economic development agencies
 Minnesota Primary Care Loan Fund
 Bridge loans
 Short-term loan to bridge timing for funds
Program-Related Investments
 PRIs are loans from foundations that support
a charitable project as the primary goal
 PRIs typically $100,000 – 400,000
 PRIs are generally unsecured with low or no
fees. PRIs earn interest for the foundation but
are not intended primarily as an investment
 Foundation evaluates financial information
carefully for quality of planning and
repayment ability.
Program-Related Investments
 1990 – 2001, foundations advanced 2,900 PRIs
totaling $1.7 billion
 PRIs made 1998 – 2001 by field of service:
Other
8%
Human Services
6%
Community Development
27%
Environment
13%
Arts/Preservation
9%
Housing
11%
Health
10%
Education
16%
Program-Related Investments
 Most active foundations for PRIs:
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John & Catherine T. MacArthur Foundation
The Ford Foundation
Otto Bremer Foundation
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1998 – 2001, 65 PRIs totaling $14.9 million
Robert Wood Johnson Foundation
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Have advanced $35 million in PRIs for facilities
and loan pools
 Other foundations make occasional PRIs
Financing Case Study – Example A
Community clinic – renovation of clinic facility to
improve appearance and work flow, upgrade phones
and network, and add exam rooms.
Total cost = $600,000
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Sources of funds:
Foundation grants
$ 125,000
Board-led fundraising
25,000
Local government loan
75,000
Nonprofit loan fund (MPC) 75,000
Bank first mortgage
300,000
Total sources
$ 600,000
Financing Case Study – Example B
Community health clinic completed expansion of main
clinic building with expansion of dental and health
education – total cost $ 5 million
Sources of funds:
 Foundation grants
$ 1,100,000 *
 Government grants
600,000 *
 Local government loan
100,000
 Foundation PRI
400,000
 Bond
2,800,000 **
 Total sources
$ 5,000,000
* Bridge loan from MPC for $500,000 used because of timing of
grant funding
** Interim construction loan obtained based on bond commitment
New Markets Tax Credits
 New program administered by the US Treasury
Department provides tax credits to investors for
community development projects.
 Projects include community facilities such as
healthcare, day care and charter schools, and
economic development projects.
 Most useful in large projects because of the legal and
underwriting costs.
 Tax credits are allocated to designated organizations
that create investment vehicles known as Community
Development Entities (CDEs). Many economic
development agencies are involved with NMTC.
Terms and Conditions
 Interest rate
 Fees
 Closing costs
 Repayment terms
 Prepayment options
 Covenants
 Restrictions
Financing Capital Assets
 Minnesota Primary Care Loan Fund
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a program of Nonprofits Assistance Fund
Kate Barr, Executive Director
612/278-7182
www.nonprofitsassistancefund.org
 Midwest Healthcare Capital
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Steve Fenlon, Principal
651/455-8300
mhealthcap@aol.com