Building Child Care Project Financing Child Care Facilities: Learn What Lenders Look For Jon Dempsey Senior Program Officer Low Income Investment Fund Page No 2. Objective: To help providers understand the financial documentation and information necessary to access capital for facilities maintenance and development. Topics Covered: • Business Plan • Market Feasibility • Operational History and Strengths • Financial Analysis and appropriate documents • Criteria for Lenders • Loan Request Packages Page No 3. Business Plan Be Prepared to Tell Your Story The operator should be able to answer the following items: • Organization mission/vision, purpose and services • Organization history • Is the organization successful? • What will sustain its success? • Know how the organization compares to others that are similar Page No 4. Market Feasibility • • • • • • Demographics of community and target market Demographic trends of community, target and industry Going rates of early education/family support services in the area How do services provided by others compare to yours? What is your competitive advantage? What is your marketing strategy? - Promotional and advertising strategies • In a fiduciary capacity, can the staff meet the compliance requirements? Page No 5. Operations All responses should reflect new or existing project needs: • What is the center is licensed for & number of children? • Where does the organization currently operate? • What the impact if the loan is awarded? • What are the staff ratios according to age mix? • Does your staff meet the educational requirements? • Does the center meet licensing requirements? • Are the center licenses in good standings? The lender/investor will check! Page No 6. Financial Analysis Get The Financial House in Order • • • • • • • Clear Credit Bureaus Know your Internal Accounting Systems Know your financial statements Accounts Receivable/Contract Receivable Accounts Payable/Contracts Payable How long does it take to pay vendors and/or accounts? Revenue sources and their status Page No 7. Financial Analysis Understand Your Internal / External Historical Cash Flow Understand the organization’s financial historical trends: • Revenues • Expenses • Cash • Growth Patterns/Trends • Balance Sheet Growth Has the company prepared revenue and expense projections? Do projection assumptions make sense? Do projected trends tie in with historical trends? Page No 8. Financial Analysis Know How Much You Need What is truly driving the need to borrow? What is the source of repayment and what collateral is available, if needed? Know the limitations of the organization’s capacity to borrow: • Debt Service Coverage Ratio • Leverage • Collateral Page No 9. Financial Analysis Operator should prepare projections using ‘most likely’ and ‘worst case’ scenarios and understand how the growth patterns in the projections affect the following: • Revenues • Expenses • Cash • Working Capital • Effect on Balance Sheet Know the Balance Sheet: • Retained Earnings/Unrestricted Net Assets • How do Assets compare to Liabilities Page No 10. Financial Analysis Prepare a Capital Expenditure Budget Prepare a capital expenditure budget to cover at least twelve months: • Identify the ongoing equipment needs • Anticipated timing of each expenditure activity • How the organization will pay for expenses • Indicate if it’s a routine or planned expansion Note: This should cover “big ticket items” such as, roof and air conditioner replacement, kitchen appliances, furniture, playground equipment Page No 11. Financial Analysis Alternative Sources Available Operator should have additional funds (reserves) available to cover the following: • Additional equity infusion • Construction overages • Cash shortfalls during operation • Working capital • Lagging receivables • Growth periods Page No 12. Assess an Operator’s Credit Worthiness The Five C’s of Credit • Cash flow/Capacity to repay • Character/Capacity to be a responsible borrower • Credit history • Capital investment • Collateral Page No 13. Loan Request Package • • • • • • Cover letter Completed business plan with market feasibility study Completed loan application 3 years business financials/tax returns Recent Interim Financial Statement (dated within 90 days or less) Projected Income and expenses covering at least three years (preferable ten) Page No 14. Resources LIIF/ABCD: www.liifund.org Building Child Care: www.buildingchildcare.org Page No 15. Questions Jon Dempsey Low Income Investment Fund (213) 627-9611 x122 [email protected] Page No 16.