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Building Child Care Project

Building Child Care Project. Financing Child Care Facilities: Learn What Lenders Look For. Jon Dempsey Senior Program Officer Low Income Investment Fund. Objective:

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Building Child Care Project

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  1. Building Child Care Project

  2. Financing Child Care Facilities: Learn What Lenders Look For Jon Dempsey Senior Program Officer Low Income Investment Fund

  3. 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

  4. Business PlanBe 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

  5. 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?

  6. Operations • All responsesshould 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!

  7. Financial AnalysisGet 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

  8. Financial AnalysisUnderstand 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?

  9. Financial AnalysisKnow 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

  10. 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

  11. Financial AnalysisPrepare a Capital Expenditure Budget • Prepare a capital expenditurebudget 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

  12. Financial AnalysisAlternative 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

  13. 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

  14. 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)

  15. Resources • LIIF/ABCD: www.liifund.org • Building Child Care: www.buildingchildcare.org

  16. QuestionsJon DempseyLow Income Investment Fund(213) 627-9611 x122jdempsey@liifund.org

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