How to Get & Use CapitalIn a Tight Credit Market

CHCANYS Clinical Forum& Statewide Conference

October 16, 2009

Moderator – CHCANYSCHCANYS 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

Presenter – Capital LinkCapital 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)

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)

Update on FIP Applications Project Development – Keys to Success Project Financing – How & Where to

Access Low-Cost Capital Q&A

Presentation Overview

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 1st announcement

Update on FIP Applications

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

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)

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)

Recognize Costs/Benefits ofDevelopment & Funding Options

Prepare a Realistic Development PlanKeep 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 timetablePinpoint long-lead development aspects

Project Development – Keys to Success (continued)

Recognize Costs/Benefits ofDevelopment & Funding Options (continued)

Prepare & Implement a Funding PlanDevelop 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)

What’s a Health Center to Do? Be Creative in Patching Together Funding From

Multiple SourcesMost health center projects are funded with a

combination of equity & debtRecognize the costs of avoiding debt Understand what it will take for YOU to be able to secure

debt

Project Financing

Project Financing (continued)

$75,000 BPHC Expanded Capacity

5%

$375,000 OCS Grant27%

$168,782 CHC Contribution

12%

$360,029 Foundation Grant26%

$100,000 USDA Grant7%

$315,000 USDA Loan23%

Sample Funding Plan for a $1.4 Million Project

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

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 - EquityEquity = Funds You Bring to the Project

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)

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 FinancingDebt Financing = Funds You Borrow

Conventional Lenders Sources – Local & National Banks Costs/Benefits

Interest at market ratesPotential 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)

Bond Market Sources – State or Local Authorities Costs/Benefits

Fixed & variable interest ratesLong termsLower rates & higher transaction costs

Information on AvailabilityPCDC or local authorities

Project Financing – Debt Financing (continued)

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)

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)

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 Availabilitywww.usda.gov

Project Financing – Debt Financing (continued)

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)

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)

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

Project Financing ConsiderationsFinancing

SourceComplex

?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 ? ?

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

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

Your Turn To Talk!

Q&A

For More InformationCHCANYS

Beverly Grossman 518-434-0767 bgrossman@chcanys.org

Capital LinkLaura Brogni Koundinya 301-347-0453 lkoundinya@caplink.org

Primary Care Development Corp (PCDC)Nancy Lager 212-437-3922 nlager@pcdcny.org

Tom Manning 212-437-3920 tmanning@pcdcny.org