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Building Child Care

Project

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Financing Child Care Facilities:

Learn What Lenders Look For

Jon Dempsey

Senior Program Officer

Low Income Investment Fund

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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

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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

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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?

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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!

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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

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Financial Analysis

Understand Your Internal / External Historical Cash Flow

Understand the organizations 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?

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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 organizations capacity to borrow:

Debt Service Coverage Ratio Leverage

Collateral

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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

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Financial Analysis

Prepare 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 its a routine or planned expansion

Note: This should cover big ticket items such as, roof and air

conditioner replacement, kitchen appliances, furniture, playground

equipment

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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

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Assess an Operators Credit Worthiness

The Five Cs of Credit

Cash flow/Capacity to repay

Character/Capacity to be a responsible borrower

Credit history

Capital investment

Collateral

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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)

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Resources

LIIF/ABCD: www.liifund.org

Building Child Care: www.buildingchildcare.org

http://www.liifund.org/http://www.buildingchildcare.org/http://www.buildingchildcare.org/http://www.liifund.org/

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Questions

Jon Dempsey

Low Income Investment Fund(213) 627-9611 x122

jdempsey@liifund.org