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Back to Cash Flow Loans to Non-profit Organizations overview
Cash Flow Loans to Non-profit Organizations Lending Guidelines
Program Goal
Eligibility Requirements
Funding Priorities
Application Process
Loan Terms
Underwriting Criteria
Approval Procedure
Loan Documents
Yearly Evaluation
Program Goal:
The goal of the Cash Flow Lending Program is to strengthen the financial capability and viability of nonprofit organizations serving the Greater New Haven area. The program helps groups solve their immediate cash flow problems and address some of the underlying reasons for the shortfall, while allowing them to establish a strong credit history with us. The Loan Fund will lend funds against contract or grant receivables to cover an agency’s operating expenses. The program does not cover pre-development financing that can be funded through the Loan Fund’s other pools.
Eligibility Requirements:
This program is designed for organizations that:
1. are nonprofits involved in the following activities/programs:
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Social services, including youth enrichment programs, elderly services, domestic abuse and substance abuse programs, outreach and shelter programs, programs for people with disabilities, etc.
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Educational programs including day cares, charter schools.
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Health care programs including nursing homes, mental health programs, programs for people with HIV/AIDS
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Community development corporations and neighborhood organizations that serve low and moderate income communities
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Environmental or historical preservation programs
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Arts and culture programs
2. have, or will incur, government or foundation contracts, grants, or similar receivables.
3. are unable to obtain sufficient credit from a bank for operating capital or have an immediate need for funds.
Funding Priorities:
Priority for funding will go to programs that serve low- and moderate-income individuals and families according to the guidelines established by appropriate government agencies. As currently defined:
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“Low-Income” refers to household earnings that do not exceed 50% of the local MSA median income (based on family size).
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“Moderate Income” refers to household earnings that range from 51% to 80% of the local MSA median income (based on family size).
Application Process:
Nonprofit agencies can apply for cash flow loans before they have a need for money. This allows the Fund to pre-qualify an agency to be automatically eligible for a loan when the need arises. An agency must fill out a pre-qualification application, which requests the following information:
Organizational Documents:
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Bylaws
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501(c)3 tax exempt certificate
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Certificate of Incorporation
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Current list of Board of Directors
Financial Information:
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Income statements and balance sheets for past three years (preferably reviewed/audited by an external auditor)
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Current interim financial statement
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Aging accounts payable and receivable
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Monthly Cash flow report for upcoming 12 months
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Current year budget
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Program information, mission statement, community references, and promotional material about the agency
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Award letter(s) from granting agency/organization, if currently available
From the application, the Fund will determine eligibility and underwrite the financial strength, capacity, and need of the organization. After staff completes the underwriting the pre-approval request will be sent to the appropriate decision-making entity. For authorization to borrow up to $50,000, the Fund’s Loan Committee will have authority to approve the request. For authorizations greater than $50,000 the request will be reviewed by the Loan Committee and recommend to the full board for final approval Then, upon request, the Fund can lend money to an agency expeditiously. The loan will require staff approval only, without having to go to the Board each time a need for money arises. Each year, the agency’s financial situation, organizational capacity, and mission will be re-evaluated.
Benefits of Pre-Qualification: The Fund encourages agencies to become pre-qualified borrowers so that if the organization experiences a cash flow shortage and has an emergency need for money, we will be able to meet that need in the least amount of time possible.
Alternatives to Pre-Qualification: The Loan Fund is flexible about the time needed to process cash flow loans that are not to pre-qualified organizations. If an emergency loan is needed by an organization that has not been pre-approved, the Fund will work toward processing the loan in a timely manner that corresponds with the agency's time constraints. All information required for a pre-qualification application must be submitted along with specific information about the accounts receivable that will secure the loan.
Loan Terms:
Loan Amount: In general, loans range from $1,000 to $50,000. An agency's maximum authorization is based on an evaluation of the group's financial and managerial history and capability, and the amount of the contract receivables available as collateral. A waiver of the maximum limit may be possible on a case-by-case basis, subject to approval of the Board.
Interest Rate/Fees: We charge a fixed rate that generally fluctuates between 7% and 9%. The borrower pays interest on the outstanding balance every month. We charge a pre-qualification fee of $100 and a fee when a new loan is committed that is the greater of one percent of the full loan amount or $100, upon the borrower's acceptance of our commitment. Borrower will also be responsible for any associated expenses, including but not limited to, attorney and recording fees.
Repayment: The borrower is required to repay the loan at the earlier of the receipt of its reimbursement check from the designated funding source or the term of loan. The term of loan is determined by the anticipated date of receipt of contract or grant funds.
Term: Typically, one to six months.
Renewal: If necessary, the loan may be renewed upon verification that the borrower has met all conditions of the loan and submits current financial statements and signed copies of contracts in question. Also, the agency must pay a recommitment fee before the renewal can become official.
Security: All Cash Flow Loan Program loans will be secured by at least an assignment of proceeds of grants or contracts receivable. Other security such as mortgages on real estate or other property owned by the borrower, or guarantees may be required on a case-by-case basis.
All loans will be evidenced by promissory notes in a form (or forms) agreed upon by the Lender.
Payment Schedule and Prepayment: The payment schedule for each loan will be structured, at the discretion of the Fund, to meet the needs of the agency being funded. In general, loans will be fully funded at closing with interest only during the term of the loan. There will be no prepayment penalty unless specified on a case-by-case basis by the Fund. Unless the Fund grants a specific exception, interest will be payable monthly.
Take Out: Take out commitments must be in place at the time a loan is made. Evidence of executed contracts of grant reservations must be presented and staff will make confirmations with contacts at the funding agencies or foundations. The Fund may make exceptions on a case-by-case basis.
Underwriting Criteria:
Collateral: The Loan Fund requires collateral in the form of the assignment of the borrower's contracts of grants receivable to the Fund. The loan will require copies of any contracts or grants, and names and phone numbers of contacts to verify commitments. Other security such as mortgages on real estate or other property owned by the borrower, or guarantees may be required on a case-by-case basis.
Past Financials: We analyze the applicant's past three year's (if available) audited financial statements and their most current internal statement for evidence of fiscal soundness including the amount of their fund balance and the stability of their funding.
Management & Financial Systems: The Loan Fund assesses the qualifications of the applicant's management and will speak with the fiscal manager and director to review the organization’s financial systems, including accounting, financial management review procedures, systems of checks and balances, and invoicing capabilities.
Community Reference: Potential borrowers must provide two or more community references that can attest to the strength, viability and integrity of the agency.
Other: The applicant submits a monthly cash flow projection for the upcoming twelve months, a Board-approved annual budget, an aging A/P and A/R, as well as other requested materials, with his/her application. Additional conditions, to be fulfilled prior to or after disbursement, may be required on a case-by-case basis.
Approval Procedure:
Pre-qualifying an Organization: Loan Fund staff will review a pre-qualification request and, after a full underwriting, staff will determine a maximum possible loan amount according to the probable future cash flow needs of the agency. The approval process will depend on the loan amount:
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Loans of up to $50,000 require the approval the Loan Committee.
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For loans over $50,000, the Loan Committee must recommend approval for a vote of the full Board.
Loan Requests for Pre-qualified applicants: At the time of a specific loan request, staff will review updated information from the agency and confirm the repayment source. A repayment source may include, but is not limited to, a confirmed contract, a committed grant, or a guaranty. If substantial changes in financial strength, staffing, programs, or mission have occurred, the loan request must be brought to the Loan Committee, and, depending on the loan amount, to the Board of Directors. If no substantial changes have occurred and the collateral is verified in sufficient amounts, staff will fund the loan after loan documents are executed.
Loan Requests for Non-pre-qualified applicants: Although the Loan Fund encourages agencies to become pre-qualified, from time to time, an agency may have an immediate need for cash prior to becoming pre-qualified. Staff must receive a full application from the agency, including organizational documents, financial statements, program information, staffing, community references, and grant or contract information. The approval process will follow the same procedure as with pre-qualification, and a $100 fee will be charged in addition to the commitment fee of the greater of 1% percent of the full loan amount or $100.
Loan Documents:
Upon approval of a Loan, Borrower must execute the following documents:
Yearly Evaluation:
On each anniversary of pre-qualification approval or first loan approval, staff will request current financial statements, organizational documents, copies of any on-going contracts, and a mission statement from the agency. If no adverse changes have taken place, the eligibility to borrow funds will remain unchanged. If any significant changes have occurred, staff will bring the pre-qualification renewal request through the approval process again.
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