This is the second article in our four-part series detailing the nonprofit building process.
The first step: Successful Nonprofit Construction Begins with Your Team
The third: Nonprofit Preconstruction Explained: Part 1
The fourth: Nonprofit Preconstruction Explained: Part 2
An important step in the process is assessing the feasibility of your nonprofit construction goal, within the constraints of resources (especially financial) and time.
When assessing feasibility, consider:
- What is a realistic project size for our organization?
- Will we need to borrow money?
- Will we need to fundraise?
Resources abound to help your team answer these questions and more.
If money will be borrowed to assist in the completion of your construction project, you’ll want to understand the benchmarks lenders use.
Debt service coverage ratio compares the organization’s operating income to its debt and interest payments. They often look for a ratio of at least 1.25, meaning an organization is able to pay at least 125 percent of its debt and interest based on historical cash flow.
A bridge loan against campaign funds is one valuable option to consider. It is typically offered in an amount up to approximately 60 percent of the amount pledged, which is the amount that loan officers assume organizations will be able to raise. This may enable your nonprofit organization to fast track the project and avoid waiting until all pledged funds are collected.
Finally, understand that construction loans are typically approved at less than 70% of the appraised value. The appraisal is completed by reviewing the design documents and helps loan officers to assess what kind of value construction will add to the property.
Several companies exist for the sole purpose of helping organizations develop feasible plans.
One service offered is a feasibility study, focused heavily on financial analysis. Fundraising is another service, ranging from coaching to hands-on appeals. A couple of local companies providing these resources include The James Company and Amanda White Consulting.
A funding intermediary like Hope Community Capital can help navigate what can seem like a technical financial landscape of lenders, real estate brokers and more. Founder and CEO Carrie Sanders describes herself as a “financial architect” who can help assemble the “layer cake” of funding resources – support much needed if your organization isn’t accustomed to this kind of decision making.
Knowing whether a construction project is a reality for your organization can be difficult. NCI-Roberts Construction would love to be a part of your team and guide you with these resources and more. Then, we can start preconstruction! Learn more about our process here and contact our team to get started!