MICHAEL P. HOGAN – ‘Flexible access’
Nonprofit organizations don’t usually have extra money to purchase new computer equipment or expand their physical facilities. As a result, they may have to dip into program funds, raise money in the public sector or pay market rates for loans.
But two new programs recently launched by MassDevelopment – a quasi-public economic development agency – will relieve that burden, if only for a few nonprofits in the Bay State.
The Capital Financing program and the TechDollars program provide about $100 million and $1 million, respectively, to fund projects of qualified nonprofits.
“We recognized from our customers that there was a need for flexible access to capital dollars for nonprofits and especially smaller nonprofits,” said Michael P. Hogan, president and chief executive officer of MassDevelopment. The programs were developed over six months and launched over the winter.
Capital Financing 501 is a tax-exempt commercial paper program that allows borrowers to go into and out of the short-term debt market when they need in order to purchase maintenance services, equipment and smaller property. Once the initial application is completed, borrowers may close on subsequent loans using an abbreviated process. According to MassDevelopment, the program is ideal for the recurring projects that are too small to be financed through long-term bond issues.
Hogan said the program is designed for costs related to phone systems, computer systems and technology.
“The cost of that program has been right around 4 percent [interest rate], which is pretty aggressive financing,” said Hogan.
The TechDollars program provides funds for nonprofits with annual revenues of less than $5 million and meets borrowing needs of up to $250,000. All of the money must be used to purchase new or used telecommunications, information technology equipment and related costs. No fees are attached to the loan. Interest rates on the loans are below prime and have closed as low as 5.5 percent, said Hogan.
“We’re looking to have two impacts,” he said. “One is to free up operating capital for the smaller nonprofits so they can focus on program development. The second is to see that nonprofits across the spectrum have greater access to technology improvements that will make them much more successful in focusing on their core missions.”
‘Pipeline of Deals’
So far, the response from nonprofits has been strong. Most of the applications have come from past customers.
“Last year we financed about 400 separate transactions from across the state. About 25 percent of those were for non profits. So we’ve got a long-standing relationship with the nonprofit community. This just further strengthens that. The pipeline of deals is very strong and it’s all over the state,” Hogan said.
Nonprofits taking advantage of the Capital Financing program so far include the Middlesex School in Concord, which borrowed $11 million for renovations and construction of a dormitory; Bentley College in Waltham, which borrowed $1 million for renovation of an HVAC system and purchase of land parcels; and the Landmark School in Beverly, which borrowed $5.8 million for purchase and renovation of land and buildings.
The YMCA of Greater Boston has borrowed $4 million for interim financing related to the new Oak Square Y building being constructed in Brighton, renovation of the existing Roxbury facility, acquisition of new computer hardware, software and fitness equipment and pre-construction activities of a new structure in Medfield.
“I would say we probably cut our financing costs in half, if not more,” said Ann Tikkanen, senior vice president and chief financial officer of the YMCA of Greater Boston. Tikkanen was familiar with MassDevelopment through a public offering of a bond in 1998.
The Community Nurse Association of Fairhaven has recently taken out a $100,000 loan through the TechDollars program. The money will be used to install a new network and additional computers as well as enable remote offices to connect to the central computer system.
The second half of the funds will be used to purchase laptop computers for its nurses.
Marsha Kjoller, chief financial officer of the CAN, said laptops will help nurses spend more time with patients rather than on paperwork. “Right now they can be writing the same information in five different places. With this, they can type it in once and it automatically flows to every form that it needs to go to.”
While the CNA could have sought funding elsewhere, Kjoller said the rates wouldn’t have been matched by anyone else. “We’d be paying a point and a half above prime. It allowed us to direct funds elsewhere,” she said. Instead, they received the funds a point and a half below prime.
“Most of them [nonprofits] are buying this equipment anyway and are paying for it through operating leases, most of which are in the 16 to 18 percent range,” said Hogan. “They’re also not able to finance some of the training or the software and installation. Our strategy is, they need this equipment to be competitive – to actually run sound businesses in many cases. We’re giving them access to it at a cheaper cost.”
Much of the funding has come from First Union Corp. and Hogan anticipates, from the early success of the program, that MassDevelopment will continue fund-raising for additional rounds of loans.
