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Providence Financial









MONTHLY NEWSLETTER:  DECEMBER 2005 ISSUE

PLAN AHEAD WHEN FINANCING
BY BRENT VAN ALFEN, PROVIDENCE FINANCIAL COMPANY, INC.


There is a phenomenon that is rampant in this country about which I am an expert. It is called “girth growth.” The clothes that I was so comfortable in last year are too tight for me this year. For years, I was convinced that cheap fabrics from third world countries were shrinking. Then I made the mistake of getting on the scales. My wife loves to cook, and I love to eat; and I have the belt size to prove it.

Contrary to my girth growth, in business, growth is often healthy and generally a good thing if it is managed properly. Growth in some areas requires expansion in others. This is where planning and good management is needed. Flexibility in many areas is often required. When financing your charter school facility, you must keep this in mind. As your school grows or your needs change, you may need to add to your financing or refinance completely. What fits today may not fit tomorrow. Long term, intelligent planning is needed.

In the past, alternatives for charter school facilities financing have been very scarce. Generally, lenders and investors have been in a position to dictate terms which include prepayment penalties and prohibitions on adding new debt. For some years, that is all that has been available; so if you borrowed money for a facility, you likely have some issues with your present financing that you wish were different. If you have outgrown your present financing, for example, and need to add to it, you may have a problem. If you want to refinance at a lower rate which you may now deserve and is now available, you may have a problem.

Refinancing your present facility loan is not impossible. It can be expensive but may, under certain circumstances, be worth it. For example, a school I am working with needs to add a gymnasium in order to attract more students and offer a wider variety of activities. Their present loan does not allow for adding new debt. The advantages in this case outweigh the costs of refinancing. A new loan will also be at a lower rate because the school is more established than it was before and has an excellent track record. I am arranging financing for another high school that is refinancing three loans and building a new gym and theater complex. I have found financing that will accomplish this while keeping their payments the same or slightly lower than they are presently paying. In this case, the costs justified the benefit. If your present financing arrangement is not satisfactory, it costs you nothing to have me look into some possible alternatives for you.

Be aware of financing that is not compatible with future growth. Take care that you plan your financing to accommodate this growth

Fortunately, the charter school facility financing market is getting broader and deeper every month. I am very pleased with the new lenders and underwriters that I have introduced to the market and with whom I am now financing schools. Currently, I have a working relationship with 17 sources of money including direct lenders and underwriters. There are at least five different fundamental approaches to financing a charter school facility with many variations on each approach. A charter school has a better chance of finding a good “fit” for their facility financing needs now than ever before, and the market will continue to improve.

Another concern I have about charter schools getting into facility financings that they may regret in the future is that charter management teams rarely include someone who is experienced or qualified enough to know where to go for money, let alone to know what programs are available. They either try to learn as they go or turn to an authority figure who is perceived to be an expert. Attorneys, accountants, mortgage brokers, and friends who are business people all fit into this category. A little knowledge can be a dangerous thing; and getting help from someone like the above, although well meaning, can often be worse than learning as you go and doing it yourself. The representatives of lenders and underwriters are almost always honest, fine people to deal with; but they work for their employer. Their employer may not offer the best product for you. Their employer may pressure their representatives to sell products that are more profitable to them although not in your school’s best interest. Unless someone is on your side of the transaction who knows the market and has only your school’s interests at heart, it is easy to make an expensive mistake.

Providence Financial has become the country’s largest independent marketer of charter school facility loans. We work only for our client—the school.

For information contact Brent Van Alfen, President, Providence Financial Co., Inc.
801-299-8555, brent@providencefinancialco.com