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When considering a new construction project or purchase of new property, there are a number of things to consider for your non-profit; how do you afford the purchase, what are current interest rates, what are the upfront soft costs?  If you have identified a physical address for construction or property purchase, the first action you should take is to have your board adopt a Reimbursement Resolution. A Reimbursement Resolution will give your non-profit the ability to reimburse your organization for any out-of-pocket expenses associated with that address. Next, securing your tax-exempt financing via a public offer, private placement or tax-exempt loan completed with a group of parents will give your non profit lending options which hold specific benefits to your unique borrowing needs. These are just a few of the options your non profit should consider before purchasing new property or beginning a new construction project. To learn more about your organizations financing options leading into the new year, contact one of our associates to discuss, it will likely save your organization on capital in the long run!

As we close in on the second quarter, we have seen not only a rise in interest rates, but a rise in the tax-exempt multiplier due to a reduction in the corporate tax rate for banks. Its interesting to think that a bank is actually receiving a large discount on their taxes but increasing their interest rates for their non-profit clients. There are many approaches we advise our clients to take in this unique environment. Bottom line is that we work in the best interest of our clients. We want our clients to get the best interest rates possible. If your non profit has seen an increase in interest rate on your tax-exempt loan, I strongly suggest a brief phone call with Western Solutions Inc. Advisors. We can help guide you through your options for your unique financial situation and show you what other non-profits have done in this complex environment. Time is of the essence!  The Fed is set to raise interest rates three times in 2018.

Happy New Year! The new 2017 tax reform bill preserves the right for non profits to borrow on a tax-exempt basis! This is great news! Close call for non profits; the initial reform bill written by the house eliminated tax-exempt borrowing for non profits. Although non profits can still borrow tax-exempt, the corporate tax rate has decreased. Unfortunately, this decrease brings changes to the tax-exempt multiplier. In other words, banks will be paying less taxes and therefore have less to write off when lending to a non profit. The downside for non profits is that an organizations current tax-exempt rate may change. Banks reserve the right to increase rates based upon new laws. We have heard from some banks that rates will increase by between 40 – 70 bps or .4%-.7%. Not all banks, however, will be increasing rates. If you have questions about your bank raising your rate, please give us a call to discuss!

Tis the season! Actually, tis the year! As it turns out, 9 out of the last 10 tax-exempt financings Western Solutions has completed have included new construction projects. When tax-exempt rates are this low, it’s not only beneficial to refinance for a lower interest rate, but lower rates make building projects more cost efficient. Most of the schools that we have advised have obtained tax-exempt funds for new construction of classroom facilities to support a larger student body. Clearly this is a sign that more parents are sending their children to private schools. If your private school is looking to obtain tax-exempt funds, keep these trends in mind; low tax-exempt rates and an increasing student body means it’s the right time for new construction!

The last 4 loans Western Solutions Inc. consulted on and closed, all included new money pieces for building projects to expand and improve campus facilities. Often times, trends in school financing are indicative of our current market place. For example, after the financial downturn of 2008, we were hard pressed to advise 501 (c)(3)’s on anything other then refinancing. Today is quite a different story. Schools are continuing to refinance but also expand and improve. The great news is that the current market place is facilitating these types of new money loans at rates such as 1.90% fixed for 5 years and 2.3% fixed for 10 years. We have seen schools obtain new money tax-exempt dollars for gym construction, music centers, weight lifting facility, new classrooms (which were reconstructed at a reduced cost), purchase a home for head of school, construction of a new preschool, etc. The financial market is accommodating private schools in their pursuit to expand, improve and refinance. Looks like a good time to consider new money tax-exempt loan options.

Over 90% of the loans Western Solutions Inc. has closed since 2010 have included a draw structure in the documentation. A draw structure allows  for the tax-exempt loan to be closed without the requirement  of the borrower paying principle or interest until the proceeds are drawn. Tax-exempt laws allow for funds to be drawn within a three year period.  If a portion of the funds are not drawn after three years, the draw simply goes away and the borrower does not have to pay on those funds. Examples of why non-profits use draw structures: Refinance now and use the draw structure for a building project in the next three years. This will save the borrower from the process of two issuances (one for the refi and another for the building project) which will save on up front fees and time. A loan that cannot be refinance for 1-3 years.  The draw structure should be completed now to lock the interest rate. Once the loan can be refinanced, the proceeds from the draw structure are then used. If the borrower is running a capital campaign for a building project, the draw structure could be used if there is a shortfall in the estimated giving.  The draw structure can allow the borrower to build before all the capital campaign funds are collected and then repay the loan when the funds are collected. If the borrower completes a tax-exempt loan, a draw structure could be set aside for any capital improvement over the next 3 years. If there is a need for a draw of any amount, the draw would be tax-exempt and would not cause an additional issuance.

After working in the industry for more than 12 years, I have come to the conclusion that banks are really quite different when it comes to what they offer clients. According to the client’s credit worthiness, banks either offer something unique or across the board, offer nothing. In other words, if you are a credit worthy non-profit, banks come out of the woodworks with unique additions to their term sheets while un-credit worthy clients get turned down from every direction. Here are a couple of unique offerings to credit worthy clients from different banks that I have seen recently:   No construction monitoring on new projects No bank upfront fee Guarantee loan renewal after each term 5% of liquidity to outstanding debt No Deed of Trust requirement Fixed rates under 2%   If you are looking for financing for your non-profit, these incentives should motivate any potential borrower.

Montessori schools have been receiving tax-exempt financing for projects that are unique to Montessori curriculum. New money projects for Montessori schools such as purchasing property to expand sustainable garden space, construction of green play facilities and/or construction of new library and classroom space can all be financed with tax-exempt debt. Montessori schools continue to be a large part of our client basis and we are proud to partner with future Montessori schools. A recent trend with some of the Montessori school’s is a slight change in curriculum; away from the original Maria Montessori curriculum to a more modern version of Montessori theory. Often times when curriculum is transitioned, tax laws can prevent refinance, however, this is usually only the case with religious schools. The good new is that usually Montessori school’s can transition curriculum without issues.

A Cap by definition means “ the highest interest rate that can be paid on floating-rate bonds, or the highest rate that an adjustable rate mortgage can rise to in a specified period of time” (www.investorwords.com/692/cap.html). Why purchase a cap? You can use the benefit of a low interest rate of an adjustable rate loan with the security of knowing your interest rate will not go higher than where the cap is set. It’s inevitable that as the economy improves, interest rates will rise. To protect your low interest rate adjustable loan without the concern of the loan becoming unaffordable, purchasing a cap for your bond is a smart tool to use to ensure costs are controlled. Other benefits of caps are that they do not have any pre-payment penalties to exit early and in most cases, they can be sold back to the bank if you chose to exit the cap early. The bank benefits from clients purchasing caps because they can charge a one time upfront fee to the client. This fee can be financed with tax-exempt proceeds. Western Solutions is able to negotiate cap fees with banks on behalf of our clients; ensuring banks are not charging any hidden fees while keeping cost of issuance minimal. Ultimately, caps are a handy derivative product that can result in a much cheaper loan than a fixed rate option. On different note, we would like to wish all of our school clients a happy, successful start to the new school year!

For the last two years Western Solutions has been a proud sponsor of TED Ex Livermore conference. This years conference was exceptional! The speeches were  inspirational and motivating and our company is honored to be apart of such a wonderful conference. Thank you to Roz Hamar and Las Positas College for hosting this outstanding event. On another note, Western Solutions services have broadened to a number of smaller banks. In addition to our strong relationships with the largest banks in the United States, tax-exempt loans/bonds are being utilized more and more by smaller regional banks. We have developed working relationships with these banks and are very excited about the prospects non-profits have available to them  in terms of lending with smaller banking institutions. Working with smaller banks has bee very successful this year and we hope to continue our relationships with these and more small banks in the future.