How Bond Financing can help Central Florida’s Nonprofits looking to raise big money

How bond financing can help Central Florida’s nonprofits looking to raise big money

Many nonprofit entities in Central Florida often are faced with the need to get long-term financing for capital projects, including financing or refinancing the cost of the acquisition, construction and equipping of educational facilities, health care facilities, wellness centers or social service centers, to name a few.

What many of those organizations don’t realize is that tax-exempt and taxable bond financing may be an alternative way to finance these projects, saving hundreds of thousands of dollars or more. In most cases, the nonprofits still may maintain relationships with their existing banks and lenders, but if structured in the correct manner, bond financing can be a win-win for both bank and nonprofit entities.

Some advantages of using bond financing include lower interest rates, resulting in payments substantially less than similar payments on conventional financing, and, unlike conventional construction loans, they generally do not require subsequent conversion to permanent financing.

Aside from the great benefit this provides nonprofits in our own backyard, the opportunity also presents itself for other nonprofit organizations considering relocating to, or establishing themselves in Central Florida. In fact, locally, we have the distinct advantage of having the infrastructure in place to approve and issue these financing mechanisms very efficiently.

For instance, Enterprise Florida and its affiliate statewide conduit bond issuer, Florida Development Finance Corp., has an office here in Orlando. Additionally, the Metro Orlando Economic Development Commission works with the industrial development authorities for Orange and Seminole counties, both of which issue bonds for nonprofits. There are also a number of local banks and credit unions engaged in bond financing.

The typical bond financing for a nonprofit could take 60-120 days, depending on the level of due diligence and credit underwriting the financial institution requires. The typical deal can range anywhere from $1 million up to several hundred million dollars, depending on the size and scope of the project being financed, as well as the strength of the repayment source. Many nonprofits will pledge the proceeds of a capital campaign and other donations received to the repayment of the bond debt.

Some of the local nonprofits that have taken advantage of tax-exempt bonds include: The Bishop Moore High School, The Master’s Academy of Central Florida, Lake Highland Preparatory School, Trinity Preparatory School, Family Christian Center, Montverde Academy, Renaissance Charter Schools, The First Academy, Faith Christian Academy, The Central Florida YMCA, Orlando Health, Presbyterian Retirement Communities, Mayflower Retirement Center, Lakeside Behavioral Healthcare and The Nemours Children’s Hospital.

If the particular transaction does not qualify for tax-exempt bonds, in many instances taxable bonds still are beneficial to nonprofits. If issued by a governmental issuer, the bonds and any associated mortgages still may be exempt from certain documentary stamps and intangible taxes.

Bond financing can seem scary, especially if an organization is unfamiliar with the financing mechanism. The first step for any organization considering the use of bond finance should be to consult with professionals engaged in bond financing, such as lawyers and/or municipal advisers. There are financial and legal considerations related to the use of bonds, so be sure to check with your accountant and bond counsel, who can help you maximize the effectiveness of these resources.