Community Lending Series Part I: Why OnePierce Chose to Include Community Loans in its Investment Strategy
by Lauren Fulton March 18, 2021
OnePierce Community Resiliency Fund (OnePierce) began in 2019 with a question: what form of investment would benefit the whole-person health of Pierce County residents?
We considered three financing options: grants, loans, and equity. Grants are non-repayable funds, like donations. Loans are repayable at pre-agreed times and often incur interest payments that are due monthly while the loan is outstanding. Equity is a share of the ownership of a for-profit organization that expects to see large growth in the future. We decided between these forms of financing based on the needs of our community and our long-term strategy for OnePierce.
Ultimately, OnePierce chose to split its funding across grants and loans. Its grants are offered through two different pathways, so we have three funding programs:
- Grants: We offer 1-2 grant rounds per year, usually focused on specific programmatic priorities like behavioral health equity or workforce development. Committed grants range from $100K to $1.5M each year, depending on OnePierce revenue.
- Community loans: Our community loan program supports service providers with stable revenue streams. Recently we have expanded our bridge loan offerings to organizations delivering reimbursement-based public sector contracts. We can also support real estate and equipment purchases. Our annual loans total $2-4M.
- Health innovation funds: We defined health innovation funds as grants co-designed with partners to address systemic issues. These funds ensure OnePierce’s investments directly tie back to Elevate Health’s aims of addressing the social determinants of health for the people of Pierce County and achieve health equity across the region.
The remainder of this article will focus on OnePierce’s community lending program.
OnePierce Investment Strategy
OnePierce’s Lending Program
OnePierce offers community loans to local businesses and organizations that promote whole-person health in Pierce County. It does not offer loans to individuals. OnePierce’s aim is to support health and social support services that improve social determinants of health – the conditions in which people live, work, learn and play – for Pierce County residents.
Organizations seeking loans might be community health clinics, workforce training programs, affordable housing developers, pharmacies, or even grocery stores emphasizing healthy food choices. Loans are the best match for entities with a regular and reliable revenue stream for repayment. Sometimes, loans are appropriate for non-profit organizations with a particular capital need like purchasing a new property.
The two types of loans we offer include:
1. Working capital loans that are designed to fill a funding gap for organizations with misaligned cash flows. For example, if a service provider receives its payments at the end of each month but it needs funds to make payroll mid-month it could access a line of credit that would enable it to draw down money for payroll. It would then repay the working capital loan shortly after its receivables come in at the end of the month.
It is important to note that working capital loans are not substitutes for strong business plans; in fact, organizations applying for working capital loans should be able to demonstrate regular, cyclical revenue that would be used to repay the loan. A working capital loan is intended to fill a gap on a temporary basis, not become long-term debt.
Types of working capital loans:
Lines of Credit: For an organization with receivables that do not line up with outgoing costs, lines of credit are used to ensure cash is on hand for ongoing business expenses.
Bridge Loans: For an organization with a committed funding source that is not yet disbursed, bridge loans fill the gap between funding award and actual payment.
Growth / Expansion Loans: For an organization expanding its geographic footprint or the size or scope of its programs, an expansion loan helps cover upfront costs associated with new offices, staff, and program expenses.
Equipment Loans: When new IT or office equipment is a large purchase, equipment loans are used to pay for the upfront costs of assets that will support an organization’s focus on the social determinants of health.
2. Facility or real estate loans support organizations purchasing real estate to further their missions. For example, an affordable or supportive housing developer may request a construction loan for new housing units. Alternatively, a behavioral health provider may request a facility loan for the purchase or acquisition of a new building for expanding its operations.
Types of facility or real estate loans include:
Pre-development Loans are for an organization finalizing its due diligence on land or buildings prior to purchase, a small pre-development loan is used to complete the property purchase.
Acquisition loans are used to support the purchase of properties for redevelopment, rehabilitation, or construction.
Construction loans help finance the cost of construction on properties, and are often repaid with permanent financing.
Permanent loans are longer-term and often repaid through cash flows generated by the property.
Are Loans Right for Your Organization?
OnePierce offers grants and community loans in order to serve more service providers and community-based organizations within Pierce County. We understand that some circumstances will require grants, whereas others will have be appropriate for loans.
If your organization is deciding the right financing fit, please contact us. We are happy to speak with you about your organization’s financing needs and to together determine whether OnePierce can support your work to improve the lives of everyone in our communities.