Pub. 4 2014-2015 Issue 2

18 O pening a new charter school can be an exciting, yet hectic, time for the charter organizers. After the charter application is approved, there are students to be enrolled, teachers and staff to be hired, textbooks and materials to be purchased, and the list goes on and on. Of course, constructing an appropriate building and having it ready in time for the first day of school is also a major part of this undertaking. This process is repeated multiple times each year through- out Utah, with the total number of Utah charter schools now at 110. Total charter school enrollment has increased to 61,435, with charter schools now educating 9.9% of all public K-12 students in the state of Utah, with that percentage increasing to approximately 11% for grades K-6. Charter schools in Utah are a key part of the education landscape, providing a compelling education alternative for families and children. A new charter school will generally be looking to partner with a charter school developer to build and lease its build- ing. The right developer will bring financial strength and construction management expertise to assist you in this process. Additionally, lenders will require a down payment; partnering with a developer or other equity partner will be key to securing bank financing for the project. Some exist- ing schools may be able to obtain bank financing without involving a developer, if they have accumulated enough of a cash reserve for a down payment. A charter school will typically use a construction loan and a multi-year interim loan to finance its building, in order to bridge the gap from inception of the school to stabilization and obtaining long-term municipal bond financing. Whether you’re going to partner with a charter school developer to procure your building, or do it yourself, there are certain criteria that a lender will likely look for in a charter school, since the successful operation of the school is vital to repay- ment of the loan. Let’s explore six areas that a lender will review in conjunc- tion with a financing request. Most of these ultimately relate to the two keys of the charter school’s financial success: enroll- ment (which translates into revenues) and expense control. 1. Charter and Focus In order to be successful, the charter school must have the ability to attract and retain students to ensure consistency of enrollment and funding revenues. What is the charter or mission statement of your school? It should be something that has broad enough appeal to attract students to your school. Perhaps it is a focus on U.S. History, the arts, back- to-basics math and literature, Spanish, STEM education or something else. To the lender, the specific charter emphasis is not as important as its relevance and demand, which will allow the school to attract enough critical mass of students to achieve full enrollment. 2. Board and Administration Similar to how a bank evaluates any commercial loan request, it begins with the people. Loan agreements and financial statements, although they are necessary tools, do not repay loans. People repay loans. A lender may look at key-person risk or succession risk. In other words: is the success of the school tied to a founder who is passionate about the charter? A qualified and well-rounded board and administration will improve the sustainability of the school and increase the probability that the charter’s mission and vision will be perpetuated well into the future, even after the original founders are no longer involved. The board should provide a vision for the school, to be implemented by the principal and other members of the administration. Having a quality board and administration who work well together is especially important because issues or contention among the board and school leadership have the potential to drive students away and lead to a decline in enrollment. Importantly, the charter school should also have quali- fied support for its back-office functions, such as human resources, accounting and regulatory filings. This will instill Charter School University sponsored by Zions Bank presents What Does a Lender Look for in a Charter School Loan? BY ANDREW LARSEN, SENIOR VICE PRESIDENT, ZIONS BANK