Sources of Capital Project Funds

When planning a capital project one of the major challenges is to secure the funds required to complete the project. Typically, there are four major areas to explore: government funding, private fundraising, partnerships and other sources and project financing.

Government Funding
Depending on the nature of your project, there are a range of government grant programs at the municipal, provincial and federal level that fund community capital projects. In many cases, there is a percentage limit to how much public funding a particular project can secure, and often matching funding must be secured in advance of applying for government funds.

Artscape has prepared a listing of capital funding sources which includes a selection of local, provincial and federal programs, including those designed to support cultural sector projects, such as the Cultural Spaces Canada program, as well as other sources of capital funding directed at achieving diverse policy objectives including, for example, economic development, rural development and green building and stewardship programs. Click here to review this resource.

Private Fundraising
A robust fundraising campaign is a requirement of almost all capital projects. In general, these will include major gifts from a relatively small number of individuals and foundations. Your success will depend on your past track record of securing personal gifts, the depth of personal and community commitment to seeing this project succeed and the capacity and affinity of those in your closest circle.

Artscape has prepared a listing of capital funding sources which includes information on a number of private foundations which may provide funding for cultural sector infrastructure. Click here to review this resource.

Partnerships and Other Sources
Increasingly, additional sources beyond the traditional public and private funds are required. Innovation and creative thinking are needed to identify how the needs and interests of other parties can help you achieve your goals.

Partnerships
Consider if there are other organizations, either not-for-profit or commercial, that could partner with you in sharing the costs of the capital project. You may choose to co-develop the project with them, sharing or dividing responsibility for securing the funds and for managing the project. Once operational, you may jointly or separately own the property. This is advantageous if the other party can bring access or capacity to the table that is different from yours.

Sales
In some cases, it may make sense for you to develop the project but then sell off a portion of the completed building to like-minded owners who can contribute to your vision for the project. Artscape Triangle Lofts is an example of an affordable home ownership model developed by Artscape. Currently in development, the Artscape YOUNGplace is an example of a commercial condominium model. In both cases, the sales revenue is a key element in the capital revenue budget.

Capital Financing
Depending on your operating model, there may be room for the project to carry some long-term debt. Using a cost recovery model, the project should be able to cover its operating costs as well as some level of interest and principal repayment. See below for financing options.

Project Financing
When managing a capital project, you will need to consider your financing needs. Before you are likely to receive any fundraising or funding revenue, you may need an interim line of credit while you are developing the project,. During the construction period, you will face larger bills and may need a construction loan. Once the project is complete, the operations may be able to support some long-term debt, which you can get in the form of a mortgage secured by the property.

Sources of Financing
Depending on your organization’s connections and prior experience, there are a wide variety of sources for project financing. Review your network of professional contacts and volunteers for referrals to lenders who might be supportive of your work. All lenders will require evidence that the project is viable, that the loan will be repaid and that the debt is secured, however, it is helpful to find a lender who has some affinity for the purpose of the project. The following is a summary of possible sources:

Financial institutions
There are many well-known financial institutions that are in the business of lending money. You can deal directly with them, particularly if you already have a client relationship or an introduction, or you can choose to enlist a broker who will assist you in identifying a lender and help negotiate on your behalf. This latter option is helpful if you have had difficulty in establishing your own contacts, but you will pay an additional fee to the broker. Interest rates and terms can vary widely so it is a good idea to present your opportunity to at least three to five different institutions. Examples include:

Banks

All the banks have commercial lending officers whose job it is to place loans. Depending on your prior relationship with the institution, they may have a greater or lesser degree of interest and flexibility in dealing with your application. Banks generally are very concerned about security and a proven track record of ability to repay. Organizations with few assets have challenges securing bank loans without some other form of loan guarantee. This kind of guarantee, where the guarantor promises to repay the loan to the bank should you not be able to, is extremely helpful, particularly when you are at the beginning of a capital project and the asset is not yet worth its final value. Guarantees can be sought from your local municipality, a private supporter or other stakeholder who wants your project to get off the ground.

Credit unions

Although credit unions will also require security, proof of project viability and evidence of repayment ability, they are generally smaller, more community-based organizations and have missions that are more aligned to those of many not-for-profits. As a result, you may find a more receptive audience to your project, and find that it is reviewed at a higher level within the organization.

Insurance companies

Some insurance companies are also in the business of commercial loans. If you do not have obvious contacts in this field, a loan broker may be helpful in identifying sources and negotiating on your behalf.

Specialized capital lenders (e.g. solar installation loans)

You may be able to work with specialized lenders who focus on particular types of projects. With the rise of interest in energy efficiency systems, there are now a number of lenders who specialize in either loans or buy-and-lease-back scenarios for solar or geothermal installations. Essentially, they will lend you the funds to install these systems and you pay them back from the energy savings you get over a number of years, or the income you derive from selling power back into the system. These options deserve a fair degree of scrutiny but can be a good option in some cases.

Private Sources
In some cases, you can seek financing from private sources, individuals or organizations that support the mission of your organization and, in addition to their philanthropic support, are able to lend you money as well. They will probably still require some level of security, but they may be able to offer a reduced interest rate and better terms since they believe in your project.

Foundations (through program-related investments)

In addition to awarding grants, some foundations are able to place a portion of their own capital in loans to organizations that ally with their program objectives. These are unlikely to be high-risk loans, but if your project is viable and you have a proven track record for repayment, this can be an attractive option. Although some level of interest will have to be paid, it is possible that the terms can be very favourable.

Individuals

Private individuals, particularly those who already contribute to your organization as donors, are a possible source of loaned funds. However, it is wise to be very clear about the terms of the loan contract and to ensure that these terms are fulfilled, as the lender is likely also a very strong stakeholder of your organization.

Community organizations

In some cases, community organizations are able to place loans to projects that fulfill their program objectives.

Community bonds

Recently there has been considerable work done in the area of community bonds. Depending on the jurisdiction, it is possible to establish a community bond program for your project, or to participate in a larger community-wide program. Individuals are able to purchase a bond for a specific amount, preferably within their RRSP allocation, and the project repays these funds over a specified term.

To find out about the Centre for Social Innovation’s use of Community Bonds to help finance their 36,000-square-feet project at Bloor and Bathurst Streets in downtown Toronto, click here.

Government loan programs

In addition to a variety of government programs that fund capital projects (see Canadian Capital Funding Sources for Cultural Facilities) there are also government programs that offer financing for community capital projects. Depending on the jurisdiction, there are municipal, provincial and federal loan programs that can offer low-interest loans for your project. Areas of interest include economic development programs, affordable housing projects and energy efficiency initiatives. In some cases, municipal support is required in order to access the provincial and federal programs.

To find out more about How Your City Can Help, click here.