Funding Options Available For Charter Schools
Written By Joshua Proto
The quick answer
In addition to the government grants available you can also apply for any of the business financing products linked here.
The long Answer
Whether a Charter School is looking to move into new facilities, purchase new furniture, or invest in academic programs, it’s important to remember that there are a variety of funding options available and each source of funding comes with its particular set of conditions. Generally, Charter Schools should consider the kinds of income history, payment terms, and opportunity cost required for each funding source. Cash, Bonds, Bank Investment, and Grants are common sources of funding that Charter Schools can take advantage of for funding their various needs. Let’s go into each in more detail.
Using a Charter School’s own cash reserves to finance a new initiative can be very effective when looking to finance the hiring of new teachers or employees, purchasing new equipment, and expanding academic programs. These initiatives constitute "working capital" or the money used for day-to-day operations of the Charter School, which some lenders prefer not to fund. Using cash to pay for more costly initiatives, like purchasing or renovating facilities, can allow Charter Schools to avoid paying interest payments, holding cash reserves, or waiting for lengthy approval processes. However, when these initiatives reach into the Millions of dollars, utilizing cash reserves quickly becomes impossible due to the lack of reserves or become unsustainable as it ties up available working capital. A way to keep your working capital in check would be to get a business line of credit.
Acquiring funds from an investment bank in the form of loan like an SBA loan or a revenue financing type business loan can be a great funding option that doesn’t require the Charter School to completely wipe out their cash reserves. By committing to supply a percentage of the transaction in cash, the bank lending the funds will cover the other percentage of funds. The Charter School then agrees to pay back the principal, with interest, over an agreed amount of time. Major considerations Charter Schools should pay attention to is whether they agree to a fixed or variable interest rate loan, as well as understand their ability to refinance their loan. Loan Financing favors schools that have established financial history and/or assets to serve as collateral. Though the underwriting and approval process can be lengthy, working with the right company like Aldora Capital can prevent you from spending too much time worrying about the details and more time improving your student’s education.
Bonds can be an effective alternative to either cash or loan financing. The Charter School would end up issuing the bond, meaning it owes a debt to the bondholders. Interest would be paid over time to the bondholder until its maturity date, which is when the Charter School is required to pay back the principal amount as well. Bonds can have lower interest rates than loans, making them more attractive than loan financing and prevents significant depletion of cash reserves. Though much like the underwriting process for loans, bond financing has a comparable lengthy approval process and can require Charter Schools to have a certain amount of cash reserves set aside. This process also requires the Charter School to pay a significant amount in legal fees, so it may not be the ideal fund source for Charter Schools that lack minimal cash reserves.
Grants either from the Federal Government, State Government, or Non-Profit Foundations can be another potential, although a competitive form of funding. The applications for these grants can be found on the respective government's or foundation's website. The largest grants like to see a track record of student success, innovative teaching programs, commitment to the community, or a mix of all three. After selecting a potential grant, the Charter School will have to fill out the application and meet a number of deadlines. Charter Schools that decide to pursue grant funding usually have a member of their team dedicated to both finding and applying for grants that are the right fit. Otherwise, Charter Schools may not be making the most of their team member's time and expertise.
Ultimately, there isn't a funding source that's perfect for all Charter Schools and all circumstances. Charter Schools need to consider the positions of their cash reserves, financial history, and team expertise. However, Charter Schools that can show cash reserves or incoming receivables are good candidates for loan financing. With a solid understanding of this information, Aldora Capital can help you find the right loan that matches the needs of your Charter School, whether it be for facility use or working capital.