You are probably intimately aware of your community’s strengths and weaknesses and how your particular community development project can be an asset to your neighborhood. But to secure funding, you will need to document your specific issue and the projected outcomes of your initiative. In addition, there are critical pieces of data your lenders and/or investors will want to evaluate to help them determine whether to finance your project. All of this information will be part of your community development finance PLAN. This unit will focus on the fourth key principle of successful community development finance—evaluation. We will introduce the types of data you will use for the evaluation process and the data you will need to provide to your lenders and/or investors that will provide the basis for their investment decisions. The data generally falls into three categories: environmental context, business plan and financial information.
The environmental context documents the external factors outside your organization that might affect your project and should be identified and evaluated to understand the context in which you are working. For example, if property values are low in the area where you are planning a development, the appraised value of your project will be impacted. This may make it more difficult to finance the development. The environmental context will include both macro and micro environmental factors.
Macro environmental factors are those conditions impacting your community over which you or your organization have little, if any, control. Nonetheless, you still must pay attention to them in deciding how to proceed. General categories of macro factors to evaluate include:
Economy — Effects of inflation, business cycles, employment trends, retail and commercial activity, construction activity and availability of capital. Questions to consider:
Demographics — Effects or trends in family size, age distribution, education, diversity, income and geographic distribution of the population. Questions to consider:
Social and Cultural Factors — Changes in consumer values and lifestyles affecting purchasing behavior. Questions to consider:
Politics — Effects of regulation and legislation. Questions to consider:
Technology — Changes in technology affecting products and services and their delivery. Questions to consider:
Natural Environment — Ecological or other natural concerns (e.g., flooding, earthquakes, tornadoes, pollution, etc.) that may affect your organization’s markets or operations. Questions to consider:
These are smaller considerations in the immediate area that you may have some control over yet still affect your organization’s ability to make community development finance decisions. Sometimes, the micros may make a project possible that the macros would seem to rule out. For example, after looking at macro factors, a housing developer might think that, based on the population decline in the area, there is no market for additional housing. But after considering micro factors, the developer might decide that there is a demand for homes with more bathrooms and fewer bedrooms, or might realize that there is not much competition in building assisted living for senior citizens. General categories of micro factors to evaluate include:
Markets — Profile those user markets that you plan to target in your project. Pay close attention to the size, growth and geographic distribution of the market, the profitability of current markets and what segments of the market are available. In addition, be aware of other entities that are also developing projects for this same user group. Will your project meet a unique need? Will it have competition in the marketplace?
Questions to consider about your end users, including their needs, buying behavior and attitudes toward the project and your organization:
Questions to consider about other entities that share the marketplace for your project:
Public Perceptions — You should be aware of both the environment for community development finance and your own reputation in the public arena. If the people you are trying to serve have doubts about your organization or proposed project, your objectives might be difficult to achieve. Questions to consider:
Now that you have surveyed and documented the environmental context in which you are operating, you can begin to build a business plan for your community development project. The plan will help your partners evaluate the merits of the project and provide lenders and investors with information they need to decide whether to provide funding. The plan will serve as a road map for the beginning years of the community development project. Business plans generally project three to five years ahead and outline the route to take to reach yearly milestones, including revenue projections. Keep in mind that it is a living document that you will need to constantly review and evaluate. Business plans are important because they:
Finance planning includes making a business case for your project. Key elements of a business case for a community development finance plan are:
As an example, consider a community that is operating in a business context where the number of adults aged 25-44 has been declining every year. The problem could be that the trend toward fewer young adults has led to weakening job growth. Creating an environment that will retain and attract educated and skilled young adults is an opportunity for the community. Ignoring the problem could result in current businesses moving to an area where they can find young adults in the labor force, as well as businesses that require educated and skilled employees not opening, expanding or moving to the community. Ignoring the problem could lead to a decline in the housing market, school enrollment and retail business. The desired outcome is a strong labor pool of young adults for current and new businesses. This will benefit the community by boosting the housing market, retail businesses, job creation, etc. Rising household income levels, tax base and bank deposits may be additional benefits.
The U.S. Small Business Administration’s business plan tool provides step-by-step guidance to develop your business plan. Although not specifically designed for community development projects, the tool provides the core elements of any business plan. The SBA’s Small Business Development Center provide technical assistance to small-business owners and entrepreneurs throughout the country, as well as provide sample business plans.
In addition to the business plan, a lender or investor will request more information about the project and your organization to determine whether to finance your community development project and to evaluate its sustainability.
Your ability to supply the requested information makes a statement about your organization’s capacity. A lender or investor typically may request:
Basics about applicant
Quality of design
Additional or less information may be requested depending on whether your community development initiative is a brick-and-mortar project.
While much of the groundwork for bringing a community development project together involves people—community engagement, leadership and collaboration (the core principles discussed in Unit 1)—the financial decisions will be very much driven, measured and evaluated by data. Where can you locate this data?
To help complete your environmental context, business plan and financial information, look to resources in your own neighborhood and local sources. Local libraries, chambers of commerce, local colleges and universities all have resources that can help you complete this task. In addition, you can seek information from property assessor offices, local planning and development agencies, state housing finance agencies, state and local community and economic development agencies and the SBA’s Small Business Development Center. Finally, there are a host of web-based resources that can aid in your quest for data. Some of those include:
Of course, this is not an exhaustive list. A focused internet search specific to your community and project will likely help you identify numerous sources of information and data for your business planning needs.
You Must Have a Plan
In this unit, we discussed numerous types and sources of data that investors are looking for as they evaluate the funding potential of your community development initiative. As you understand the role and importance of the evaluation principle in these initiatives, you will gain confidence in shaping a solid project plan that includes such data as the environmental context, business plan and financial information that articulate your project’s intended outcomes. Today, supportive data for such financial decisions can be found in numerous sources—from local community resources down the street to the vast number of web-based resources.
With the people in place to work on your community development initiative and the elements of your finance plan coming together, we are ready to move on to Unit 3, which will explore the process and tools for coming up with the money for your project.
|NEXT: Process: Sourcing Financial Resources for Community Development Initiatives|