How is your school planning to fund its new hallway lockers?
How will your athletic center pay to outfit the locker rooms?
Is your agency able to afford updates to your building?
Municipalities looking for financing may think they must rely on bonds or complete their remodel in phases, but with businesses like National Cooperative Leasing, paying for minor or major improvements doesn’t have to be a major effort.
About National Cooperative Leasing
National Cooperative Leasing (NCL) is an independently owned, financed company based in Minnesota. With a significant presence in the industry over the past 25 years, for the last 17 years, NCL has focused on government and education industries.
After competitively bidding for the National Joint Powers Alliance (NJPA) financing contract in 2015, NCL was awarded the sole contract, and has been the only lease and finance contract with the NJPA ever since, providing financing solutions for their members and more. This makes procurement possible for agencies of all sizes, for those who need anything from copiers to artificial turf to lockers and everything in between.
Katie Vangsness, a representative for NCL, spoke with DeBourgh to discuss more about how the company enables municipalities to progress and improve.
How Does the Application Process Work?
When talking about financing structures for government agencies or public education, NCL utilizes what is called “tax-exempt” municipal lease. Even though it is called a lease, it is more like financing. This is significant because it is designed specifically for government agencies and public education entities. Therefore, all terms and conditions are set up for those types of agencies to enter into these types of contracts. It’s a widely known financing structure that allows public agencies and public education to get the equipment and projects done that they need without investing time and resources into a referendum.
A request for financing through NCL is a quick, easy process, beginning with a two-page credit application, which the company aims to approve the same day or next day. The approval process examines financial strength of the institution and any bond ratings that the agency might have. Since most of the information required for approval is already a matter of public record, this can be reviewed quickly and without multiple requests for information. These requests can be to fund transactions between $10,000 to several million dollars.
Once we have secured credit approval, we move to the documentation. Every agency has its own set of rules and forms for documentation, and the NCL team works closely with that agency to establish the information needed.
What Can NCL Finance?
NCL can finance just about every type of asset, with terms that range from two years to over ten years for bigger projects such as building construction. The most commonly used structure is the Tax-Exempt Municipal Lease which affords the agency to avoid contributing to their debt ceiling due to the non-appropriation language.
What this non-appropriation language does is classify the agreement as a series of one-year agreements. For instance, if a school were to sign a five-year lease agreement for lockers, that agreement would be five one-year agreements. Each year, the agency’s board must appropriate funds for the annual lease payments if they don’t appropriate the funds, the agreement is cancelled.
How Can NCL Help When Funds Are Tight?
NCL’s typical customer is a public agency or education agency with a tight budget. When an agency receives financing through NCL, they can stretch their budget further. By utilizing a financing option, the agency saves time and money by eliminating the lengthy referendum process. When reliable financing is available, there’s no need to phase the project (work on it slowly in phases over several years). Phasing a project comes with additional mobilization, added product costs, added installation time, and delayed use of the facility. Financing is generally a far less expensive option to get the project done all at once, and pay for it over its useful life.
When agencies decide to use a financing option, it can increase their purchasing power 3 to 5 times their original amount. The entire project doesn’t need to fit into this year’s budget, just the annual payment. If an agency has $20,000 in this year’s budget but needs to complete a $100,000 locker project, financing allows the agency to move forward on the $100,000 project and use the $20,000 for the annual lease payment.
What APRs Can Municipalities Expect from this Program?
Many of our customers aren’t sure about what this program means for them. Many believed that they weren’t legally allowed to enter into this type of agreement. By meeting with their procurement or finance team, NCL can show them that the language and the legal realm have been designed so that it well within their reach.
On a tax-exempt municipal lease, NCL’s most popular form of financing, the rates are similar to bond financing. These numbers are always based on the market, but currently remain low, without the extra, up-front and continuing cost that bond financing does require.
It’s true that the financing will cost more than paying cash. As always, if an agency has the cash for its project, it should certainly use it. These types of financing programs are set up for those who don’t have the funds to complete the full project. If you choose financing a project over phasing the project, when we compare the numbers, financing is typically a less expensive option than phasing the project.
Is There a Market That Isn’t a Great Fit?
In general, NCL has been able to work with different agencies and even non-profits. There are certain states that may have different legal requirements. For instance, we’ve been working with an agency in New Mexico where the state regulations mean they are not able to take advantage of the tax-exempt option. However, there are other types of financing that do work with their jurisdiction. In cases where the tax-exempt financing isn’t an option, NCL has other financing solutions that can work instead.
It’s very rare for NCL to find an agency that cannot apply for one type of financing or another. The company still may choose not to approve a transaction due to insufficient credit strength or other issues with the application. However, in general, NCL can put together some sort of financing structure for just about every agency.
How Exactly Can Financing Be Competitively Bid?
NCL has the only lease and finance contract with the NJPA, just as DeBourgh Lockers is the sole locker provider for other associations. There are several factors that enabled NCL to earn this contract. The company’s ceiling-based pricing means that rates are based on an index, and a percentage over that, depending on the term, the asset, and the financing requested. Our pricing within the NJPA were set to accommodate all kinds of transactions around a variety of credit. There is always room for rates to come down for good credit, but they will not go higher.
Pricing is only one component of a competitively bid contract; in any industry, it’s not enough to just choose the lowest bidder, as that can also translate to lowest quality. While NCL’s pricing is competitive with major lenders, its experience in government, ability to finance a wide range of assets and transaction sizes, and its ability to accommodate NJPA members nationwide were also deciding factors in the NJPA’s decision.
Many of the larger lenders only cover a certain type of asset or finance only in a specific region of the US. We are all encompassing of all municipalities and all NJPA members for that matter.
What If an Agency Has Multiple Projects They Want to Finance?
Typically, NCL will set up “master agreements” that allow for items to be easily added. The company does a lot of financing for brand new park and rec centers. There is the necessary fitness equipment, but there will also be a need for furniture, basketball hoops, phone systems, etc.
NCL may take the initial order for fitness equipment, but a few months later when the agency needs furniture, that can be added onto their leasing agreement, either co-terminus or with its own term. This approach also makes it easier for customers to sign documents a second time around while keeping payments to one invoice each month or year depending on terms.
When Does an Agency Need to Contact NCL to Meet Deadlines?
This best time to bring NCL in is when an agency begins working with vendors. Municipalities want to make sure that the assets and financing amount translates to a monthly payment that is within the allotted budget. As vendors are offering quotes, you can be sure that your plan financing correlates with your project costs.
When considering lead times, NCL can accommodate fast tracking project that need to pay vendors immediately or project/equipment with longer lead times. NCL will address all options and scenarios on the front end in terms of locking in rates, necessary progress payments to vendors (both of which are usually handled by setting up and escrow account) and any other municipal board meeting deadlines or requirement.
If given a further lead time, NCL can even put money in an escrow account to lock in rates, and release any progress, payments, or deposits required on a project to the vendor as requested.
For more information about starting the financing conversation with NCL regarding lockers or any other important improvement to your school or agency, contact Katie at email@example.com. Or visit their website at http://nationalcooperativeleasing.com/.