Written by David Langlieb

At the Philadelphia Accelerator Fund, we are ever-conscious of our mission as an alternative source of capital for small developers looking to scale up and build affordable housing in the city of Philadelphia. Part of this means periodically re-examining what “alternative” means in the context of macroeconomic factors and market forces beyond our control. We are not a bank, and if we only finance loan requests that a bank would finance then we are failing to meet our mission. We are also not a hard money lender offering high fee, high-interest rate loans, as our mission also involves keeping our financing affordable to developers.  

PAF broadly intends our money to be “but for” financing — meaning that but for our financing in a deal, the deal would not happen. This can either be in place of a traditional lender or in cooperation with one. We can provide senior financing where it otherwise would not be available or provide subordinate, junior debt in partnership with a senior lender (typically a bank or a non-profit loan fund). 

While we are not a bank, we underwrite loan applications using much of the same information as traditional lenders. For example, a bank loan application and a PAF loan application both require information like tax returns, a personal financial statement for the project owners, a budget, a pro forma, and authorization for a credit pull. The differences lie in the way we analyze these materials. 

A bank will rigidly adhere to loan-to-value and loan-to-cost metrics, a minimum credit score, minimum owner liquidity, and other requirements. PAF has a great deal more flexibility. For example, our loan policies dictate we underwrite the project rather than the borrower. If an applicant submits realistic cost estimates, a strong pro forma, and a compelling plan for developing the property as affordable housing, we will likely consider the project financeable regardless of personal or business credit weaknesses that would deter a traditional lender. 

Of course, flexibility is not a substitute for rigor. Applicants sometimes assume that mission-based lenders will be less thorough than traditional lenders. It is often the other way around. Untethered from rigid bank metrics, a credit analyst at a mission-based lender will need to go deeper and better understand a loan application than a bank underwriter. We ask more follow-up questions. A low credit score, for example, will not mean automatic rejection of the loan application, but it needs to be contextualized. Are there errors in the report? How old are the delinquencies? What steps has the applicant taken to improve the score? For example, if an applicant’s car was repossessed, did they downgrade to a more affordable vehicle? 

The good news is that when an applicant submits information to a mission-based lender like PAF, there is room for them to make the case for us “getting to yes.” Here are a few tips for how to best present a project:


Know What You Need

Among the first questions that lenders and credit analysts will typically ask a loan applicant is, “How much financing do you need?” The worst answer to this question is, “How much can you give me?” This response reflects an applicant who either doesn’t have a thorough understanding of the project budget or has given no consideration to how they will repay the loan—bright red flags for lenders.

A loan request should include a realistic dollar amount that can be repaid either through rent roll over a 15 to 25-year period with a 5% vacancy adjustment or upon the sale of the unit(s) for homeownership deals. A mission-based lender can often go up on loan amount—applicants need not ask for more than they need and negotiate down. 

We would rather see a loan applicant who is apprehensive about taking on debt and errs on the side of minimizing leverage. We thoroughly review project budgets, owner liquidity, and other factors and will work with you to structure a loan that makes sense. But it behooves applicants to come to the table with a specific financing request informed by the economics of the project.  


Anticipate the Hurdles and Be Transparent

As with the credit score example discussed above, mission-based lenders like PAF need a thorough understanding of any business or personal credit issues. With very few exceptions (a recent bankruptcy, for example) these will not mean an immediate application rejection. An applicant who is transparent about the challenges of a particular project or about personal financial history is more likely to secure loan approval. The credit analysis process will reveal all eventually—current or historic delinquencies, liens, liquidity, income level, etc.—so give the lender or underwriter an honest, complete framing of the facts from the get-go. 


Sell the Project’s Social Impact

Folks who work at mission-based lenders like PAF got into the industry because we view finance as a tool that can help build communities. Mission-oriented financing is especially critical in cities like Philadelphia, where there is a tremendous amount of work to be done reversing historic disinvestment and exploitation. 

We know we aren’t here simply to make easy loans. We want to take responsible, calculated risks that benefit our communities and invest in our residents. Without overselling, be sure the lender understands how a project will benefit the area, the residents, and even the city. Larger projects may speak more for themselves, but even one or two single-family infill developments will reduce vacancy on a block and make a neighborhood safer. Keep these kinds of things front of mind and generate some excitement for your next project.