January 28, 2020

Lending to Early Learning Providers, an interview with Ana Inclán of Craft3

By James Madden & Juanita Salinas-Aguila

Ana Inclan

Craft3 is a regional non-profit CDFI that makes loans to strengthen the economic, ecological and family resilience in Oregon and Washington. Enterprise Pacific Northwest is currently partnering with Craft3 to implement the newly established Early Learning Facilities Fund. We recently had the opportunity to interview Craft3’s VP and Senior Business Lender, Ana Inclán.

Tell us about Craft3? How do you work with borrowers and what types of lending do you do?

Craft3 is a nonprofit community lender that delivers capital that strengthens jobs, families and the environment. We lend to established nonprofits and growing and start-up businesses – including those that don’t qualify for traditional loans.

We also help families of all income levels finance energy upgrades, build accessory dwelling units and replace failing septic systems. From eight regional offices throughout Oregon and Washington, Craft3 has invested more than $580 million in Northwest communities.

How has early learning fit into Craft3's work over the years?

Early Childhood Education is a central part of our Community Facilities strategy and has long been a priority for Craft3. We know that investing in high-quality early childhood education is one of the most effective ways to prepare a child for kindergarten and to improve a child’s chance for overall life success. Early learning centers play a critical role in the economy by helping parents maintain employment and allowing entrepreneurs to achieve their dream of owning and operating a small business.

Since 1994, Craft3 has invested over $36 million in 63 early learning centers, leveraging $103 million in outside funds to support 7,135 education slots and assist 5,264 low-income families.

What lessons did you take from that work, and how can these lessons inform the work moving forward with the new Early Learning Facilities Fund?

Lending in this industry can be difficult. Unless you can find a turn-key space fit for the enrollment and age-mix you seek to serve, you will likely need to invest in tenant improvements, which can be incredibly challenging for folks who don’t have experience in the space. We’re grateful to be partnering with Enterprise Community Partners who is offering resources for pre-development and technical assistance for both developers and operators.

Regulated teacher-child ratios help maintain high quality care but result in tight margins and a bit of a balancing act for providers who have turnover in staffing or children. Providers barely make money until they’re at full enrollment and they must carefully balance the cost of recruiting, training and retaining high quality teachers and offering competitive wages – all within a market that demands competitive pricing.

As an example, one of my clients started her business focusing on preschool-aged children only. A couple years later, she requested a second loan to add an infant care room adjacent to her existing space. We worked together to update her break-even analysis: assuming all parents wanted full-time care, my client would lose money on the first 2 infants, break-even on the third and turn profit on the fourth. She had to wait until she could fill all four slots, five full days per week, before she could add the space and teacher. If too much time passed, she risked losing the available space, one of the families and the teacher she’d trained up to fill the role. It’s an incredibly complex matrix that providers manage daily.

Why is this work important to you and to Craft3?

Investing in Early Childhood Education has ripple effects that strengthen family resilience and improve social determinates of health. It’s always rewarding being able to say “yes” and help someone achieve their business plan, particularly when others have said “no”. But it’s even more rewarding when that business is providing a resource that’s sorely needed in our community.&

Is there anything else you would like to share with us?

Typically, our Early Learning Center loans are for start-up or business acquisition costs, working capital, furniture, fixtures, equipment, real estate acquisition, tenant improvements or debt restructure.

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