Loan to Value (LTV) is the amount a bank is willing to lend compared to the appraised value of the property that will be the principal collateral for the loan. Because most banks only lend up to 80 percent of a property's value, a borrower must provide the remaining 20 percent of the financing cost through either a down payment or additional collateral.

Because of limited cash reserves, most schools must borrow more than 80 percent of the amount of the loan (and sometimes up 100 percent of LTV) needed to acquire or renovate a facility.

A Building Block Fund credit enhancement can fill this "financing gap" by pledging the necessary "additional collateral" to a lender, allowing qualified schools to borrow 100 percent of the money they need. because the loan is secured by the property AND the Building Block Fund's

Debt Service Coverage

One of the first things a lender calculates is Debt Service Coverage (DSC), which is calculated by dividing annual net operating income by the annual amount of debt service on the loan.

For example, if your annual net operating income is $62,500 and the annual debt service on a loan of $50,000 your DSC is 1.25, meaning you have a "safety net" for debt repayment because the annual net revenue exceeds annual debt service.

But if you annual net revenue is only $50,000 your DSC would be 1.0, meaning that any decrease in income, even a minor one, could result in you defaulting on your loan payment.

The Building Block Fund can fill this gap, helping qualified schools can borrow the money they need by pledging the necessary "debt service reserve fund" to a lender.