By JULIE MINDA
In 2007, the nonprofit Children's Museum of Phoenix was, on paper, a terrible credit risk for lenders.
Its bricks-and-mortar location had not yet opened — the museum was a traveling exhibit during the renovation of a property to create the facility that would open in 2008 — and the museum already was accumulating debt and had no cash reserves.
Believing in the value of the museum to the community, San Francisco-based Dignity Health stepped in to provide a five-year, low-interest loan of $1.5 million to the Children's Museum — a loan that the museum and health system renewed in 2012 for an additional three years at 3.5 percent interest.
"We were so new — there was no way we would have been able to get a loan like this elsewhere," said Kelli O'Toole, former chief operations officer for the museum. She said the Dignity Health loan "sustained us in bad economic times, helped us with the debt from our opening, enabled us to put money away for operating reserves and even positioned us to expand."
The Children's Museum is one of about 50 nonprofits currently being funded by low-interest or no-interest loans from Dignity Health's Community Investments program. According to Pablo Bravo Vial, Dignity Health senior director of community grants and investments, the health system offers the loans as a way of forming partnerships to improve community health. In some cases — the Children's Museum, for instance — the loans go to organizations that address the social determinants of health. For instance, the museum focuses on early childhood development, through many of its exhibits and activities.
Bravo Vial said Dignity Health has been awarding both grants and loans through its community health division since the early 1990s, and currently the funding streams are aimed at addressing unmet needs identified in community health needs assessments, tackling the underlying causes of health problems, and increasing access to primary care and fostering strategic partnerships. For example, one Dignity Health loan afforded capital to assist the Sacramento, Calif.-based Elica Health Centers in becoming a federally qualified health center and in expanding its services.
When nonprofits apply for funding, the health system's Community Grants and Investments Committee evaluates their programming strategies, potential impact of the program on Dignity Health's community health priorities, the program's sustainability and the financial stability of the community organization seeking the money.
"While our grants are designed to support discrete projects, our no- and low-cost loans support larger projects in the form of clinics, community facilities and affordable housing for low-income families and seniors," among other large-scale projects, said Bravo Vial.
The vast majority of loan recipients serve or are headquartered in communities where Dignity Health facilities are located. Dignity Health's network spans 21 states, with hospitals in Arizona, California and Nevada. Some loan recipients operate internationally.
Dignity Health offers both direct loans and loans made in partnership with financial institutions; loan terms are for five years or less. The loan amounts are between $50,000 and $5 million; and interest rates are between 0 percent and 5 percent. Dignity Health does not charge fees for the loans, said Bravo Vial.
Since 1992, Dignity Health has loaned more than $88.1 million to 185 nonprofit organizations. Bravo Vial said Dignity Health has a 95 percent repayment rate for its no- and low-interest loans.
In the case of the Children's Museum, the cash-starved group building the museum could not access a capital bridge loan — or a short-term loan that temporarily supports a capital campaign until permanent financing is in place — from a traditional lender in the marketplace, explained Bravo Vial. Even if the organization had been able to do so, a loan from a community development lender likely would have come with a 6 percent to 8 percent interest rate and fees, said Bravo Vial. Bravo Vial said when approached by the Children's Museum, Dignity Health provided the five-year loan instead of providing a capital bridge loan.
Bravo Vial said the museum is paying back the loan mostly with money raised through a capital campaign and through philanthropic contributions.
O'Toole, who left the museum in May, said the Children's Museum has welcomed more than 2 million visitors since its 2008 opening, including more than 50,000 low-income community members through the museum's free or reduced admission program.
O'Toole said, "Dignity Health has been a great partner for us and has believed in our mission."
Bravo Vial said that the museum is located in a neighborhood that had been "overtaken by urban blight. The area is now completely transformed — there is redevelopment activity, including new businesses, light rail and housing. The museum played a major role in spurring" that redevelopment.
Bravo Vial said with the museum "low-income kids now have free access to a place where they can participate in interactive educational classes."
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