For most loans, it is a simple process. Suppose the school wants to expand its facilities. It is government-approved and has a waiting list, which virtually guarantees a need and capability to secure additional funding.

From this point, it is a construction loan with a few additional requirements. The major difference between commercial lending and institutional lending is that in most cases, schools will have government contracts to support their need for funding. Most of the lenders you will find in this sector are privately backed by philanthropic organizations or individuals. Both get tax breaks for donations to these lenders.

Because charter schools receive funding from the government, there are income considerations lenders will consider -- how many students qualify for free lunch, what is the farthest distance a student goes to get to that school, does the school receive extra income from a day-care or sick-child-care program and so on.

From finding to funding

Depending on the path you choose for your customer -- direct to the lender or specialized broker -- funding generally happens 60 days to 90 days after the lender receives and reviews the appraisal.

As in all commercial deals, notify your customers early on of the cost and the time frame for a legitimate appraisal. This is an area where brokers' local knowledge will help immensely. If you know the right people and have worked in this area before, you will further your clients' belief in you. But remember that you are working in a specific time frame -- many school-owners will want their new addition completed by the beginning of a school year or semester.

You should contact the lenders and get their requirements for what constitutes an acceptable appraisal from a qualified appraiser. Most lenders know if they can get a good appraisal of the building and the land, they will find the value of the school in the school's own records.

After receiving the appraisal, most lenders will begin speaking directly to the school. For the most part, you are done. Unlike a standard commercial loan, many institutional lenders will visit the property and spend the day interviewing the staff and touring the campus. While this may seem somewhat unusual, it is often part of the application process.

Many lenders do not have a cap on the points the broker can charge and there is rarely yield spread. But if a contract is not in place between you and the customer -- including the specialized broker, if you used one -- it will be difficult to collect your commission. That is because brokers typically are not paid directly from the lender but out of proceeds to the customer.

Privately funded schools and charter schools are a part of a wave of education reform that has grown slowly. With the help of private funds or alternative credit routes, charter schools are increasingly becoming an educational choice for American families. With almost 4,000 schools already in place, opportunities for lending abound.

Christopher Farrell and Chris Sanders are co-owners of Sanctuary Lending, a brokering service that specializes in institutional lending for churches, schools and other facilities throughout the country. In addition to cash-flow funding, valuation funding and equity funding, Sanctuary Lending also acts as a conduit for nonprofit and not-for-profit entities for state programs and accounting. Farrell and Sanders can be reached through www.SanctuaryLending.com or (888) 411-7683.

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