ASSISTIVE TECHNOLOGY LOAN FINANCING:

Joey Wallace, Ph.D.
Virginia Assistive Technology System

As the 21^st Century approaches, the positive impact of assistive technology devices and services continues to be evident across an ever-increasing population of Americans with disabilities. It is also true that the pace of technology development is becoming harder to keep up with, for even the most informed consumers, professionals, and policymakers. Within these competing realities is the dilemma of insufficient funding alternatives, which continues to threaten timely consumer acquisition of needed AT.

Lack of funding remains the greatest barrier to consumer access to AT, and with all the increased availability of information, device demonstration centers, and equipment evaluation opportunities, people with disabilities continue to struggle to find available financial resources. All too often, the purchase of needed equipment must come from the individual’s own resources, creating a hardship on persons of low income who are desperately in need of AT.

Loan financing programs have proven to be an alternative of great potential in relieving this burden of cost. A carefully constructed consumer responsive loan financing program can provide a dignified and normalized option to persons with disabilities of low and middle income. This article will provide a primer on loan program development, a summary of current approaches operating nationally, and a discussion of issues and trends necessary for a successful loan financing program for AT.

The first national study of loan programs serving persons of low and middle income was conducted in 1993 titled, "A Policy Analysis of National Loan Financing Programs: Strategies for the Development of Loan Programs for the Acquisition of Assistive Technology". This research reviewed programs offering low interest rates and extended payment terms across housing, education, micro-enterprise, rehabilitation, and economic development purposes. This author in cooperation with Apogee Research Incorporated coordinated this research. This study surveyed forty-one loan organizations through structured telephone interviews that represent forty-nine individual loan programs across 31 states.

This research was updated in a 1996 article titled, "Loan Financing for Assistive Technology: Strategies for Development, Current Programs, and Recommendations for the Future" in the journal Technology and Disability. Several programs were highlighted and successful program factors were detailed. This work has led to the development of many loan programs across the country, and assisted in building a heightened consumer presence into existing programs.

The evidence of the importance these programs hold at the policy level is contained within Title III of the Reauthorized Technology-Related Assistance for Persons with Disabilities Act of 1994 (P. L. 103-218). Although un-funded, this Title contains provisions for the funding for such loan financing programs for up to $500,000 per state. This amount of seed funding would have provided the financial leverage to recruit lending partners and to negotiate reasonable loan rates and terms.

There are several driving components that are critical for consideration from the outset of loan program development discussions. It is essential that each of these foundational issues be addressed to the fullest extent possible with active stakeholder input, in order to create a meaningful program base from which to proceed. These components which require varying degrees of up front program commitment are as follows:

1. Commitment to a Consumer Driven Program. Throughout the literature on successful loan programs of all types, the level of active involvement by participating customers can be directly correlated to program success. This is especially true in AT loan financing programs. Persons with disabilities who might be potential customers of the loan program, or who have had past experiences with the credit system are essential participants at all levels of program development, operation and oversight. Although this might sound obvious, peer participation that reflects an honest awareness of who might benefit from this program, combined with focussed attention customer responsiveness, will almost guarantee a successful program.
2. Commitment to Serving Persons of Middle and Low Income. Persons of low to middle income comprise the vast majority of individuals with disabilities. These also constitute the population needing the most assistance with AT funding, and those who would benefit most from such a loan financing program. Persons of this income level are often considered "at risk", particularly those on fixed incomes who may have little or no credit history. Traditional lending institutions have little motivation to reach out to these individuals although some incentives do exist such as the Community Reinvestment Act (CRA). A strong commitment to creating a program that will include these individuals will be necessary up front and may need to be fought for as negotiations ensue with the lending partner.
3. Commitment to Equal Partners. The development of an AT loan financing program typically includes several entities working together as partners. These often include a consumer organization, frequently a non-profit; and a financial lending entity. Many times these reflect private and public partnerships. Third parties may also have a role in providing outside support, consumer counseling, or external evaluation. The greater the degree to which the partners can operate on an equal basis, each serving in their essential role in program administration, finance and oversight, the more likely this will further enhance a successful operation. All too frequently, when the financial entity is a private lending institution and the program has no outside funds to leverage against the bank funds, the bank becomes the lead and controlling entity. This reduces the impact and presence consumer control and can minimize program flexibility and responsiveness.
4. Commitment to Flexible Rates and Terms. Possibly the most critical component of a successful AT loan program is the degree to which interest rates and individual loan terms can meet the needs of individual customers. A program that is designed to include those of middle and low income must be able to offer rates and terms that create monthly payments that are affordable. Attention to both is essential. Low rates without extended terms (5 years and beyond) become too burdensome for many individuals with disabilities. Traditional rates (12% and up) that offer extended terms only serve to lengthen payments in an unreasonable manner, possibly beyond the useful life of the AT itself. Flexible rates and terms separate a responsive loan program from a traditional program, therefore making it an inclusive program. The ability to individualize rates and terms to the needs of individual loan applicants is the ideal to strive for. A commitment to total involvement of persons with disabilities in the entire loan program operation will do much to ensure a successful and responsive program,
5. Clear and Dignified Language and Well Defined Terms. The need for building a program that serves as a model for disability awareness, especially when considering the possibility of public and private partners, cannot be overstated. Using terminology and images that promote the loan program as a normalized community service, providing a dignified alternative to individuals with disabilities is essential. Such areas as loan program descriptions, brochures, public awareness materials as well as program by-laws and policies must reflect language that conveys positive images and the clear purpose of the program itself. These can provide a powerful education to the non-disabled community and build outside support for the program, particularly in private industry.
6. Well Defined Target Population and Scope of Program. Whom the loan program and how broad the services will be will serve is essential to program definition at the outset. Will all individuals with disabilities be eligible? Will there be upper or lower income restrictions? Will all AT devices and services be considered? Will the entire state be served? These questions are the beginning of the foundation for program determination. Planning for and anticipating the answers to these questions are essential to building a program that can respond to the needs of its applicants. Failure to do so can set a program for early failure.

 

Loan Program Models

At present, there are 27 states with operating loan financing programs for assistive technology. This translates into nearly a thousand loans annually across the country. Each program has its’ own unique administrative and financial elements, generally operating from one the four models presented below. Matrix 1 provides a breakdown of individual program features. Please contact these programs directly for additional information.

There are four basic models, which represent the majority of existing AT loan financing programs. These include revolving, guarantee, interest buy-down, and traditional. Many combinations of these models are in operation across the country, which provide good examples of creative and individualized programs dedicated to consumer responsiveness service. See the matrix of state loan financing programs for examples of the following models.

A revolving loan program is one in which individuals borrow monies, and loan repayments are dedicated to the re-capitalization of the loan fund, and are then recycled into future loans. The goal for a revolving loan program is to become self-sustaining which requires a large principal, usually millions of dollars. This model allows for great flexibility in that it can be administered by as little as one organization and can afford itself to substantial consumer control. A revolving program provides its own internal loan guarantee component, thereby self-insured.

A guaranteed loan program provides loans that are backed by a promise or "guarantee" that even if the loan goes into default, the loan will be paid back. This requires an investment of cash that is "set aside" to insure repayment. The amount of guarantee is a percentage of outstanding loans generally between 50 and 100%. This required percent of loan guarantee should be negotiated between the financial partner and the outside non-profit partner. High guarantees are one of the greatest barriers to the expansion of AT loan programs. Many states require a dollar for dollar guarantee tying up huge program funds.

An Interest buy down loan program involves an organization using its funds to reduce the interest rate of a loan made by a lending institution to a borrower. This can be done with or without a loan guarantee. The outcome of the buy down is the ability to reduce rates to an affordable level, generally below the prime rate level. The provides for truly low interest loans and creates the possibility of loan monthly payments of $50 or less for many types of AT.

A traditional loan program provides loans directly from the lending institution (credit union, bank, public agency, or private non-profit) to individual applicants, using the lending institutions own funds. The lending organization provides its own loan guarantee backing up each loan with its own investments. When the financial provider is a banking entity, there is little or no incentive to reduce interest rates, reach out to customers on the credit edge, or extend terms. Consumer control and responsiveness suffer in the traditional loan model.

View Matrix One

 

Loan Program Design Elements

Each loan assistance program is comprised of a number of structural details that define the operation characteristics of the program. These are separated into administrative, financial and oversight elements to look at the program design components necessary for a responsive and flexible AT loan program.

Administrative Elements

O Administrative parties/partnerships

O Eligibility criteria

O Credit check requirements/eligibility treatment

O Provision of non-financial services

Administrative elements are those basic design features that relate to the general administration or day-to-day operation of the loan program. Central administrative elements include the forms of financial assistance to be provided (e.g., traditional loans, revolving loan funds, loan guarantees, and interest subsidies). It also includes the administrative players and their roles, including public-private partnerships; the setting of basic eligibility criteria (whether based on financial need, non-financial criteria, or a combination of criteria), and the decision on whether to provide any non-financial assistance, such as technical assistance or personal finance training.

Financial Elements

O Sources of funding and fund capitalization

O Loan amounts (minimum and maximum)

O Interest rates

O Loan term lengths (including flexibility provisions)

O Treatment of default risks and loan security

In addition to the administrative elements, a wide range of finance related program elements must be defined prior to establishing a loan assistance program. Such financial elements include the sources of funding for the program and the basis for capitalization (i.e., one-time or ongoing), and the establishment of minimum and maximum loan amount levels. Also the designation of interest rates and repayment terms; procedures for the treatment of default risks; and other details such as the application of processing fees and collateral requirements.

Oversight Elements

O Loan decision/appeal authority

O Policy-making authority

O Consumer involvement across program

Oversight elements include the establishment of loan decision and loan appeal authority; the distribution of policy-making authority; and the level of consumer involvement throughout the administration and oversight of the loan program. These elements are central to the degree of consumer control exercised in the program. Consumer involvement in loan decision making, policy development and implementation, and in providing direct technical assistance to loan applicants. These supports are fundamental to a successful loan program and low default rates.

Loan Program Design Considerations

Due to the varying political, financial or administrative issues that may be present in different states and organizations, a listing of loan program design considerations is provided for guidance in loan program design. For example, traditional financing options available in more rural states generally are more limited than in urban states and thus the financial barriers encountered by intended beneficiaries may vary among individual states. Loan program design considerations are as follows:

1. Appropriate definition of target population to be served, and an understanding of their financial and non-financial needs.

2. A determination of the sponsoring organization's desired level of program control and oversight.

3. A determination of the administrative capacity of the sponsoring organization and other potential partners.

4. A determination of the financial resources of the sponsoring organization and other potential partners.

5. A determination of the need for security and longevity of the loan program.

6. Consideration of the marketability of the loan program to potential funding sources and potential partners.

7. Assessment of the political acceptability of the proposed program.

8. A determination of the degree of consumer involvement desired in loan program administration and oversight.

These factors are essential for consideration throughout the design and early phases of loan program implementation. Figure 1 provides a visual presentation in flow chart form of the general steps in the loan financing program development process.

ADD FIGURE 1 HERE

Note: Hard copy only

 

Issues and Trends Facing AT Loan Programs

With 22 AT loan programs operating nationally, and a history of almost ten years since the inception of the Credit Able Loan Program of Maine, the opportunity to isolate critical areas necessary for successful program continuation is now available. There have been examples in several states where loan programs have been initiated but have not been successful, and have had to cease operation due to inadequate capital, program organization, inflexible rates and terms, or just not being able to get the word out. This reinforces the need to pay close attention to the Program Development Considerations identified previously.

Maintaining a successful loan program requires diligence and a broad network of support. In this section, those areas identified by active loan programs as critical for success and requiring ongoing attention are discussed. These include initial financial investment, financial sustainment, loan guarantees, program marketing, and consumer control.

1. Initial Financial Investment. The single greatest threat to successful AT loan programs is the financial base from which they operate. The greater the degree of investment the program is able to bring to the table, the broader the population is that can be served thereby increasing the total scope of the program. Too often loan program developers have little or no capital to initiate the program, and become entirely dependent on a financial lending institution to initiate the program. This is likely to lead to a narrow program or one that will serve only those who might have otherwise had loan options available to them. This leaves out those most in need of the program, meaning those of middle or low income, who comprise the majority of persons with disabilities. Control rests entirely with the lending institution.

2. Ensuring the Program is Self-Sustaining. In a revolving loan scenario, a large investment of possible millions of dollars capitalizes the program. As loans are made, they are slowly paid back thereby sustaining the fund. A careful accounting of monies on hand and schedules of re-payment is essential to maintaining a program that can continue and remain self-sustaining. In a buy-down or guarantee loan model, monies are not repaid back into a fund; they are loaned out by a financial lending institution in cooperation with a non-profit entity that provides the buy-down and/or guarantee. As these non-profit monies are expended they must be replenished through active fundraising. These levels of infusion must be planned for and provided through grants, legislative appropriations, or bond referendums. If they are not successful those guarantees and buy-downs provided will discontinue, and may result in a narrower program, a traditional loan program, or cause the program to cease altogether.

3. Providing Loan Guarantees. All loans provided by any lending program must be backed by guarantee of monies, to ensure loans that "go bad" will be repaid. Loans made by private banks are self-insured with their own dollars for that very purpose. Federal guarantee programs guarantee many student and small-business loans. AT loan programs face a real dilemma in this area. Generally, they bring limited funds to assist in the initiation of the program. These, when available, can be an incentive to private banks to become partners. A bank will require some percentage of outstanding loan amounts be set aside as a guarantee for possible loan defaults. This can be up to 100% of all outstanding loans thereby occupying large amount of program dollars that cannot be used for other program activities. Because loan programs often have little or no loan program history, banks are naturally unwilling to take much if any risk by way of reduced loan guarantees. A national mechanism for backing these loans would stretch these limited internal dollars and reduce guarantee requirements considerably.

4. Marketing the Program. A flexible and responsive AT loan program is nothing without the ability to reach its’ constituents. This becomes a particular challenge in an extremely rural, large state. In states such as Hawaii and Alaska, this challenge has been very great. Knowing how to reach the underserved and unserved in a particular region is essential. In states like Maine and Virginia where the loan programs were years in the making, consumer organizations and their informal networks were included in program development, which led to a great initial and ongoing statewide response. When a financial entity is involved it is appropriate to enlist their support and resources in getting the word out by way of written materials, public relations initiatives, TV and radio spots, and local success stories. In fact, a well-developed marketing strategy to measure program need and bring people into the program should be well under way long before program operation. The failure to do so will result in minimal demand and set up a good program for failure. Attention to the cultural characteristics of the state’s individual populations must be considered in marketing. Credit, as a concept, is not always accepted outside the family, tribe or respective culture. Special attention to cultural norms should be considered when introducing of the benefits of a loan program for individuals with disabilities.

Testimony on the State of AT Loan Programs in 1998

In January 1998, a public hearing was held in Alexandria, Virginia to provide testimony on the outcomes of federally funded state Technology Act Projects. The following testimony was provided by this author to a blue ribbon panel of federal stakeholders on AT loan program developments, and was received with particular interest. It is as follows:

I am Dr. Joseph Wallace of the Virginia Assistive Technology System. I would like to take a few minutes today to speak to the importance and potential impact assistive technology loan financing programs holds for persons with disabilities across the country. I will also emphasize the key role that Tech Act projects have played in this regard.

As you are fully aware, funding remains the greatest barrier to the acquisition to technology for Americans with disabilities. The concept of using the traditional credit system to increase choices to persons of low and middle-income individuals has received little attention historically. In 1994, I completed the first study of such programs entitled, "A policy analysis of national loan financing practices: Strategies for the development of loan programs for the acquisition of assistive technology". The outcome of this research was to identify practical approaches and guidelines for consideration in developing responsive loan financing programs for assistive technology. I am pleased to state that this research has led to the development of at least 8 AT loan programs nationally and continues to be used to modify pre-existing programs.

There is at the present time, 20 states with functioning AT loan financing programs. As you would expect, these vary widely by operating organizations, funding bases, and degrees of consumer participation. What they do have in common is a singular purpose: to increase access to AT for individuals with disabilities through flexible credit opportunities. Several thousand loans have been made to the disability community from these programs, which have steadily grown in scope since 1989 and continue to reflect very low default rates. State Technology projects have had a direct influence on the development and operation of the vast majority of these programs, many reflecting public and private partnerships.

The key issue of concern for the continuing success of existing and future loan programs is funding for capitalization and operating expenses. It is clear from studying these programs that the degree to which moneys can be leveraged to create a partnership with external lending entities, the greater the likelihood that flexible rates and terms will be offered to individual consumers. This is evident in states such as Alabama, New Hampshire, and Hawaii. Tech Act dollars have had a significant impact in providing base funding to initiate these programs. The problem of continuing to infuse dollars into the program remains. Many states have successfully gone to their legislatures for funding (Virginia, Arkansas, and Connecticut); Maine pursued two bond referendums to maintain its revolving loan program; and foundation grants have supplemented other programs such as North Carolina and Utah. The majority of these initiatives reflect consumer driven programs with strong consumer involvement ranging from program development to individual loan approval.

These diverse and creative approaches reflect individual solutions that were developed based upon each state’s unique circumstances. As effective as these have been, many other states have developed new programs without program funds of their own. They enter into agreements with private lending institutions and although a loan program is created, it is generally not able to reach out to those of low and middle income who constitute the majority of the disabled population. This dilemma is putting many of these programs in jeopardy and in my opinion lack flexible rates and terms.

The Re-authorized Technology Act included a provision within Title III for a $500,000 federal match to individual states to pursue the development of assistive technology loan financing programs. Unfortunately, this was never funded. This Title III would have created an attractive incentive for individual states and their respective Tech Projects to pursue a variety of fundraising alternatives whether governmental, philanthropic, or otherwise. The need for such leveraging continues to increase both in within existing programs and in those states wishing to replicate similar models.

The premier assistive technology loan financing program in the country, The Credit Able Program administered by Alpha One of Maine, sponsored a recent summit on this very subject. It brought together representatives from individual programs, bankers, and national experts to measure the impact and point to the future. It was determined that although these programs were meeting a great need, additional funds and proper leveraging of those resources could reach a far greater consumer base. The concept of a national loan financing program was entertained with varying degrees of interest expressed by those national banking representatives present. We need to continue to pursue this broad-based goal.

The major issues facing current and future loan programs are reasonable loan guarantee requirements and new funding infusion for program re-capitalization. A loan guarantee is a requirement in all programs whereby funds are set aside as a promise or "guarantee" that the loan will be paid back even if it defaults. Lending institutions require some percentage of the total outstanding loans to serve as a guarantee. In the case of AT loan programs nationally, these can vary from a 100% or dollar for dollar guarantee, to none at all. High guarantee rates tie up program funds and are the result of unwillingness on the lending institutions part to assume risk. This may be due to the lack of a loan portfolio history by the AT loan program, little or no program dollars for leveraging, or an inflexible lender. Both the issue of loan guarantees and program re-capitalization could be improved through additional program funds as originally proposed in the Title III of the re-authorized Tech Act.

As a Tech Project staff person responsible for AT loan program development, and as an individual assisting in the creation of an additional ten of these programs, let me assure you loan financing remains an alternative of great potential to solving many pieces of the AT funding puzzle. A successful loan for AT provides consumers with a dignified and normalized alternative, ensuring them both access to needed equipment and a credit base from which to build upon if they so choose.