Access to Capital
November 26, 2012
The most common question we get from our Downtown businesses is how can they get money for their business?
Loans Loans are the easiest way to infuse cash into your business. Start with the bank or credit union who has your checking and business accounts, and ask your account manager about loan programs that would work for your business needs.
There is currently a national conversation about which banks actually are lending to small businesses. BankingGrades.com ranks banks’ loans to small businesses in relation to the funds they have on deposit. If your bank is unable to provide the loan, you can use this website to look for banks that may be more likely to lend to your small business.
If you are unable to obtain a loan from a conventional lender, then there are alternatives. The most common is through the Small Business Administration. See, http://www.sba.gov/category/navigation-structure/loans-grants/small-business-loans The SBA has two programs that are particularly applicable to small businesses in Downtown Tucson: the 7A program is available through most conventional lenders (your bank should be able to tell you about this), and the SBA 504 program is available through local community development corporations. Here in Tucson, the Business Development Finance Corporation (BDFC) handles most of the 504 lending. See, bdfc.com The 504 program is attractive because it has competitive interest rates and requires an equity investment from the borrower of only 10% (although in some cases it may be 20%). A loan package under the SBA 504 program for $300,000 would be $150,000 in a conventional bank loan, $120,000 in SBA guarantees, and $30,000 equity from the borrower. Many conventional lenders will require between 75% loan-to-value (LTV) and 60% LTV (and lower) instead of the 90% usually provided through the SBA 504 program.
Other alternative programs include Accion (http://www.accionnm.org/), which lends amounts between $200 and $300,000. If your credit rating has been affected by the economic downturn, Accion has a program to help improve your rating through making small loans that positively impact your credit score as they are successfully paid off. Other nonbank lenders include Arizona Multibank (the CDFI that includes services for Southern Arizona, multibank.org), OnDeckCapital.com, LighterCapital.com, and Kabbage.com. Kabbage.com tracks your shipping records through UPS and other somewhat non-traditional indicia of your financial viability which could help a business starting out with a boom but lacking the working capital to keep moving forward.
If you are currently in business, you can sell your receivables to a “factor” which gives you a percentage of the face-value of the receivable and then the remainder when it is paid off. Interest rates vary but are usually between 18-30%. See generally, http://www.nytimes.com/2012/08/02/business/smallbusiness/for-small-businesses-bank-loan-alternatives.html?ref=smallbusiness
If you have equipment that you own, you may sell it for cash and then lease it back. Details can be found through https://www.cfa.com/eweb/
Cash advances may be available for restaurants who can have repayment secured through draws on credit card receipts.
There are also peer-to-peer lending opportunities such as LendingClub.com and Prosper.com. Locally, the Microbusiness Advancement Center/Small Business Development Center has affiliated with Zip.Kiva.org which arranges loans between individuals here and in Kenya.
Grants Grants are usually only available to nonprofit 501(c)(3) entities that fall within the parameters of the granting institution’s mission. In 2011 the Downtown Tucson Partnership was fortunate to receive a grant from the Tohono O’odham Nation for our facade program. Downtown Tucson Partnership has recently filed paperwork to establish a 501(c)(3) so we can apply for more grants to assist with economic development work, streetscape improvements, parades and festivals, educational outreach efforts, and other similar things. We will keep you posted on this.
Call or email us if you would like information about any of these programs: 837-6508 or firstname.lastname@example.org.