Alternative Financing

Alternative Financing Options for Your Small Business

Financing Options Overview
Bank Financing
Conventional Bank Financing
Government-Backed Loan Programs (SBA)
Alternative Financing Options
Family and Friends
Equity Providers
Asset-Based Lenders
Leasing
Not-for-Profit Loan Funds

What Do Lenders Look For? Six “Cs” of Credit
Capacity/ Cash Flow
Capitalization
Collateral
Credit
Character/ Capability
Conditions

Alternative Financing How Do These Programs Help?
These programs help support deficiencies in the “Six Cs.” They often…
Accept non-traditional collateral and/or co-signer in lieu of collateral
Enable extended payments to ease tight cash flow
Adopt less stringent credit history requirements
Encourage lending to businesses with limited financing history and start-up businesses

Family & Friends
Perhaps the most informal and easiest “deal” to make
Legal documentation is recommended
Investment by friends & family shows third party investors that business has credibility
Ask those who can afford to lose it
May not need to provide return on investment
Keep number of investors to a minimum
Example:
Circle Lending www.circlelending.org

Equity Providers
Look for high growth potential, exceptional management and competitive edge
Want well-written, thorough business plan
Look for 20-40% return on money
Want significant ownership
Should be contacted through an intermediary – funds typically do not finance unsolicited business plans
Examples:
Angel Investors – private investors and high net worth individuals (investments $75,000 – $1,000,000)
Venture Capital Funds – professional investors that manage funds with specific industry focus (investments starting at $1,000,000)

Asset-Based Lenders
Advance funds based solely on asset value
Provide working capital lines of credit
Generally an interim financing step
Examples:
Presidential Financial www.presfin.com
Prodigy Capital www.prodigycap.com
Westbrook Capital www.westbrookcapital.com

Leasing
Finance equipment and related costs
When use is more important than ownership
Obsolescence protection
Tax benefits
Preserves cash flow – 100% financing available

Not-for-Profit Loan Funds
Microloan Programs
Generally have more flexible underwriting criteria than banks
Generally fund businesses that generate less than $500,000 in revenues
Lend amounts of $25,000 or less
Example: ACCION Chicago www.accionchicago.org
Local Development Programs
Offered by community development organizations, cities and villages and can range from direct lending to loan participations
Non-profit loan and equity funds designed for specific communities or census tracts
Example: Chicago Community Ventures www.chiventures.org

ACCION Chicago
“ ACCION Chicago is an alternative lending organization dedicated to providing credit and other business services to small business owners who do not have access to traditional sources of financing. By encouraging the economic self-reliance of micro-entrepreneurs throughout the Chicagoland area, ACCION Chicago strives to help businesses and communities grow.”

ACCION Chicago Loan Terms
Amounts
Loans up to $25,000
Start-up businesses are eligible for up to $15,000
Terms
2 to 60 months
Interest rate between 13% and 18% fixed
Products
Term loans with monthly payments
Balloon Loans (Contract/Invoice financing)
Eligible Purposes
Must be directly related to the business
Debt consolidation and purchase of property are not eligible purposes

ACCION Chicago Eligibility Requirements
Have industry experience
Generate sufficient business income to service new debt
Operate a for-profit business
Live and operate business in and around the 13-county Chicagoland area
Have a clean and/or improving payment history with creditors
Understand the finances of business
Pledge 125% collateral and/or a qualified co-signer

ACCION Chicago Loan Application Process
Pre-Qualification Phone Call
Full Application and gathering of documentation
$25 application fee
Interview
Site Visit
Presentation to Credit Committee
Loan Closing

Tips for Obtaining Financing for Your Small Business
Be prepared with a business plan or loan proposal
Keep your company financially sound – reinvest profits
Be responsible with your personal and business credit
Find good advisors
Small Business Development Center Network www.illinoisbiz.biz
SCORE www.scoreillinois.org
Accountant/Bookkeeper
Attorney/ Community Economic Development Law Project www.cedlp.org
Industry Experts
Be open to alternative financing options

For more information on our loan program please visit www.accionchicago.org If you are within ACCION Chicago’s service area, please apply online or call 312-275-3000

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Alternative Financing

by Sophia Darugar on May 06, 2010

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