Alternative Financing

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This slideshow is created for small business owners. It goes through the basics of credit, as well as describes traditional and nontraditional sources of financing available to small businesses.

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  • Banks are most concerned with your ability and willingness to pay back the loan, will keep close ties with mgmt on business’ performance, depending on size of bank can offer loans from $25,000 and up at rates ranging from 8-12% usually, banks may provide other options much as personal, home equity or auto loans Many banks offer SBA (Small Business Administration) -guaranteed loans to mitigate risks, has guidelines for size, ownership, market share, legal structure and use of funds, check with banks to see which SBA programs they offer
  • Can your business repay the loan you are requesting? What are your company’s financial reserves? Have earnings been reinvested? What assets are available to secure the loan? How have you handled personal obligations? Is the business owner a person of integrity? What do their references say? What is their level of business acumen? What are the general conditions related to your business and/or industry today?
  • Accounts receivable funding, purchase order funding
  • Background: part of intl non-profit org that has been serving small biz since 1960s, 29 offices in 14 latin american countries and 8 states in the US, Chicago started in 1994, funded by private organizations, foundations, and banks, so far made over 1500 loans in Chicagoland area
  • Be prepared Prepare a business plan or loan proposal Keep accurate financial records Keep your company financially sound Contribute personal funds Reinvest profits Be responsible with your personal & business credit Show corrective action if history is imperfect Develop a good payment history for your business
  • Alternative Financing

    1. 1. Alternative Financing Options for Your Small Business
    2. 2. Financing Options Overview <ul><li>Bank Financing </li></ul><ul><ul><li>Conventional Bank Financing </li></ul></ul><ul><ul><li>Government-Backed Loan Programs (SBA) </li></ul></ul><ul><li>Alternative Financing Options </li></ul><ul><ul><li>Family and Friends </li></ul></ul><ul><ul><li>Equity Providers </li></ul></ul><ul><ul><li>Asset-Based Lenders </li></ul></ul><ul><ul><li>Leasing </li></ul></ul><ul><ul><li>Not-for-Profit Loan Funds </li></ul></ul>
    3. 3. What Do Lenders Look For? Six “Cs” of Credit <ul><li>Capacity/ Cash Flow </li></ul><ul><li>Capitalization </li></ul><ul><li>Collateral </li></ul><ul><li>Credit </li></ul><ul><li>Character/ Capability </li></ul><ul><li>Conditions </li></ul>
    4. 4. Alternative Financing How Do These Programs Help? <ul><li>These programs help support deficiencies in the “Six Cs.” They often… </li></ul><ul><ul><li>Accept non-traditional collateral and/or co-signer in lieu of collateral </li></ul></ul><ul><ul><li>Enable extended payments to ease tight cash flow </li></ul></ul><ul><ul><li>Adopt less stringent credit history requirements </li></ul></ul><ul><ul><li>Encourage lending to businesses with limited financing history and start-up businesses </li></ul></ul>
    5. 5. Family & Friends <ul><li>Perhaps the most informal and easiest “deal” to make </li></ul><ul><li>Legal documentation is recommended </li></ul><ul><li>Investment by friends & family shows third party investors that business has credibility </li></ul><ul><li>Ask those who can afford to lose it </li></ul><ul><li>May not need to provide return on investment </li></ul><ul><li>Keep number of investors to a minimum </li></ul><ul><li>Example: </li></ul><ul><ul><li>Circle Lending www.circlelending.org </li></ul></ul>
    6. 6. Equity Providers <ul><li>Look for high growth potential, exceptional management and competitive edge </li></ul><ul><li>Want well-written, thorough business plan </li></ul><ul><li>Look for 20-40% return on money </li></ul><ul><li>Want significant ownership </li></ul><ul><li>Should be contacted through an intermediary – funds typically do not finance unsolicited business plans </li></ul><ul><li>Examples: </li></ul><ul><ul><li>Angel Investors – private investors and high net worth individuals (investments $75,000 – $1,000,000) </li></ul></ul><ul><ul><li>Venture Capital Funds – professional investors that manage funds with specific industry focus (investments starting at $1,000,000) </li></ul></ul>
    7. 7. Asset-Based Lenders <ul><li>Advance funds based solely on asset value </li></ul><ul><li>Provide working capital lines of credit </li></ul><ul><li>Generally an interim financing step </li></ul><ul><li>Examples: </li></ul><ul><ul><li>Presidential Financial www.presfin.com </li></ul></ul><ul><ul><li>Prodigy Capital www.prodigycap.com </li></ul></ul><ul><ul><li>Westbrook Capital www.westbrookcapital.com </li></ul></ul>
    8. 8. Leasing <ul><li>Finance equipment and related costs </li></ul><ul><li>When use is more important than ownership </li></ul><ul><li>Obsolescence protection </li></ul><ul><li>Tax benefits </li></ul><ul><li>Preserves cash flow – 100% financing available </li></ul>
    9. 9. Not-for-Profit Loan Funds <ul><li>Microloan Programs </li></ul><ul><ul><li>Generally have more flexible underwriting criteria than banks </li></ul></ul><ul><ul><li>Generally fund businesses that generate less than $500,000 in revenues </li></ul></ul><ul><ul><li>Lend amounts of $25,000 or less </li></ul></ul><ul><ul><li>Example: ACCION Chicago www.accionchicago.org </li></ul></ul><ul><li>Local Development Programs </li></ul><ul><ul><li>Offered by community development organizations, cities and villages and can range from direct lending to loan participations </li></ul></ul><ul><ul><li>Non-profit loan and equity funds designed for specific communities or census tracts </li></ul></ul><ul><ul><li>Example: Chicago Community Ventures www.chiventures.org </li></ul></ul>
    10. 10. ACCION Chicago <ul><li>“ 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.” </li></ul>
    11. 11. ACCION Chicago Loan Terms <ul><li>Amounts </li></ul><ul><ul><li>Loans up to $25,000 </li></ul></ul><ul><ul><li>Start-up businesses are eligible for up to $15,000 </li></ul></ul><ul><li>Terms </li></ul><ul><ul><li>2 to 60 months </li></ul></ul><ul><ul><li>Interest rate between 13% and 18% fixed </li></ul></ul><ul><li>Products </li></ul><ul><ul><li>Term loans with monthly payments </li></ul></ul><ul><ul><li>Balloon Loans (Contract/Invoice financing) </li></ul></ul><ul><li>Eligible Purposes </li></ul><ul><ul><li>Must be directly related to the business </li></ul></ul><ul><ul><li>Debt consolidation and purchase of property are not eligible purposes </li></ul></ul>
    12. 12. ACCION Chicago Eligibility Requirements <ul><li>Have industry experience </li></ul><ul><li>Generate sufficient business income to service new debt </li></ul><ul><li>Operate a for-profit business </li></ul><ul><li>Live and operate business in and around the 13-county Chicagoland area </li></ul><ul><li>Have a clean and/or improving payment history with creditors </li></ul><ul><li>Understand the finances of business </li></ul><ul><li>Pledge 125% collateral and/or a qualified co-signer </li></ul>
    13. 13. ACCION Chicago Loan Application Process <ul><li>Pre-Qualification Phone Call </li></ul><ul><li>Full Application and gathering of documentation </li></ul><ul><li>$25 application fee </li></ul><ul><li>Interview </li></ul><ul><li>Site Visit </li></ul><ul><li>Presentation to Credit Committee </li></ul><ul><li>Loan Closing </li></ul>
    14. 14. Tips for Obtaining Financing for Your Small Business <ul><li>Be prepared with a business plan or loan proposal </li></ul><ul><li>Keep your company financially sound – reinvest profits </li></ul><ul><li>Be responsible with your personal and business credit </li></ul><ul><li>Find good advisors </li></ul><ul><ul><li>Small Business Development Center Network www.illinoisbiz.biz </li></ul></ul><ul><ul><li>SCORE www.scoreillinois.org </li></ul></ul><ul><ul><li>Accountant/Bookkeeper </li></ul></ul><ul><ul><li>Attorney/ Community Economic Development Law Project www.cedlp.org </li></ul></ul><ul><ul><li>Industry Experts </li></ul></ul><ul><li>Be open to alternative financing options </li></ul>
    15. 15. 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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