Conventional bank loans
Banks provide conventional financing, evaluating loan requests against the socalled "five Cs" of credit. They must feel comfortable that borrowers have: capacity to repay the loan; capital of their own invested in the business; collateral to offer as a secondary source of loan repayment; creditworthiness, based on personal and business borrowing history; and character worthy of the bank's trust. It's in banks' best interest to minimize risk. Loans are made only where the likelihood of being repaid is very high.
Many very small businesses don't meet the lending criteria, either because they're too new or risky or lack the necessary collateral or equity. In these cases, banks can turn to the U.S. Small Business Administration or the borrower can look to nonconventional loan options. Banks can ask the SBA to guarantee a portion of loans to eligible small businesses. Guaranteed loans typically are available for up to 10 years for working capital and up to 25 years for fixed assets.
SBA loan guarantees are not free, though. The lender pays a fee to SBA, which usually is passed on to the borrower.
The SBA also offers a CommunityExpress Loan Program, where lenders make loans of $5,000 to $50,000 to qualifying businesses in designated low- and moderate-income areas. Borrowers who are women, minorities and veterans also qualify.
These loan decisions are based largely on the applicant's personal credit score. No tax returns, financial statements, business plans or collateral are required. The applicant must show proof of citizenship or legal permanent alien status and have no arrests, unpaid child support or delinquent federal loans.
Applicants also must undergo free business counseling from an SBA provider.
For more information, contact the SBA at 226-7272 or the Neighborhood Self-Employment Initiative at 917-3266.
Other options include:
Indianapolis Microloan Fund, which offers loans of $500 to $10,000 to very small businesses in Marion County. IMF is a joint venture among three notfor-profit organizations: Neighborhood Self-Employment Initiative, Community Choice Federal Credit Union and Local Initiatives Support Corp.
Loan applicants must be at least 21 and be both the business owner and day-today operator. Business owners who are immigrants, women, minorities, underemployed, unemployed and disabled are encouraged to apply.
Applicants may be asked to provide collateral and a personal guarantee. Loan terms, including interest rate and length of loan, will depend on individual circumstances. Loan application and closing fees may be assessed.
Contact NSI at 917-3266 or www.nsibiz.orgfor more information.
Indianapolis Small Business Loan Fund, a collaboration between a consortium of financial institutions and LISC that provides short-term loans ranging from $20,000 to $80,000 to stable small businesses in Marion County.
Loans, which carry a maximum term of five years, must create or retain jobs or help develop, rehabilitate or revitalize the community. Interest rates are variable with no prepayment penalties. The fund requires a corporate guarantee and may require a personal guarantee.
Contact LISC at 396-0588 or www.lisc.org/indianapolis/for details.
Signing on the dotted line
Before finalizing any loan, borrowers should make sure they understand what they're agreeing to-interest rates, loan length, loan fees, closing costs, late fees, collateral, insurance requirements, for example.
No two loans are alike. Try to match funding needs with the right source of funding.
Sim is executive director of the Neighborhood Self-Employment Initiative.