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 FinancingHow 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 ChicagoLoan 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 ChicagoEligibility 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 ChicagoLoan 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