Character Credit Capacity/ Cash Flow Capitalization Collateral Conditions

Transcription

1 Financing Options for Your Small Business DuPage County Minority Entrepreneur Conference Priscilla Cordero ACCION Chicago March 19, 2009 What Do Lenders Look For? Six Cs of Credit Character Credit Capacity/ Cash Flow Capitalization Collateral 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

2 Family & Friends Perhaps the most informal and easiest deal to make Ask those who can afford to lose it May not need to provide return on investment Keep number of investors to a minimum Example: Virgin Money- Private investors Looking for high-growth businesses, great management team and competitive advantage Require a good business plan Normally expect a 20-40% return on investment Examples: Angel investors (investments of $10,000 $1,000,000), Venture Capital (investments starting at $1,000,000) Not-for-Profit Loan Funds Microloan Programs Generally have more flexible underwriting criteria than banks Example: ACCION Chicago 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 i.e. Small Business Improvement Fund Grant i.e. Chicago Community Ventures

3 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 microentrepreneurs throughout the Chicagoland area, ACCION Chicago strives to help businesses and communities grow. ACCION Chicago Referral Eligibility Checklist Operate business in the 11-county Chicagoland area in Illinois OR Lake or Porter county in Indiana? Over 21 years of age? Business industry must NOT involve: real estate development, not-for-profit organization, exporting, multilevel marketing or lending. Loan purpose must NOT include: prototypes, owner s salary, down payment on real estate, or tax payments. Current, with no bills past-due, on all active personal and business accounts? Free of outstanding tax liens, delinquent child support, and active bankruptcy? ACCION Chicago Referral Eligibility Checklist (Cont.) Willing to pledge collateral (2 nd or 3 rd mortgage, vehicle and/or business assets) and/or a qualified co-signer? For start-up businesses (less than 6 months revenue history): Is current/outside income sufficient to cover personal bills, new business rent, AND an ACCION loan payment? Or do they have significant savings? Personally invested at least 10-20% of loan amount requested? Industry experience? Ready with business plan (can be informal) and 12- months cash flow projections?

4 Loans Funded YTD $1,000 credit builder loan to a hair salon in business 7 years to purchase water heater and pay past-due ComEd bill due to slow season. Secured by salon equipment. Credit score of 519 with Ch 7 bankruptcy discharged in 2006 and no good credit since. No outside income. $8,500 start-up term loan to a Puerto Rican carry-out restaurant not yet open for restaurant equipment and working capital. Secured by restaurant equipment and 2 vehicles. Credit scores of 663 and 719 (2 borrowers). Outside income. Primary borrower has $24K of revolving debt outstanding. Adjustable-rate mortgage. $8,000 term loan to a dump truck company in business 8 years (seasonal) to cover fuel, repairs and payroll for start of busy season. Secured by truck trailer. Credit score of 605. Outside income. $20,000 term loan to a music school in business 18 years to expand to a second location. Secured by musical equipment and electronics. Extremely high debt to income ratio (80%). Credit score of 692. No outside income. Loans Funded YTD cont. $1,000 credit builder loan to an event and wedding planning business in business 2 months for business cards, website and advertising. Secured by 3 laptop computers. Credit score of 451 several open collections and a chargeoff plus a 2006 Ch 7 bankruptcy. Outside income. $12,000 term loan to a printing business in business 5 years for equipment and working capital. Secured by business equipment and a vehicle. Credit score of bankruptcy plus approx. $4,000 in open collections and charge-offs from the last 2-3 years. $4,000 start-up term loan to a massage therapy business in business 6 months for working capital. Secured by massage equipment and a 2 nd mortgage on primary residence with no available equity. Credit score of $3K collection filed in 2002 and $1300 civil judgment pd in 04, several accts paid after charge-off. No outside income. Loans Funded YTD cont. $20,000 term loan to husband-and-wife towing company in business 5 years for purchase of an additional tow truck (100% of purchase price client paid registration fees). Secured by 2 trucks and a lien on business assets. Credit scores of 649 and 655. Outside income. Filed losses on business tax return last 2 years in a row. $15,000 start-up term loan to a spa and retail bath and body products store in business 3 weeks for equipment, rent and working capital. Secured by a 2 nd mortgage on a rental property plus a lien on all business assets. Credit score of 678. No outside income but significant savings.

5 How Does ACCION Evaluate Applications? 1. Five C s: Credit, Collateral, Cash Flow, Capacity, Character 2. Additional considerations: household and cosigner cash flow, applicant s life story, and community support/involvement 3. Approvals made by Committee, not by Underwriter case-by-case decisions Terms and Products Amounts Loans for established businesses: $500 to $25,000 Loans for start-up businesses: $500 to $15,000 Credit Builder Loan: $200 to $2,500 Products Term Loans Balloon Loans for contract/invoice financing Terms and Products Terms Up to 5 years, depending on loan purpose and cash flow Interest rates Fixed rate as low as 11%, average 13.5% Performance pricing available No prepayment penalty Fees Noapplication fee One-time closing fee up to 6% of loan amount plus collateral filing fees, financed

6 NEW Online Application Visit Apply Now! Quicker, more streamlined application process (as quickly as 10 business days) provides your customers timely answers pre-approval within 48 hours Improved screening mechanism means a more accurate pre-approval Eligibility guidelines available on our website to help you make an informed referral More accurate and timely reporting to you on the status on your referrals Approval Process Total time: as fast as 10 business days! Online application at Pre-approval issued within 48 hours If pre-approved, gathering of supporting documentation Collateral inspection/ Site Visit Underwriting Review Presentation to Credit Committee Loan Closing at our office or your bank branch ACCION Chicago Loan Application Process Complete our online application at Click on Apply Now. Meet with a Loan Officer Presentation to Credit Committee Loan Closing

7 Tips for Obtaining Financing for Your Small Business Be prepared Prepare a business plan Keep accurate financial records Register and/or incorporate your business with federal, state and local authorities Open a bank account for your business transactions Consult an insurance broker and purchase required policies for your business 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 Tips for Obtaining Financing for Your Small Business (cont) Find good advisors SCORE Accountant/Bookkeeper Attorney/ Community Economic Development Law Project Industry Experts Be open to alternative financing options Thank You For Coming! If you would like more information, please contact me at: (708) or pcordero@accionchicago.org