Something Old, Something New: Small Business Lending in 2010

While there is no need to restate the obvious, I will take a moment to do just that. Small Businesses have not been able to get the financing they need to grow, and in some cases support, their businesses over the past 24 months. The National Small Business Association (NSBA) states that this has impacted the job-creation drivers of the U.S. economy and impedes our recovery from recession. According to the 2010 NSBA Mid-Year Economic Report, 80 percent of small businesses have been impacted by the credit crunch and the number of businesses unable to garner adequate financing rose to 41 percent in the last six months.

Now, onto something you may not know: Pathway Lending, a certified non-profit Community Development Financial Institution, makes it our mission to increase access to capital to Tennessee businesses. Our target clients are those businesses that are unable to get a loan from a traditional bank despite having a growth opportunity at hand.

After working with hundreds of clients over the past decade and lending more than $42 million, Pathway Lending has developed three Small Business loan products that help move businesses to the next level:

• Building and Land Purchases for the acquisition of commercial real estate, construction or renovations of owner-occupied real estate. Pathway Lending can lend up to 90 percent of the property’s appraised value. We often partner with the U.S. Small Business Administration and USDA Rural Development so that our clients can take advantage of loan guarantee programs and flexible terms. Loan amounts begin at $35,000.
• Expansion Capital for the purchase of equipment, permanent working capital, inventory or lines of credit. Pathway Lending will finance up to 80% loan to value for equipment. Our other forms of working capital can range from one to five years and loan amounts are from $35,000 to $500,000.
• Purchase Order Finance to help companies fill orders from government or commercial contracts. Pathway Lending gives companies a way to purchase raw materials and pay for up-front production costs. We can set up one-year lines of credit and make advances on up to 80 percent of the cost of goods. Loan amounts are based on the purchase order or account receivable balance.

If you’re a Tennessee business owner in search of financing for your business, check out our website to get started. (Learn more about our Lending Criteria and Steps to Getting a Loan)

If you’re not in Tennessee, here are some other options for financing your small business:

Government-backed loans
The Small Business Administration guarantees as much as 90% of some loans. Now, preferred SBA lenders such as Bank of America (BAC) and KeyBank (KEY) may be more willing to extend you an SBA-backed loan, says Brian Hamilton, CEO of Sageworks, a Raleigh, N.C., financial research firm, and a former SBA consultant. Since President Obama signed the American Recovery and Reinvestment Act (ARRA) into law in February 2009, the weekly loan dollar volume has risen more than 40% in the 7(a) and 504 programs, compared to the weekly average before passage, according to John J. Miller, a SBA spokesman.

Passage of the ARRA, also permitted the SBA to temporarily waive a fee that it charges to banks, which is passed on to borrowers, says Martha Seidenwand, KeyBank’s SBA program and operations manager in Cleveland. (Special SBA programs including the American Recovery Capital (ARC) program and the floor plan financing program, might also prove helpful. For our story on ARC Loans, click here.)

Community banks and credit unions
Having dodged the brunt of the mortgage bullet, community banks and credit unions may be in a better position to lend to small businesses, Hamilton says. A number of community banks are issuing additional loans to small businesses as the outlook for the lending environment improves. In addition, credit unions may soon take on more small-business loans as larger lenders tighten their terms.

Peer-to-Peer networks
You may heard about peer-to-peer networks like Kiva, but similar organizations also exist to help U.S. businesses. The San Francisco-based peer-to-peer lending network Prosper is in the business of brokering loans. At Prosper, borrowers list how much they need and details about their business, while strangers can make loans with as little as $25. Virgin Money specializes in structuring business loans between friends, family members and associates. Lending Club will connect only credit-worthy borrowers with lenders. (Note that there are some pitfalls to going this route. Click here for our story.)

Microlenders
In need of a small cash infusion – typically under $35,000? Enter: New York-based microlenders Accion USA and Count Me In. Because these organizations rely on donations from charitable organizations and individuals, they’re more willing to lend to entrepreneurs just starting up or to those with checkered credit histories. Although microloans generally carry higher interest rates than bank loans, Accion recently lowered its rates from between 11% and 18% to between 8% and 15%. The SBA also provides microloans and offers rates between 8% and 13%.

Asset-based lenders
Don’t let the near-collapse of CIT, one of the nation’s largest factoring firms, fool you. There are troves of other asset-based lenders willing either to purchase your accounts receivables for 80% to 90% on the dollar or to lend against them. LSQ Funding, an Orlando, Fla., factoring firm, for example, works exclusively with small to midsized businesses across the U.S., and New York’s FGI Finance purchases international receivables. For those who like competition, the New Orleans-based Receivables Exchange allows credit-worthy businesses to auction off their receivables to the highest bidder.

Recovering From the Recession

In recent months Tennessee’s economy has shown signs of improvement, slight as they may be. Jobs have been added to the economy across a number of sectors and the unemployment rate is decreasing. While we’re not back at pre-Recession levels, perhaps this signals that the economy has turned a corner.

A few months ago, Tennessee unemployment data was bleak as all 95 counties reported increases in the unemployment rate, increases in initial unemployment claims, and the instances of mass layoffs were increasing across the state. Now, the news is different. The Tennessee Department of Labor & Workforce Development reported that total non-farm employment increased by 24,300 jobs in May 2010 and that unemployment rates decreased in 86 counties. After working through the past 24 months I’ll take good news wherever I can get it.

Enough rambling, on to the point. It’s safe to say that entrepreneurs and small business owners who have survived the past 24 months have been doing something right. It’s also safe to say that as the economy improves there will be increased opportunities for businesses. Potential competitors may have gone out of business, potential customers may be looking for a better deal, or a number of other variables could produce new opportunities. Regardless, it’s important to be prepared to capitalize on opportunities as they arise.

Entrepreneur Magazine, as well as a number of other sources, has recently published articles on preparing for growth and success in your business. A couple of salient points:

On Financing: The faster you grow, the more cash you're likely to need. Growth financing is every bit as hard--if not harder--to obtain than startup funding. Develop and maintain strong relationships with your funding sources and be sure to have primary and backup sources available.

On Employees: The right people doing the right jobs is absolutely critical to sustain growth. Create an environment where people are willing to work through the growing pains. In addition, take care of your suppliers, professional advisors and anyone else who can have an effect on your operation.

On Customers: Know what they need, but more important, know what they want and do everything you can to give that to them. Most important, communicate. Never let your customers wonder what's going on.

On Core Business: Stick to the business your company knows best. Be sure any diversification or product line expansion you do makes sense. If it has nothing to do with your core business don't get into it just because it seems like a good opportunity.

The bottom line is this, be just as prepared to handle success as you are to handle failure. Beyond having the foresight to understand your market, plan and continually update your business plans, and maintain strong relationships with a number of people who can guide you down the path to success.

At Pathway Lending, we’re a little different than most traditional banks. Our core business is helping your business take advantage of market opportunities and grow – bottom line. If you’re a business owner in the state of Tennessee with an opportunity but no capital to make it happen, please visit us online and check out our Loans Page. Our staff of lenders can help you plan for and achieve growth.

Pathway Lending In The News

Knoxville News Sentinel business writer, Roger Harris (follow his Rant$ and Rave$ blog here) gave Pathway Lending a shout-out in his July 4th article, Small businesses need more support .

The article begins with:

In honor of the Fourth of July holiday, let's consider what it takes for small business - the real backbone of the national economy - to be truly independent.

Independence comes with access to capital. Small-business owners need capital to expand, to create jobs, to create new businesses.

...and goes on to say:

A few weeks ago, I wrote about Pathway Lending (formerly known as Southeast Community Capital Corp.), a Nashville-based nonprofit lender that administers various loan funds aimed at small business.

More entrepreneurs and small-business owners called in response to that column than almost anything I've written in the last few years.

Their stories were similar. They needed capital to grow their companies but had been turned away by traditional lenders.

Passage of the Small Business Lending Fund Act could help ease the credit crunch. But no matter how the vote turns out, community bankers need to step up and help small businesses bring good ideas to life.

At Pathway Lending we're proud of what we do and are passionate about helping small businesses succeed and grow. We appreciate Roger's kind words and hope to have more success stories for him in the near future.

If you are a small business owner with an opportunity to grow but without a bank to help you along the way, please visit our website at www.pathwaylending.org

Necessity and Invention: Saving Your Business Money During the Great Recession

Save money, stay in business…that seems to be the mantra of so many small business oriented websites these days. Everyone has a plan, be it with 10 or 101 ways, to save your business money. There are a lot of useful ideas out there that don’t involve spending a lot of money to save, or even make money in your business. I’ve included a few of the posts below, from the Wall Street Journal, Entrepreneur Magazine, and the Times-Herald Record.

101 Ways to Save Money in Your Business

6 Ways For Small Business Owners to Save Money

10 Ways to Save Money

At Pathway Lending we’re not immune to the Great Recession. So we’ve undertaken a few money saving ideas that allow us to better focus on the needs of our clients and continue to deliver high levels of service. We’ve reduced what we consume and increased the impact of what we continue to use. Here’s a quick list of what we’ve done:

- Talked to our power distributor: TVA and its network of local power distributors offer free energy audits for your commercial facilities. The process provides your business with a comprehensive list of opportunities to reduce energy consumption and save money. Check out their website for a list of other commercial energy services: http://www.tva.gov/commercial/

- Reduced Paper: As a small business we used to do things the hard way, pushing lots of paper internally and sending everything in the mail to clients, investors, and colleagues. Recently, we’ve moved to low-cost, on-line systems for client management and marketing services. Low-cost systems like Salesforce.com and myEmma.com have had big impacts – they allow us to be more flexible, move quicker, and get information to the right people at the right time. Plus, it cuts out a lot of the printing, paper, and postage costs we used to have.

- Opened ourselves to suggestions: Opening the feedback loop, whether with potential customers, current clients, or investors is important to the success of any business. We’ve started using surveymonkey.com as a low-cost way of providing our audiences with an easy way to tell us if our products are hitting the mark.

- Network, network, network: Whether it’s the local Chamber, trade groups, or gatherings of like-minded individuals, we’ve taken advantage of many free opportunities to network and get the word out about our business. Happy hour events, speaker series, or other forums are a good way to give yourself a bit of free advertising and build a network of partners and advocates.

If necessity is the mother of invention, there is no better time than the present to start thinking creatively and streamline your business practices. There is plenty of information out there, it's up to you to make it happen.