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.