It is no secret that uncertainties in our national banking climate have filtered down to local markets including Northwest Michigan. Our region has many banking alternatives, but we’re hearing from private and public sources that the lending parameters many banks had 18-24 months ago for small business lending have become significantly more restricted. Other local banks have maintained high standards prior to and after our national and state economic upheavals.
Perhaps the most challenging (and risky) commercial loan for a bank is a start-up business. With no business track record, the situation resembles more of personal loan. Regardless, the longstanding “Five C’s of credit” are still the standards for entrepreneurs looking to borrow money:
- Character: What is the past credit history of the borrower?
- Cash: What portion of the business start-up costs (carefully detailed) are the owners contributing? It is rare that a bank will want to assume the total financial responsibility of a loan project.
- Conditions: Do the aspiring entrepreneurs have viable experience in the products or services that the new business will specialize in? This also relates to local and national market conditions.
- Capacity: Will the business generate enough in sales and garner enough market share to pay its overhead expenses, salaries, new inventory, and the proposed loan over the long-term? This is where organizations like SBTDC and SCORE can assist with financial projections and building a solid business plan.
- Collateral: Think of what assets the lender could if the proposed business loan were to default. These assets could include equipment, inventory, cash, or your home.
It is important to note that an established relationship with a local banker is still important over the long term, even if you don’t initially qualify for a loan. The idea is to over time position your operation so it can utilize useful bank resources in the future to strengthen your business.
There are other funding sources that are available for the start-up business entrepreneur. Here are some of local relevance worth noting:
Small Business Administration (SBA): usually administered by banks and financial institutions, SBA funds can be used to leverage bank funding, providing the bank with protection if the loan defaults. The bank handles the paperwork and approval for the loan. http://www.sba.gov/mostrequesteditems/CON_FAQ1.html
United States Department of Agriculture (USDA): The USDA has a number of loan programs geared to agricultural based business and businesses located in rural counties (such as Northern Michigan): http://www.rurdev.usda.gov/rbs/busp/bpdir.htm
Northern Initiatives: A microloan lender operated out of Marquette, Michigan, handling loan proposals lacking the parameters considered by banks and other commercial lenders. Note that the time of this writing, Northern Initiatives does not serve Grand Traverse and Leelanau Counties. http://www.northerninitiatives.com
Northern Shores Loan Fund: Loan funding ranges from $500 – $15,000 for needs such as working capital, inventory and equipment purchases, as well as start-up expenses. Based out of Petoskey, Michigan, the Northern Shores Loan Fund serves Antrim, Charlevoix, Cheboygan, Emmett, Grand Traverse, and Kalkaska Counties. http://www.northernshoresloanfund.org/
Utopia Foundation: Started as a loan fund to assist start-up farm operations, the Utopia Foundation of Traverse city recently applied for additional funding through the Small Business Administration’s Intermediary Relending Program. When this additional funding is secured, the Utopia Foundation will have funding up to $50,000 for qualified start-up and existing businesses in northwest lower Michigan. http://www.utopiafound.org/