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Microloans help fill the lending gap

Posted: June 5, 2012 2:00 a.m.
Updated: June 5, 2012 2:00 a.m.

Steve Tannehill of the Small Business Development Center speaks at the Santa Clarita Valley Chamber of Commerce office in Valencia on Friday.

 

For businesses and startups that need a smaller amount to get on their feet or make payroll, the answer could be in a microloan.

That lending option was the topic of discussion Friday at Lunch and Learn, held at the SCV Chamber of Commerce in conjunction with the Small Business Development Center.

Steve Tannehill, director of the SBDC, led the seminar on how businesses can find — and qualify for — a microloan.

The definition of a microloan varies, Tannehill said, but it can mean loans anywhere between $1,000 and $35,000 and is used for all needs of a business — working capital, equipment purchases, inventory, real estate and expansion.

The Lunch and Learn topic was inspired by the discussion at Congressman Howard “Buck” McKeon’s One More Job forum held in March in Santa Clarita, when the topic of lending came up. As a result, the SBDC and Santa Clarita Valley Chamber of Commerce sponsored the presentation to local businesses.

While banks lending practices have tightened in recent years, microloans from various sources are able to fill the gap and particularly help riskier businesses or startups that can only offer more creative forms of collateral, Tannehill said.

Microloan programs are a lot more flexible than banks, he said, and are typically found from three sources other than banks, which do occasionally offer microloans:  Nonprofit lenders, nonprofit charity lenders and the Small Business Administration.

Nonprofit lenders are groups that receive funding from various sources and then go on to lend it to small businesses. The most local example is the Valley Economic Development Corp. in Van Nuys, which has given more than 40 loans totaling more than $700,000 to businesses in the SCV.

Nonprofit charity lenders differ from nonprofit lenders in that they don’t charge interest or expect any sort of economic return other than the loan. The Jewish Free Loan Association in Los Angeles provides interest-free business and student loans.

The Small Business Administration doesn’t lend directly, but for a fee can serve as a guarantor to the lending bank.

Each lending source will have its own loan terms and qualifications that range from minimum credit scores to collateral to requiring certain training and coaching during the term of the loan.

Once you find microloan sources that could work for your business, you must have a business plan in place before approaching the lenders. All entrepreneurs should also be ready to answer three questions from the lender: How much do you need, what specifically will you be using it for, and how do you plan to pay it back? 

While nonprofit sources are more willing to be creative about collateral or qualifications, they are not venture capitalists giving out free money.

“At the end of the day, they are looking to be paid back,” Tannehill said.

Find more information at www.cocsbdc.org

smitchell@the-signal.com / 661-287-5593

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