Wednesday, February 5, 2014

Are You Bankable?

Business start-ups can be risky business. After all, those who are driven with the entrepreneurial spirit are by nature, risk takers!  Those risk takers are many times the ones who finally strike gold with a grand business idea that works and fuels tomorrows economy.

Unfortunately, those risk takers are not always bankable at conception for a variety of reasons. Maybe they had a failed business in the past. Maybe they have had a bankruptcy in the past. Or, maybe they are simply young and have no line of credit. This makes it tough for traditional banks to lend them money.

That is where micro lenders come into play.

The Small Business Administration (SBA) developed the Community Development Financial Institution (CDFI) to be able to make smaller loans to high risk businesses. Companies have become established lenders by using funds through this CDFI program. They are better known as micro lenders.  These lenders can help a business establish credit and become more bankable in the future with traditional banks.

Local banks provide many community develop services that go way beyond banking. The Knox County Visioning Group always recommends starting with your local banks. After all, we want to keep as much business local as we can. But, there are times when they are not able to help you because you and your new idea are too risky.  That is when you should consider these lenders who specialize in the CDFI program.

This is not an exhaustive list, but are two great places to start. Each are similar but have their own requirements and eligible and ineligible type companies. For more information, check our their websites.

ACCION Texas  is a statewide non-profit organization. They make fixed rate loans from $500 to $250,000. They give people a chance to establish and rebuild credit history. They also work with start ups and expansion projects. They make equipment loans, working capital loans and more. They have flexible terms. They work with people who have low or no credit score.

People Fund - They work to create economic opportunity and financial stability for underserved people by providing access to capital, education and resources to build healthy businesses. To that end, PeopleFund seeks to create social and economic justice by empowering minority, women and veteran owned businesses as well as entrepreneurs in low or moderate income census tracts, to grow small businesses, nonprofits and start up venture across Texas. They offer flexible loan terms and make loans from $1000 to $250,000.

One thing to be aware of when using a micro lender is they will charge higher interest rates than your traditional bank. Based on your credit history, that rate may be any where between 8% to 18%. The higher the risk they take, the higher rate you will pay. This can be adjusted over time when good credit is established.

Do not assume your low credit score will make you ineligible. These companies use the Fair Isaac Model better known as FICO for determining credit worthiness. This model takes your score along with your work history, years in business and other details to come up with just how high of a risk you may be. This determines if they can make the loan or not.

The KCVG understands that being an entrepreneur is risky and a lot of hard work. But that creative spirit is the backbone of America and certainly the reason that our small communities are thriving. Knox County needs your big ideas. Those ideas are what set us apart from other communities and help us to not only survive, but thrive!

Please let us know if the KCVG can help you grow your next big idea.

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