Small Business Financing
A few months back, it was my pleasure to attend an event titled, “Money on a Mission.” It was a showcase of business lenders that offer an alternative to traditional banking, either because they loan money to people who can’t get loans from traditional banks, or that the bank itself is mission-driven to reinvest in the communities they serve. It was hosted by Beneficial State Bank and included an array of community lending partners. Speakers included Kat Taylor, Co-founder and co-CEO, Beneficial State Bank, Portland Mayor, Charlie Hales, and Oregon Governor, Kate Brown.
The purpose of this article is to summarize the different types of lenders, small business loans, and requirements for obtaining each business loan so that you can save yourself some time and energy and, hopefully, avoid having to go through one lender’s application process only to get rejected.
First, I want to apply a framework for this conversation because it will assist in your understanding of the options. Think of the lending options as a ladder.
The first rung of the ladder is for start-up businesses with little capital and perhaps owned by individual(s) with poor to moderate credit rating. At this rung of the ladder, the business will be soliciting nontraditional loans from community lenders, “bootstrapping” capital from friends and family, and, if so desired, crowdsourcing.
Moving up the ladder, the business and the individual may have healthy “bootstrap” capital or perhaps the individual applicant has fair to good collateral and credit rating. In the middle rungs, one will be seeking small business loans and, if applicable, minority or class-based loans. On the middle rungs, the business must be active for more than a year. The top rung is a traditional bank loan. This is for businesses that have been active more than a year and are showing profits.
At this top rung, your business has the opportunity to make a positive impact on your community by choosing a bank that is mission-driven and not profit-driven, as you will see below.
Second, obtaining a loan or a grant will cost you money, either in fees or percentage rates (or both). Remember, you are applying to a lender. Loans must be repaid. A grant is money that you don’t have to repay; generally the grant recipient will have reporting requirements that show the money is used for its intended purpose. Before you go into a lender’s office you should be able to show some ability to pay for your personal expenses for a few months from savings, as well as some business start-up money, or a six-month record that your business is operating at break-even or better. Lenders rarely fund ideas.
Let’s start at the first rung of the ladder.
Community Sourced Capital (CSC). www.communitysourcedcapital.com
This is cutting-edge, socially conscious lending. CSC “provides loans to small business using funds sourced directly from their community.” The way it works is that the business owner applies to CSC to run a campaign. If approved, then CSC runs a 28-day campaign on their platform and “invites local supporters… to buy $50.00 increments (Squares) of the target loan.” Essentially, it is crowdfunding from your local circle of peers, business colleagues, family and friends. In order for this to work for you, you must present a business plan that shows revenue traction and a forecast of future revenues, demonstrate that you can repay the loan in one to four years, and, most importantly, have the ability and resources to identify and access your community using social media. Loan amounts range from $5000 to $50,000 and it will cost you $250 to launch your campaign. CSC is a Certified B Corporation and registered in Washington as a Social Purpose Corporation, which means that they are allowed to be mission-driven, as opposed to profits-driven.
Micro Enterprise Services of Oregon (MESO). www.mesopdx.org
MESO offers both lending and education for small businesses for businesses located in Beaverton, OR. Services include job coaching, market research, and legal services. Their lending services are a ladder unto themselves, starting as low as under $500.00 up to $250,000.00. A credit check is required (as is with every loan, anywhere you apply). The business must be up and running for six months. Then, depending on how much money you’re asking for, requirements range from showing some financials to showing a business plan, having collateral and obtaining business insurance.
Moving up the ladder… After start-up and on the way to profitability.
Craft3 is in essence, a re-lender. They are a Community Development Financial Institution (CDFI), basically, a nonprofit entity that obtains loans from traditional banks and repackages them as grants or loans to businesses and individuals who are unable to qualify for a traditional bank loan. They “rely on donations, grants and loans from financial, corporate, philanthropic and religious institutions, government agencies and individuals” to complete their nonprofit mission “to strengthen economic, ecological and family resilience in Pacific Northwest communities.” Loan amounts range from $20,000 to $1 Million. Craft3 partners with CSC on lending projects.
Albina Opportunities Corporation. www.albinaopportunities.org
The mission of Albina Opportunities Corporation is “to inspire business opportunities and create jobs and wealth for Portland’s underserved small businesses and distressed neighborhoods.” They are a nonprofit CDFI, which means that they can offer loans to people with insufficient collateral or marginal credit history. Loans and lines of credit range from $20,000.00 to $200,000.00 and they offer business advisory services. I place Albina midway on the ladder because they require a record that the business has been up and running for one year.
Small Business Administration (SBA). www.sba.gov/offices/district/or/portland
The SBA is a program of the federal government and they offer a wide range of services, including connections to lenders in the community. The SBA is your first-stop for business knowledge. They publish a small business resource guide that you can download here: www.sba.gov/sites/default/files/files/resourceguide_3140.pdf. The SBA works with local resource partner, SCORE, which offers mentorship and education to business owners. www.portlandor.score.org/node/145757
Oregon Association of Minority Entrepreneurs (OAME). http://oame.org/
OAME is the #1 microlender in the Western U.S. and #2 nationally. Loans go up to $50,000.00 and you must show that the business has been operating for six months. The range of services OAME offers is priceless, including member-pricing access to Portland Business Alliance, Travel Portland and Portland Area Business Association events, and low-cost rental space.
At the top of the ladder… Established businesses.
Business Oregon. www.oregon4biz.com
Business Oregon is for the heavy-hitters and bankable up-and-comers. They offer revenue financing, which is different than a traditional loan or equity investment in that capital is contributed to a business in return for a percentage of ongoing gross revenues. Business Oregon draws from several different funds and they offer different programs depending on the industry. In speaking with the representative from Business Oregon, this financing tool is targeted at technology companies that are past start-up phase and companies that will operate outside of Oregon and promote economic stimulus inside Oregon. Requirements include having an existing history of sales, potential for rapid growth in sales, history of “significant gross profit margins” and either collateral to secure the loan or a personal guaranty (and, of course, the personal assets to back up the guaranty). Financing is offered up to $250,000.00.
Albina Community Bank. www.albinabank.com
Albina is a “local community development bank serving a five county region in and around Portland.” Loan amounts range from $5000.00 to $4.5 million. Inside that range they offer myriad services, such as a “business builder” track for checking accounts, money market accounts and CDs. Albina is a traditional bank, and as such, in order to obtain lending, you have to show good income to debt ratio, healthy capitalization in the business and some proven track record for success. The difference in Albina Community Bank (as well as our next entry, Beneficial State), is that they reinvest in the communities they serve. They are in the process of becoming a certified B Corporation.
Beneficial State Bank. www.beneficialstate.com
Beneficial State Bank is a certified B Corporation committed to reinvesting back into the community. Their bylaws require that any profits distributed must flow into a public charity. Their mission is to challenge the status quo of traditional banking models by turning over profits to the communities they serve and not to corporate shareholders. Being a traditional bank, as a loan applicant, you will have to show reasonable income to debt ratio, healthy capitalization in the business and some proven track record for success. They offer all of the traditional financing option of a traditional bank. The co-CEO and co-founder, Kat Taylor, is a powerful leader and an intelligent advocate for our communities.
Portland State University Business Outreach Program. www.pdx.edu/business-outreach
PSU’s Business Outreach Program is part of the PSU Business Accelerator. The mission of the Outreach Program is “to help small businesses, including emerging, minority and women-owned businesses, achieve their potential while providing students with opportunities for community based learning.” They offer one-on-one business consulting and teach a five-week business development workshop ($125.00). Using the knowledge and enthusiasm of students, faculty and volunteers, they will help you make a business plan, conduct market research and analytics, and provide legal resources. This is a good place to start if you are in the idea phase for a business and you want to get honest, professional feedback and training.
Portland Development Commission (PDC). www.pdc.us
The PDC offers both a Microenterprise & Small Business Development Program (www.pdc.us/smallbiz). Also, within the City’s priority neighborhoods, they offer small business drop-in support, at no cost, where an individual can get advice on starting a business, developing a business plan, help with accounting and finances, marketing, licensing, and referrals to other programs. Locations are set up in North Portland, NE, and East Portland.
David James Robinson
 From Community Sourced Capital informational materials.
 From Craft3 informational materials.
 From Albina Opportunities Corporation informational materials.
 From Business Oregon Informational materials.
 Albina Community Bank informational materials.
 From PSU Business Outreach Program informational materials.