Looking for a loan? Turned down by your bank? Where do you turn?
The Small Business Loan Fund at the Rhode Island Economic Development Corporation may be your answer.
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The revolving fund awards about $4 million and averages 35 loans annually to companies with between 10 and 25 employees, said Earl Queenan, director of finance and accounting at the EDC. The fund is worth nearly $14 million in money and existing loans, he said.
A recent addition to the fund is the Micro-Business Emerging Growth Fund. The total fund allocation of $500,000, approved late last month, is for businesses with less than five employees and less than $300,000 in yearly revenue.
Startup companies can apply for loans between $5,000 and $50,000 while existing companies (at least one-year-old) can apply for up to $75,000. The loans are for five years with a prime fixed rate at the time of closing. Funds can be used for startup financing, working capital or machinery and equipment.
The fund is the result of collaboration between government committees and community organizations to support an important and growing part of the state’s business sector, said Victor Barros Jr., urban development manager for the EDC.
Eighteen percent of all employment is from micro businesses while there are more than 76,000 such businesses in the state, he said.
“(There is) a need for the EDC to play a role in helping businesses grow and flourish,” said Barros.
Barros said the micro-business fund is “the fast-track way of getting money.” The one-page application process is accompanied by all the paperwork that is expected by a bank: business tax returns, financial statements, personal tax returns and a business plan.
If the money is invested in the right companies, most will be able to finance the loan in less than five years, said Barros.
In addition to capital, the EDC provides technical assistance to each company. An action plan is devised that gives each company “a prescription to work with partnering agencies,” said Barros.
“In 90 percent of the cases, money isn’t enough,” he said. It is how the money is implemented toward management skills, marketing and production diversification that is important, he said.
Typically, business can expect the approval-through-closing process to take about two to three weeks, much less than a 30-day minimum when working with a bank, said Barros.
“We make sure the process happens very quickly,” he said.
Ninety percent of the loans approved by the Small Business Loan Fund are for existing businesses while the average loan is about $100,000, said Queenan.
“The primary goal is not to be a cash generator,” he said. “Our goal is jobs.”
Raymond Fogarty, chairman of the five-person Small Business Loan Fund board and director of the R.I. Export Assistance Center at Bryant University, said the fund is most concerned with economic development and job growth.
The fund can offer loans to businesses that would not be able to get a conventional loan from a bank, he said.
More businesses are starting at a small level, said Fogarty. The micro-business fund will help expedite the process because the requests will be segregated from larger loan proposals, he said.
The loan limit for the fund was recently raised to $500,000 up from $250,000 while the terms of the loan were increased to 10 years.
Queenan said when businesses have relationships with their banks but have a down year or two, the banks will not allow an increase in their credit line for the purchase of new equipment. The business goes to the EDC fund for a loan that fills a “short-term need,” he said.
The fund serves as a “temporary bank until we get a company up and running as good as it can,” said Queenan.
The banks are happy, he said, because the loan will help the company get back on track and make it more attractive to the bank as a borrower. There are no prepayment penalties, he said, noting that the fund made $3 million last year in payoffs that go into the fund for future businesses.
The history of the Small Business Loan Fund goes back to the late 1970s when the liquidation of the Derecktor Shipyard in Newport netted the fund $7 million with an additional $2 million attained from federal government grants. The first loan was awarded in the mid-1980s.
