The Small Business Banker s Guide to Alternative Financing

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1 The Small Business Banker s Guide to Alternative Financing The Need for Alternative Capital Historically, traditional banks have been considered the primary lenders for small businesses. However, there has always been a subset of businesses, including startups and businesses operating in certain risky industries, which do not qualify for bank loans. Luckily, there are several alternative financing options designed to support these small businesses. These products, typically offered by non-bank institutions, provide financing solutions for businesses that may not otherwise have access to capital. This guide from Excelsior Growth Fund (EGF) highlights several programs available to clients that don t qualify for traditional financing, including specific options offered by EGF and its affiliates NYBDC and The 504 Company. These options can help keep the door open for a future relationship with your small business clients. Have questions or a referral to discuss? Contact Dave Hanold at dhanold@nybdc.com or

2 Types of Alternative Financing SBA 7(a) Loans: While many traditional banking institutions offer SBA 7(a) loans, alternative lenders often have different qualification criteria for this product and can often lend to small businesses that do not meet bank 7(a) loan requirements. If a small business owner is a good fit for a 7(a) loan but is not eligible per your institution s criteria, consider referring them to a responsible alternative lender, such as EGF affiliate NYBDC, for a 7(a) loan. Of SBA programs, 7(a) loans are the most popular and can be used for a variety of needs related to starting, acquiring or expanding a small business. Minimum and maximum loans vary by the partnering lender but typically range from $10,000 to $2,000,000. What to Know About 7(a) Loans from Alternative Lenders: They offer lower interest rates and longer repayment terms than many alternative loans, making them one of the most affordable options for borrowers. Did You Know? 7(a) and Community Advantage loans are a great fit for start-up businesses seeking working capital or a loan to expand, finance seasonal expenses, complete renovations, or to acquire a business. 7(a) loans may require more paperwork or collateral than other alternative loans and time to funding is relatively longer.

3 SBA Community Advantage Loans: These loans up to $250,000 are designed especially for small businesses in traditionally underserved communities, and are often made to higher risk businesses or those operating in unproven industries. They are administered by Community Development Financial Institutions (CDFIs), Certified Development Corporations (CDCs) and other alternative lenders in SBA s approved networks. As the Community Advantage program is part of the 7(a) program, loan uses and program benefits are similar to 7(a) loans. What to Know About Community Advantage Loans These loans feature relatively more flexible approval requirements with less dependence on collateral or business history. Many Community Advantage lenders make educational and coaching services available to borrowers to support success. Today, there are more than 100 approved SBA Community Advantage lenders across the country, including EGF affiliate The 504 Company. Requirements vary by lender.

4 SBA 504 Loans: The SBA 504 loan program provides financing for the purchase of fixed assets, such as real estate (including acquisition and improvement of buildings and land), and for long-term equipment and machinery purchases. Additionally, 504 loans can support the refinance of debt incurred for these purposes. Importantly, this program provides access to low down payment financing, at up to 90% loan-to-value. This makes it possible for businesses to finance projects that otherwise might not be possible, or for businesses to retain their cash for working capital needs. What to Know About 504 Loans 504 loans are unique in that the total cost of a project is split among three parties: a bank finances 50%, a certified Community Development Corporation (CDC), such as The 504 Company, finances 40% with a 504 loan, and the borrower puts 10% down. 504 loans have fixed, below -market interest rates (current rates can be found at www. the504company.com). Did You Know? If your client is seeking financing to purchase owneroccupied real estate or long-term equipment, and would benefit from a longer loan term and higher loan-to-value financing, consider partnering with a CDC to offer a 504 loan.

5 Online Loans: Options for non-bank, online loans have grown tremendously over the last decade and borrowers find plenty that s attractive: Mobile-friendly platforms are available at all hours from anywhere in the world, paperwork and decision-making timeframes are substantially reduced, there are fewer collateral or credit requirements, and funds are available quickly. However, online loans too often put borrowers at risk with exorbitant annual percentage rates (APRs) of 25% to 50% or higher. We encourage businesses to approach borrowing online with extreme caution, and to understand the exact terms of their loan and how the payments will affect their business before moving forward. However, there are a small number of mission-driven and responsible lenders, including Excelsior Growth Fund, that offer online loan options with fair rates and terms. What to Know About Online Loans The application and decision-making processes are fast compared to traditional lenders some online loans can be funded within days. Approval rates tend to be comparatively high, even for borrowers with little, no or poor credit. We Can Help The Excelsior Growth Fund (EGF) SmartLoan offers a responsible option for businesses seeking to borrow online. EGF can also refinance debt incurred from high-cost online lenders. Contact us to learn more. Borrowers should be wary of very high annual percentage rates (APRs) and short loan terms, as these factors often result in extremely high monthly payments.

6 Microloans: With loans averaging less than $15,000 but available up to $50,000, microloans are excellent options for entrepreneurs whose initial overhead or inventory costs are minimal such as home based businesses and start-ups but who need some funds for small equipment purchases like computers, overhead and marketing. Made by SBAbacked lenders and CDFIs, they can be a reliable source of short-term funding. What to Know About Microloans Some lenders make capacity building services available to borrowers to support success. Uses typically include working capital, inventory, expansion, seasonal financing, renovations, and equipment; they can also be used to acquire existing businesses. Loans can be funded more quickly than other alternative options typical turnaround time is two to three weeks. Did You Know? Many microloan providers, including Excelsior Growth Fund, will work with business owners one-on-one on loan readiness and packaging, providing a great option when a client needs support in these areas.

7 Excelsior Growth Fund & Affiliate Alternative Financing Options Keep the door open. Know a business in need of financing? We can help. We ll work with you and the business to find the right financing solution Refer When Amounts Timeline Interest Rates and Fees Excelsior Growth Fund Businesses seek access to affordable funding with a fast, online application process. EGF offers an online loan product, microloans, and other loan products. EGF is a Community Development Financial Institution (CDFI) with a mission to help $10,000- $500, minute online application Loans up to $100,000 can be fully funded within a week Loans up to $500,000 can be funded in approximately two weeks Interest Rates: % Fees: 5.0% commitment underserved entrepreneurs. SBA 7(a) and Community Advantage New or expanding businesses seek affordable rates and are unable to secure traditional bank financing $50,000- $5 million Approvals in 3-4 weeks Loans fully funded in 6-8 weeks Interest Rates: Prime (variable) Fees: Standard SBA, application and 3rd party fees apply SBA 504 Loans Existing businesses seek financing to acquire owner-occupied real estate, machinery or equipment, or to refinance qualified business debt at high loan-to-value financing and at extremely affordable rates $50,000- $5.5 million Approvals in 3-4 weeks Funding timeframes vary by project Interest Rate: Low, fixed interest rates. Visit www. the504company.com for current rates Fees: Standard SBA, application and 3rd party fees apply

8 Conclusion: In the realm of alternative funding, there are many opportunities for small business owners to get needed financing and assistance. While this overview provides insight into several of the most popular options, it s not always easy for small business bankers to determine the best source of funding for their clients. Excelsior Growth Fund can help. If you are working with a small business that is seeking funding but that does not qualify for traditional financing, contact us to discuss your customer s options. EGF and our affiliates offer a full suite of alternative small business financing products ranging from micro- and online loans to SBA loans. Let us help you keep the door open for your small business customers. Questions? Contact Dave Hanold at dhanold@nybdc.com or About Us: New York Business Development Corporation (NYBDC) promotes and advances the business prosperity and economic welfare of New York State by providing small business loans. Throughout its 60-year history, NYBDC has provided thousands of small businesses, including start-ups, mature businesses, and minority- and women-owned businesses, with access to loans when they do not meet the requirements for traditional financing. Learn more at Together with affiliates Excelsior Growth Fund ( and The 504 Company ( com), NYBDC offers small businesses access to a suite of financing options that includes SBA 504, 7(a) and Community Advantage loans, as well as online alternative loans.