Doing business in Missouri: Financing your business
- Published: Monday, Feb. 25, 2019
Many people dream of starting and managing their own business. What separates the successful entrepreneur from the unsuccessful is most often access to sufficient funds to turn that dream to reality. Learning where and how to obtain funds to start or expand your business can be confusing, time-consuming and frustrating. Financing for a business usually comes in two forms, debt and equity. Debt is obtained from borrowing and must be repaid from cash flow. Equity is contributed by owners or outside investors and involves no direct obligation to repay any funds, but does involve selling a partial interest in your company.
In deciding how to finance your business, consider:
- How do debt and equity requirements differ?
- What information about my business will I need to give to potential financiers?
- How much control am I willing to give up?
- How highly leveraged do I want my company to be?
The biggest advantage of debt financing is that it allows the business owner to retain control of his or her company. You have the ultimate decision-making authority and are entitled to all company profits. Debt also provides you with some financial freedom as once the debt is repaid the lender has no further claim on your business.
Making monthly payments on a loan is the biggest disadvantage of debt financing. Interest rates may be high and there is normally a severe penalty for late or missed payments. Another disadvantage is that if you are starting a business it is difficult to obtain debt financing.
With equity financing the biggest advantage is that you do not have to repay the money invested by others on a regular basis (depending on the agreement that is made). Also, the equity investor may be more likely to listen to ideas on how to make improvements, since they have an interest in the success of the business.
The disadvantage of equity financing is that the owner has to give up some control of the business, and it may be difficult to retain control in the future. The paperwork can also be very complicated and will require the advice of an attorney and accountant.
It is imperative that you have a business plan before approaching any potential investor or lender.
Venture capital is equity financing. Equity financing involves no direct obligation of the business to repay any funds; however, it does involve selling a partial interest to the investor. Because the investor owns a share of the business, they are interested in the long-term success and future profitability of the business. Equity financing tends to be complicated and requires the business to seek the advice and representation of an attorney and accountant.
There are about 800 active venture capital firms in the United States, according to the National Venture Association. Venture capital is money provided by professionals who invest alongside management in young, rapidly growing companies with the potential to develop into significant economic contributors. Professionally managed venture capital firms generally are private partnerships or closely held corporations funded by private and public pension funds, endowment funds, foundations, corporations, wealthy individuals and the venture capitalists.
When considering an investment, venture capitalists are very selective and screen the technical and business merits of the proposed company. The venture capitalist will review several hundred investment opportunities before investing in only a few selected companies with promising investment return. They are not passive financiers, but become very involved in management, marketing and planning of the company. Venture capitalists normally invest in companies in which they are familiar with the industry or the management and will normally invest in companies located in close proximity to the venture capital company.
There are many different stages of venture capital, illustrated below.
Venture capitalists will help companies grow, but will seek to exit the investment in three to 10 years. This exit can be accomplished in a variety of ways.
- The company can buy the venture capital investor out of their investment. This exit strategy does not happen often.
- A merger with another company or acquisition by a larger company, probably the most common type of exit.
- The initial public offering (IPO), the most glamorous type of exit. When a corporation needs to raise capital, they either issue debt securities (bonds) or equity (selling stock). Anytime a corporation issues new stock it comes from "authorized but not yet issued stock." If the corporation has sold stock before, this is known as a "primary offering." A company can have many primary offerings. If the corporation has never sold stock before it is known as an IPO. A company can only have one IPO. State and federal securities laws regulate this process and a company should seek the advice of an investment banker and/or attorney before starting.
An angel investor is an informal investor and private individual usually with a high net worth. They may have been entrepreneurs themselves at one time and normally have an interest in helping new businesses start or expand. Angels have a tendency to be more relaxed with their financing terms than venture capital firms; however, you should still approach angels with caution and seek professional counsel.
Angels normally do not advertise for investment opportunities, but will be referred through a lawyer, accountant or banker. When dealing with angel investors, almost any type of debt or equity financing is possible and the deals can be structured in many different forms. Angels typically expect a specific rate of return on their investment. It is a good idea to retain the advice of a lawyer and/or accountant when working with an angel investor. Angels are a great champion for innovative business opportunities.
There are many resources available on equity financing and the venture capital industry.
Debt financing is a loan or direct obligation to pay back to a lender what you borrowed. A lender will expect to be paid interest in exchange for lending you the money. The interest rate you will be charged is an important feature of debt financing and the rate usually reflects the level of risk the lender is willing to take. Lower interest rates reflect their feeling that there is a small risk of the debt not being repaid. If the lender has concerns about the ability of the borrower to repay debt, a higher interest rate will be charged.
Most traditional lenders prefer manufacturing or industrial operations where funds will be used to purchase fixed assets, like land, buildings or production equipment. These items offer the type of collateral used to secure the debt. It will be difficult for a service business to receive debt financing because there is little to no collateral. The lender may ask for a personal guarantee and that personal assets be pledged as collateral.
Most financial institutions are looking for a well-prepared business plan from the applicant when requesting financial assistance. Your lending institution may also have a special form or application required for new business loans. If an application is not necessary, be prepared to present a very thorough record. Be honest; show your commitment and willingness to meet their requests.
Keep in mind that the number of small business failures is high, causing the bank to show skepticism and consider risk. You must display the ability to manage financially and be ready to show a positive record both for yourself and your proposal.
Roger Bel Air, author of How to Borrow Money from a Banker and national lecturer, reminds entrepreneurs that banks are in business to lend money and get it repaid — with interest. That's their number one priority.
Bel Air says, "A banker's career is based on not making mistakes and determining whether or not the bank will be repaid — the bottom line in any loan decision — is subjective. Beyond the facts and figures alone, banks want to see that the applicant has thoroughly reviewed his options, laid the necessary groundwork for borrowing and prepared a clearly written and well organized loan application."
Another advantage of preparing an effectively organized loan application, including the all-important business plan, is that it will significantly decrease the time spent waiting for an answer. Much of the time spent in approving a loan can be traced to the banker having to ask the potential borrower for more information or for clarification of information already submitted.
In evaluating loan applications, the three C's of credit are taken into account — character, capacity and collateral.
Character is actually a check on your financial status and personal credit history, including your previous loan payment record. The theory is that people are creatures of habit. If you have repaid a loan on time before, you will repay this one as well. Conversely, if you have defaulted on a previous loan, the danger is that you may default again. Also considered is experience in the type of business you are trying to finance, including level of responsibility, education and business management training. Lenders are particularly concerned that potential borrowers have a solid understanding of financial record keeping, business credit, the importance of collecting accounts receivable, inventory control, turnover and marketing their product or service. If your prior business experience is not relevant to your current venture (for example, if your career has been in the corporate world, and you want to start a restaurant), banks will be leery about your ability to run the new endeavor successfully and thus repay the loan.
Prudent bankers have always looked first to the cash flow of the business to repay the loan, which underlines the importance of preparing a cash flow statement with future cash flow projections before presenting a loan request. Doing so indicates to the lender that you are knowledgeable about the cash coming into your business and being spent, and therefore better able to avoid a cash shortage that would jeopardize making monthly loan payments.
While cash flow is the primary source of loan repayment, lenders will want a back-up or secondary source as a last resort should your business not prove profitable. Collateral — defined as anything of value used as security for repayment of a debt or performance of a contract — can be real estate, stocks and bonds, savings accounts, equipment, accounts receivable, or the cash value of life insurance policies. Psychologically, lenders feel that borrowers have more interest in repaying the loan if they know that failure to do so will result in the lender taking possession of whatever has been put up for collateral. A lender will also try to obtain personal guarantees so that if you default on the loan, the institution has access to your personal assets.
Finally, don't forget relationship banking. Once a relationship has been established, and you've explained your business operations and anticipated needs, it becomes far easier to approach a banker when you need a loan. This familiarity will make you more credible than a customer who has not taken the time to introduce himself. Scott McCrea, a consultant with Deloitte & Touche, advises entrepreneurs to develop and nurture a relationship once credit is granted. He suggests keeping the lender updated on the company's progress, and staying abreast of the lender's other products and services that may apply to your business. As the business grows, you may need to restructure or enhance your credit, and it only makes sense to turn to someone already familiar with, and confident in, your business acumen.
Be sure to stay close to your banker, being open and honest about major changes and significant events — both good and bad. Because your lending officer has to tell your story to other people in the organization, nothing can jinx the relationship faster than a lack of candor. Feeding bankers regular information is, of course, time-consuming when you have a company to run. But it's all part of building credibility and trust, and will enable you to use your banker's knowledge to continue the success of your business.
Don't let a rejection at the bank stop your effort in obtaining financing. Consider all possibilities from government loans for small businesses to potential financing from suppliers, which you will likely patronize and always consider existing businessmen or private investors.
If all fails, friends or relatives may be the key to financial startup; however, be cautious and document every single transaction. Friends and families seldom make good business partners.
Look for every way to prove success by searching for equipment, materials or labor at a reduced rate. Search for all available sources and don't ever lose sight of the dream that your business can and will succeed.
Crowdfunding is one of the biggest buzzwords in entrepreneurship. The Securities and Exchange Commission recently released a 585-page rulebook that effectively legitimizes its place in modern business. Sites like Kickstarter and Indiegogo are not just a cool way to help a friend launch a passion project or support the comeback of a cult TV favorite anymore. They are established, regulated, high-potential, high-growth investment marketplaces with worldwide public access.
But the prevailing attitude among American entrepreneurs, particularly among millennials, is tragically out of line with this new reality.
Three facts about Kickstarter, one of the first and most recognized players in the space:
- One in four prospective projects are rejected.
- One in 10 accepted projects receive zero dollars.
- The failure rate is 56 percent.
Here are nine things every entrepreneur should know before considering a crowdfunding campaign:
Crowdfunding is an alternative, not a replacement for VC.
It's a viable way to bypass the old school venture capital world, but focusing on one funding stream alone is not a good idea.
New crowdfunding platforms are announced daily, many of which lower the bar for acceptance. This floods the intertubes with competition, much of it inferior, making it harder to reach key audiences.
Relevant narrative telling.
Countless campaigns fail because narcissistic inventors drink the juice. They fail to research and grasp the nuances in the psychographics and demographics of their target audiences.
Real social media skills needed.
It's easy to get starry-eyed about the process, but having a good social network does not make campaign success preordained. Communications campaigns require audience development and strong messaging. It's a big leap from having lots of friends to recruiting strangers to give up dollars.
Regulation on federal and state levels means legal fees.
The SEC rulebook is a 585-page document. States like Georgia and Kansas have been creating legislation since last year but most are years behind. Entrepreneurs need legal advice from a real attorney, not Wikipedia or LegalZoom.
More investors mean more back-end work.
Much of crowdfunding's appeal is the freedom it gives to run the business independent of guys in suits. But having hundreds or thousands of investors can be just as restrictive as a single investor. Engagement doesn't end when the target goal is reached. It's just begun.
Faceless crowds giveth and taketh. Anonymous wild cards take to Twitter and YouTube to trash corporate reputation every day. The results can be devastating, but entrepreneurs frequently skip scenario planning and crisis management. When it hits the fan, it's too late.
...are just that: stories. The prevalence of anecdotes in the news media and social networks clouds the fact that most campaigns fail.
Selling incentives in place of stock doesn't work.
The call to action can't be, "donate and we'll give you something of equal value." Rewards aren't enough in America's coupon culture.
Finding the money you need to start or expand your business requires hard work and determination. It may be the largest obstacle you face, but don't despair. You may be turned down several times for financing, so perseverance makes all of the difference. Remember, it is okay for you to consider a variety of financing alternatives and more than likely you will need to use a combination of sources to adequately fulfill your changing needs for capital. Do your research and find out as much information as you can about each source. If you have a good idea you will receive the financing you need.
— Originally published as A Reality Check on Crowdfunding, by Brad Chase, huffingtonpost.com. Used with permission.
Your local bank should be the first place you approach for business financing. Many banks have commercial loan departments staffed by commercial loan
officers who deal specifically with small business, and many banks now offer special services to small business owners. It is also important to remember that many alternative financing programs require a letter denial or partial funding from a bank before they will consider your application.
To be eligible for a loan guaranteed by the U. S. Small Business Administration, a lender must certify that credit is not available elsewhere for the borrower on reasonable terms. You do not need to be turned down by a bank to qualify for an SBA-guaranteed loan.
Local and regional sources
The following agencies provide a variety of funding options, generally tied to residence in delivery area, income level, type of business, etc. Most are microlenders, organizations that offer small loans. Many, if not most, require attendance at regular meetings and mandatory business education programs before applying for loans.
This list is in no way inclusive of all programs in the state of Missouri; it serves only to provide a glimpse of the opportunities on the local level and is not intended to be, nor should it be construed to be, an endorsement of any of these programs. Please contact the individual program for complete details on applicant criteria and the loan application process.
St. Louis metropolitan area
St. Louis County Economic Council
Services include Business Development Fund (BDF), Metropolitan St. Louis Loan Program, Minority/ Disadvantaged Contractor Loan Guarantee, Recycling Market Development Loan Program, SBA 504 Loan Program and Minority & Women's Pre-qualified Loan Program. slcec.com
Economic Development Center of St. Charles County
Assists eligible companies with fixed asset and working capital needs; acts as the certified development company which packages SBA 504 loans. edcstcharlescounty.com
St. Louis City Revolving Loan Fund
Provides direct, low-interest, subordinated loans for working capital, machinery and equipment, purchasing land and buildings, renovation and constructing facilities and leasehold improvements. Business must be located in the city of St. Louis and be licensed to do business in the city. Must create one full-time job for every $10,000 of funds. Loans can provide up to 1/3 of the project cost to a maximum loan amount of $150,000. stlouis-mo.gov/government/departments/sldc/economic-development/financing/rlf.cfm
St. Louis Urban Enterprise Loan Fund
Provides loans to businesses located within a designated eligible area within the city of St. Louis. Eligible borrowers must be for-profit businesses with current employment of less than 100. Eligible program activities will include fixed asset or working capital needs. Eligible projects must retain existing or create new jobs (one job created for every $20,000 of funding). The UEL can lend up to 45 percent of project costs to a maximum loan amount of $100,000. stlouis-mo.gov/government/departments/sldc/economic-development/financing/uel.cfm
Kansas City metropolitan area
First Step Program
The First Step Fund (FSF) offers training in business basics such as record keeping, budgeting and marketing; assistance in completing a feasibility study for your business; opportunity to apply for loans of up to $2,500; and ongoing support group. FSF participants must be residents of Jackson, Clay or Platte counties and meet federal guidelines for low to moderate income. During a 10-week business training program, students work on a feasibility study for the proposed business. Potential borrowers receive continuing education at monthly meetings. Participants review each other's feasibility studies and approve loans. The maximum loan amount for first-time borrowers is $2,500 and $5,000 for second-time borrowers. Website under construction; 816-235-6116.
EDC Loan Corporation
The Economic Development Corporation (EDC) of Kansas City, Mo. provides loans for businesses with $7.5 million or less net worth and less than $2.5 million/year net income for the past two years. Except as noted, all loans are for businesses in Missouri, not Kansas.
- Revolving Loan Fund. For any for-profit small business in Kansas City, Mo. Maximum loan amount is $150,000.
- River Market Loan Fund. For business located in the River Market or Columbus Park area of Kansas City; maximum loan amount $50,000.
- Neighborhood Commercial Revolving Loan Fund. For businesses in designated enterprise and low-income zones; maximum loan amount $150,000.
- Kansas City Minority Business Capital Revolving Fund. Five-county area, including Kansas. The business must be 51 percent ethnic-minority owned; maximum loan amount $100,000.
- Small Business Loan Fund. For small businesses planning fixed asset purchases of $1 million or less.
- Downtown Loan Fund. This fund is for retail businesses downtown unable to obtain sufficient working capital through conventional lenders. The goal of the loan program is to assist these businesses establish an independent banking relationship. The fund can enhance collateral through equity or provide loans for sufficient working capital or tenant improvement capital.
Recognizing the impact that small businesses have on Missouri's economy, the state of Missouri, through a variety of agencies, has developed financing options for small businesses. The following is a general description of some programs and is not a comprehensive list. Please contact the agency for more information.
Missouri Linked Deposit for Small Businesses
The state treasurer's office has reserved a portion of available linked deposit funds for small businesses. State funds are deposited with participating lending institutions at up to 3 percent below the one-year Treasury bill rate, with the lender passing on this interest savings to the small business borrower. A company must have less than 25 employees, be headquartered in Missouri, and be operating for profit. The maximum loan amount is $100,000. treasurer.mo.gov/content/low-interest-loans
Missouri Export Finance Program
Working Capital Loan Guarantees
Missouri companies that need financial assistance exporting to foreign markets can use programs of the Export and Import Bank of the United States (Ex-Im Bank) and the Small Business Administration. There are two primary programs available, Working Capital Loan Guarantees of up to $2 million and Export Credit Insurance. These programs are designed to help small and medium-sized businesses that have exporting potential but need funds or risk insurance to produce and market goods or services for export. The exporter may use the guaranteed financing to purchase finished products, materials, services and labor; cover stand-by letters of credit, bid and performance bonds; or to fund foreign marketing activities, if sufficient collateral and cash flow exist.
Export Credit Insurance
The state of Missouri offers assistance in obtaining export credit insurance through the Ex-Im Bank to take the risk out of selling to customers overseas. The Missouri program, which insures both commercial and political risks, guarantees an exporter that once his goods are shipped he will be paid. Insured receivables can enhance an exporter's ability to obtain export financing and allow an exporter to offer more attractive credit terms to foreign buyers.
All credit-worthy exporters (industrial and commercial) whose export credit sales have averaged less than $2 million annually for the past two years and have not been covered under any foreign credit insurance association policy during the previous two years are eligible.
Contact the Missouri Department of Economic Development for more Ex-Im Bank requirements and information. ded.mo.gov/upload/export_finance.pdf
Market development loans for recovered materials
The Missouri Environmental Improvement & Energy Resources Authority promotes the development of markets for recovered materials. Loans of up to $250,000 are available for equipment used to produce or manufacture products made from recovered materials. eiera.mo.gov/mmdp-fin-incentives/
Financial Aid for Beginning Farmers
Beginning farmers can receive federally tax-exempt loans from commercial lenders at rates 20 to 30 percent below conventional rates through this program. A qualified borrower can borrow up to $501,100 to buy agricultural land, farm buildings, farm equipment and breeding livestock in Missouri. Of that amount, depreciable agricultural property may not exceed $250,000, with a limit of $62,500 for used depreciable property. The borrower must be a Missouri resident, at least 18 years old and whose chief occupation must be farming or ranching after the loan is closed. The borrower must also have adequate working capital and experience in the type of farming operation for which the loan is sought. A beginning farmer is one who has not previously owned more than 30 percent of a medium-sized farm in their county. mda.mo.gov/abd/financial/begfarm.php
Small Corporation Offering Registration (SCOR)
Missouri's Small Corporate Offering Registration (SCOR) provides a process for entrepreneurs to register their securities. The SCOR process has been designed by state securities regulators to make it easier and less expensive for small companies to raise needed capital from Missouri residents. All securities registered through this process need to complete form from the Secretary of State's Office. sos.mo.gov/securities/sec_categories.asp?cid=register
Businesses that are starting, relocating or expanding in Missouri may take advantage of a number of federal programs designed to assist entrepreneurs, financial institutions and local communities with direct loans, loan guarantees and direct grants to spur job-creating business investments. The following is a general description of some federal financing programs. For more information, please contact the agencies listed, area economic development authorities or the Missouri Department of Economic Development.
Small Business Administration
The Small Business Administration (SBA) helps new or growing businesses meet their financial needs; provides business counseling; and acts as an advocate for small businesses with state, federal and private agencies.
SBA defines a small business as one which is independently owned and operated and is not dominant in its field. To be eligible for an SBA-guaranteed loan and other assistance, a business must meet size standards based on total employment or annual receipts. This standard varies by industry.
See SBA's Table of Size Standards for business size standards.
The financial assistance offered by SBA has helped thousands of small Missouri-based businesses get started, expand and prosper. The Regular Small Business Loan program is the largest SBA assistance package. Through loan guarantees and direct and immediate participation loans, a loan guaranteed by the SBA can help a small business acquire equipment, facilities, materials and supplies and working capital.
For more information on any SBA program, contact:
SBA Section 7(A) – Loan Guaranty
This is the SBA's primary business loan program. Under 7(a), the SBA guarantees loans to small businesses that cannot obtain financing on reasonable terms without SBA's guarantee through other channels. This program generally is used to meet the varied short- and long-term needs of small businesses. Lenders, not the SBA, approve and service the loans and request SBA guaranties. The guaranties reduce risks to the lenders, expanding their ability to make small business loans. Guaranty loan proceeds from the 7(a) Program may be used for many different purposes, including for business start-ups, expansion, equipment purchases, working capital, inventory or real estate acquisition. Generally, the SBA can guarantee up to $5 million of a private-sector loan (although the average loan amount in 2012 was $337,730), as much as 85 percent on loans of $150,000 or less and 75 percent on loans of more than $150,000. If the loan will be used to export American-made goods and services, the SBA may be able to guarantee up to 90 percent of the loan up to the $5 million maximum. The interest rate may not exceed 2.75 percent over the prime lending rate except for loans under $50,000, where the rates may be slightly higher. Maturities can extend from to seven to 10 years for working capital and 25 years for fixed assets.
There are a number of programs under the 7(a) Program that address specific needs.
SBA CAPlines Program
The CAPline program has four distinct short-term working capital loan programs to help small businesses meet short-term and cyclical working capital needs: seasonal, contract, builders and working capital loans. These finance seasonal working capital needs; costs to perform construction costs; advance against existing inventory and receivable; and a revolving line of credit. Total loan amount can be up to $5 million. Small businesses can pledge accounts receivable, inventory, contracts, and purchase orders to secure a revolving line of credit. The SBA no longer requires small business owners without buildings or equipment to use personal assets as collateral to secure working capital. And small businesses working on a contract that requires surety bonding may be eligible for an SBA-guaranteed line of credit.
SBA Express Loan Program
The SBA Express Loan Program allows participating lenders to use their own documentation and procedures, and to apply an SBA guarantee to a loan or revolving line of credit with SBA making only an eligibility determination. In return for this flexibility, participating lenders agree to limit the maximum loan to $350,000 and to accept a maximum guarantee of 50 percent.
Rural Business Loans, Patriot Express Loans
These loans have been discontinued.
Export Express Loans
SBA's Export Express Loan offers financing up to $500,000. It is the simplest export loan product offered by the SBA and allows participating lenders to use their own forms and procedures. The SBA determines eligibility and generally approves a loan in 36 hours or less.
Any business that has been in operation, although not necessarily in exporting, for at least 12 full months and can demonstrate that the loan proceeds will support export activity, is eligible for Export Express. The 12-month in business requirement can be waived if the borrower's key personnel can demonstrate export expertise and previous, successful business experience and the lender uses conventional commercial loan underwriting procedures and does not rely solely on credit scoring.
Use of proceeds
Loan proceeds may only be used for business purposes that will enhance a company's export development. Export Express can take the form of a term loan or a revolving line of credit. For example, you can use funds to participate in a foreign trade show, support standby letters of credit and translate product literature for foreign markets. You may also use funds to finance specific export orders, expand production facilities and purchase equipment, inventory or real estate.
SBA guarantees 90 percent of the Export Express Loan Program through $350,000, then 75 percent through the program's $500,000 maximum loan amount. The program can be used as a term loan, revolving line of credit or as a transaction based line.
Export Working Capital Program (EWCP)
The EWCP provides advances of up to $5 million to fund export transactions from purchase order to collections. This loan has a low guaranty fee if maturity is 12 months or less, and quick processing time. The SBA guarantees up to 90 percent of a secured loan. Export-related inventory and receivables generated by export sales are the primary source of repayment. Typically, maturities match a single transaction cycled with a term of up to 18 months or support a line of credit with a term of up to 12 months.
International Trade Loan (ITL)
This program provides financing up to $5 million with a 90 percent guaranty to small businesses involved in exporting, as well as businesses adversely affected by import competition. The borrower may use loan proceeds to acquire, construct, renovate, modernize, improve or expand facilities and equipment to produce goods or service involved in international trade and to develop and penetrate foreign markets. Funds also may be used to refinance an existing loan.
Minority Enterprise Development
8(a) Small Disadvantaged Business Development
The MED office utilizes the SBA's Section 8(a) contracting authority to provide business development assistance to minority- and other disadvantaged-owned firms through federal procurement opportunities.
7(J) Management and Technical Assistance
The 7(J) Program provides management and technical training to 8(a) and other firms owned by socially and economically disadvantaged individuals, low-income individuals and firms in either labor-surplus areas or areas with a high proportion of low-income individuals. Assistance is concentrated in four major areas: accounting, marketing, proposal/bid preparation and industry-specific technical assistance. Entrepreneurial training is also available.
SBA Section 504 – Certified Development Company Loans
SBA's Certified Development Company (CDC) program was created by the federal government and private sector to finance small businesses' acquisition of land and buildings, construction, expansion or renovation and purchase of equipment. Maximum loan amount is $5 million (up to $5.5 million under certain circumstances). Generally, a business must create or retain one job for every $65,000 provided by the SBA, except for small manufacturers, which have a $100,000 job creation or retention goal.
CDC financing typically is structured whereby the CDC lends 40 percent of the total project amount (up to $750,000), with a 100 percent SBA-guaranteed loan secured by a second lien on project assets. A private lender finances 50 percent of the project cost with first lien securing that loan (not guaranteed by SBA), and the borrower provides the remaining 10 percent. The borrower receives the advantages of long-term financing, a low down payment and low interest rates. The private lender receives a 50 percent loan-to-value ratio with first mortgage or security interest, and the added advantage of minimal paper work and exposure.
The 504 Loan Program is administered by SBA but loans are originated by CDCs. If you are interested in a 504 loan you or your loan officer should contact the CDC of your choice and learn more about the program. If your lender cannot recommend one, you may obtain a list of active CDCs from the SBA's District Offices in Kansas City or St. Louis.
This program was the SBA's first small loan program. The program is administered through community-based lenders and is designed to encourage economic and financial activity among thousands of potential borrowers who do not generally meet credit standards of traditional lenders.
Any Missouri small business owner is eligible for a microloan. While the program was designed to primarily assist women, low-income, disadvantaged and veteran entrepreneurs and business owners, any small business can apply for a microloan of up to $50,000.
Justine Petersen is an SBA microloan intermediary lender which borrows capital from SBA and originates loans to entrepreneurs that do not have access to commercial or conventional loans. The average loan size of this loan pool is $6,800.
Justine Petersen Housing & Reinvestment Corporation
1023 N. Grand Blvd
St. Louis, MO 63016
314-533-2411, ext. 2411
Justine Petersen Housing & Reinvestment Corporation
Care of Kansas Women's Business Center at OneKC
920 Main St., Suite 100
Kansas City, MO 64105
USDA – Rural Development
The U.S. Department of Agriculture provides assistance through the USDA-Rural Development Program (formerly known as Farmers Home Administration). This assistance is provided in many ways, including direct or guaranteed loans, grants, technical assistance, research and educational materials. Current USDA loans are:
- Business and cooperative loans, aimed at encouraging development in rural areas in order to create or preserve employment opportunities
- Housing and community facilities loans, for providing essential community facilities in rural areas. New development or expansion of commercial or industrial ventures may be financed.
- Utilities loans, including broadband, electricity, water and waste disposal loans.
The USDA has more than 20 loan, grant, relending and other programs. Loans are only available in cities, towns or areas with populations of 50,000 or less, with priority given to projects in areas of 25,000 people or less.
For information on these and other rural business development programs, contact:
601 Business Loop 70 West
Parkade Center, Suite 235
Columbia, Missouri 65203
USDA-state farmer loan programs
The USDA and state's Beginning Farmer Loan Program enables beginning farmers to receive federally tax-exempt interest on loans. Qualified borrowers can borrow up to $501,100 to buy agricultural land, farm buildings, farm equipment and breeding livestock. Of this amount, depreciable agricultural property may not exceed $250,000, with a limit of $62,500 for used depreciable property.
Other farm loan programs include the:
- Missouri Value-Added Grant Program, for projects that add value to Missouri agricultural products
- Specialty Crop Block Grant Program, to enhance the competitiveness of specialty crops
- Agribusiness Revolving Loan Fund, for value-added agriculture enterprises, agriculture support businesses, marketers or retailers of agricultural products and businesses with emerging agricultural technology
- Animal Waste Treatment System Loan Program, to finance animal waste treatment systems for independent livestock and poultry producers.
There are also numerous tax credits and four loan guarantee programs of up to 50 percent for livestock feed and crops, value-added products, breeding and young farmers.
For more information contact the county office of the USDA Rural Development.