It's what you don't know that hurts

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Did you know you might be able to lower the interest rate on your business loan? Have you heard about the most recent changes in public financing programs?

Here’s the scoop.

To lower your interest rate on a business loan:

  • Use the Linked Deposit Program for Small Business run by the Treasurer of State. This program may be able to reduce your interest rate up to 3 percent below the current market rate for the first two years of the loan commitment, with a possibility of a two-year extension of this fixed rate.

    Your banker submits the forms to the Treasurer of State and approval is made based on the number of jobs you are creating or saving and the unemployment rates in a given county. Call the Public Affairs Office, Treasurer of State, at 466-8855.

  • Combine public financing with bank financing. This can be done in many ways. For example:

    1. If your business is in a declared disaster area, use the Physical Disaster Loan and Economic Injury Disaster programs. With 4 percent or 8 percent financing, these can help get your business back on its feet. Contact the U.S. Small Business Administration in Atlanta at (800) 334-0309 or (800) 359-2227.

    2. Are you in manufacturing? A wholesaler? A distributor? Do you need to purchase real estate, build or renovate? Need machinery or equipment? The Ohio 166 Loan Program can give your business an interest rate that is two-thirds of prime rate, fixed. These loans are seven or 15 years, with 10 percent down. Contact Community Capital Development Corp. in Columbus at 645-6439.

    3. The Ohio Mini-Loan Program is available to businesses with fewer than 25 employees and offers an interest rate not to exceed 5.5 percent on the guaranteed portion of the loan. The bank sets the term of the loan, not to exceed the life of the asset or 10 years. This program may be used with the Linked Deposit Program described earlier or with other federal or city loan programs. Fifty percent of the funding is allocated for businesses owned by minorities and/or women. Contact the Office of Minority Financial Incentives at 644-7708 and ask for Natalie Burley.

    4. The Minority Direct Loan Program is available if you are a certified minority business enterprise, an industrial, distribution, commercial or research and development business. The interest rate is 4.5 percent, fixed, and proceeds can be used for real estate, machinery and equipment or renovations and leasehold improvements. Contact Burley at the Office of Minority Financial Incentives at 644-7708.

    5. Need to build or buy a building? Use the SBA 504 program along with your bank loan. The SBA 504 portion is a fixed rate (January’s rate was 7.81 percent) with a 10- or 20-year term. You also generally get the luxury of 10 percent down. Contact Community Capital Development Corp. at 645-6439.

    6. If you are within the corporate limits of Columbus, the Working Capital Loan Fund may be able to help. This program has a 5 to 7 percent rate with five- to seven-year terms. It will subordinate collateral to the primary bank lender. Seventy percent of the funds are targeted for minority businesses and you must agree to make new jobs available to persons of low to moderate income households. You can use the financing for working capital, leasehold improvements or equipment. Contact the Columbus Development Department at 645-8172.

    Not only may you be able to reduce your interest payments by using these strategies, you may find getting a loan easier these days thanks to recent changes in the lending landscape.

In the first few months of 2001, several new loan programs have become available to the Franklin County area and some changes have been made to the SBA MicroLoan Program.

United Way now has funds available to provide gap financing for nonprofit development organizations located in targeted distressed areas of Franklin County. The funds can be used in the development or redevelopment of underutilized or distressed commercial real estate. The program’s interest rates are well below prime and the loan is subordinated (has a last position on all collateral) to all other public and private lenders. Total funds available as of Feb. 1, 2001, were $100,000. Contact Fredericka Wallace-Deena, director of neighborhood development for the United Way, at 227-8704.

The Seed Capital Loan Program provides “patient” funding, which means you get very low interest rates and, on a case-by-case basis, interest-only payments for the first year. This program also takes a “last position” on collateral so other funders will have a greater comfort level in making a loan for you. The program is available for businesses in the Empowerment Zone. Call Community Capital Development Corp. for more information at 645-6439.

The SBA MicroLoan Program is now available in eight counties of Central Ohio. In addition, the maximum loan has increased from $25,000 to $35,000. The program is now able to do “participation” loans, too. An example: You approached your bank for a $100,000 business loan for equipment and working capital. The bank does not feel you have enough collateral to cover this amount or your business is too new, and you are declined.

The MicroLoan Program could finance $35,000 of your working capital, inventory and small equipment needs and you could ask the bank to do a $65,000 loan for the remainder. In this scenario, the bank gets first lien position; therefore, you may have enough collateral to cover the $65,000. Now the bank may be able to do the deal.

There are many publications that explain the city, state, county, and federal loan programs available in your area. Among the best is the SBA Small Business Resource Guide. Your local SBA office can get you a copy for free if you call 469-6860. Andrea Brocklehurst is director of marketing and special projects for Community Capital Development Corp., formerly Columbus Countywide Development Corp.