Need funding ? Choose your sources | Economy

When it comes to business financing, a traditional bank loan, or a line of credit, “You should always start with your bank,” says James Key-Wallace, executive director of the NH Business Finance Authority .

And it comes from someone who has spent much of his career working for banking alternatives like the Community Loan Fund, the Business Finance Authority, and regional economic development companies.

But many new or existing businesses are not eligible for bank loans, so alternative financing is essential for economic growth and job creation. New Hampshire has a well-developed ecosystem of alternative finance organizations and a strong network of venture capital firms.

According to Key-Wallace, business loans operate with a range of risks and rewards. At one end of the spectrum, there is the low risk, low reward compartment. It belongs to the banks. “They don’t take a lot of risk and charge the least interest,” he says. “There are differences between the banks, but it’s more or less the same set of products.

On the other end of the spectrum are the people who take a lot more risk and expect a lot more in return, such as venture capitalists and angel investors. While a bank wants to see a track record and documentation related to past performance, an investor “looks 100% ahead,” says Key-Wallace.

“They don’t get paid right away. They get paid later when the business is much bigger and things are going well. If things are going well everyone makes a lot of money, but when things are not going well they lose everything.

While a bank loan has few conditions, venture capital comes with an expectation of equity. Investors want to own part of the business, become a partner, and help advise.

“The relationship is very different from being with a bank, depending on who the investor is,” Key-Wallace explains, “but at a high level it’s a much more engaged relationship with a different set of expectations. Most new startups don’t work, so venture capitalists have to do a lot on the ones that do. They look for opportunities that have particularly high growth potential.

In the middle of the spectrum are companies or entrepreneurs who do not tick all the boxes for banks and are not attractive to outside investors, but still have the potential for profitability and job creation.

That’s when businesses need what Key-Wallace calls mezzanine financing. “It’s between the two extremes – medium risk, medium cost – and debt is more expensive,” he says. “Lenders get through the ups and downs with you. It’s a little more engaged than a bank, but not sitting on a board of directors and making decisions. It’s a hybrid world.

This is where places like the Community Loan Fund and the 10 Regional Development Corporations come in.

“Our mission is to make sure that capital flows throughout the New Hampshire economy in all areas,” Key-Wallace said. “If there is a business that should be eligible for funding, but for some strange technical reason they don’t, we can help them get it by working through our banks. “

The regional development companies, which borrow money from the BFA, act as direct lenders, as does the Community Loan Fund. “We are looking to target companies that cannot get all or part of their funding from traditional sources – startups, young companies not ready for banks. They’ll come to us first, get some initial loans, grow, and then they’ll be ready to go to a bank, ”says Laurel Adams, president of the Headquarters Southern NH Regional Economic Development Center (REDC). is in Raymond.

The REDC, like the Community Loan Fund, is called a spread lender. “We are trying to fill in the gaps that traditional lenders cannot. You have to be refused by a bank, or a bank has to ask for our help, ”says Adams.

The BFA derives its money from the fees it charges banks to guarantee loans; the Community Loan Fund’s pool of loans is mainly financed by private investment, while educational programs are financed by grants. Regional Economic Development Corporations are funded by what Adams calls “a alphabet soup of federal agencies,” including the SBA, USDA, EPA, and HUD.

While the BFA will consider any business legal as long as it creates jobs and can repay the loan, the community loan fund and regional development companies focus on certain areas of economic activity.

“Right now, we are focused on helping first generation immigrants to start and grow their businesses with our New American Loan fund,” Adams said. “It helps immigrants and refugees born abroad. They have unique challenges with the traditional loan market, such as language, culture, equity, and credit scores. “

The objective is for the borrower to meet banking standards over time. “Within 24 to 36 months of receiving a loan from us, the business is usually able to pay it off or refinance with a traditional lender and get a better rate,” says Adams. .

Regional economic development corporations are also a good source of business advice. “The majority of people who walk through our doors don’t get loans with us,” Adams says. “They may be paired with a bank or just need to launch an idea. Part of our job is to help people decide if they really want to open a business, and it’s all free.

REDC is in touch with new borrowers on a regular basis, offering free help with marketing, website development, logo design, financial analysis, and even QuickBooks training.

While regional economic development corporations focus largely on job creation and underserved populations, the Concord-based Community Loan Fund has specific goals for its programs, including prefabricated housing and community-owned communities. residents. Other areas targeted by the fund are healthy local food systems, solar power, multi-family housing, non-profit community services and child care.

For years, the Community Loan Fund has run its own version of a venture capital fund known as Investis for Growth. The organization hired a new CEO in April and is reassessing this program.

“The landscape of corporate finance has changed dramatically over the past two years, and we are taking the time to examine these changes and re-evaluate how we can better serve the small, job-creating businesses that have always been our goal, ”said Steve Varnum, director of communications and marketing for the Community Loan Fund. “We continue to provide loans in manufacturing, retail, agriculture and food, solar and others.”

According to Key-Wallace and Adams, the big change in the lending landscape has primarily been the injection of federal money through various COVID-19 economic stimulus programs.

“There is so much liquidity in the system right now,” says Key-Wallace. “Banks have a lot of money to lend and are aggressively seeking customers who have the ability to pay.”

Adams observed a similar trend to REDC. “We received a lot more capital injected, just like the BFA,” she says. “It improved our ability to lend. We’ve given a lot of emergency loans and grants, over 100 during the pandemic so far, which obviously is a job we don’t usually do, but it’s the same kind of companies that we do. we support. “

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