International Publication Recognizes RLF
Flexible, accessible financing can make the difference between small business success and failure, especially during tough economic times when traditional financial institutions have tightened restrictions on lending. The Regional Planning Commission of Greater Birmingham, AL (est. pop. 229,424), has assembled state and federal funding to create a pool of $2.3 million to lend to small businesses as part of the organization's goal to retain jobs in the small business sector.
"The most interesting loan program I have by far is my receivables lending program," says Yvonne Murray, director of economic development. "We offer it to tenants at our partner incubators." Notes of up to $25,000 are available for a maximum of 30 days. "We use accounts receivable as collateral and require a personal guaranty from the company principals." These loans provide short-term working capital for payroll and supplies and materials for the open receivables.
"Once they collect the receivables, or when the 30 days hit, whichever is sooner, they pay us back," says Murray. "Our board has given us the authority to approve the loans up to $25,000 in house, so we are able to turn them around very quickly. Usually, the borrower calls us and we have the paperwork and check within an hour."
The dollars for these loans are from interest collected and from revolved funds from the commission's larger loans, which were originally funded by a state bond that capitalized revolving loan funds for each of the 12 regional commissions in Alabama, Murray says. The receivables lending program has been around for just over two years.
"We've made a total of 86 loans to date," says Murray. "The total amount loaned for this program so far is $1.66 million, but the great thing is that we'veleveraged about $8.27 million in receivables." Borrowers are only allowed to borrow the lesser of either 80 percent of the value of the receivables, or $25,000. The normal interest charged is 6.25 percent, so if a borrower takes on the maximum amount of $25,000, they pay about $130 for 30 days. "The beauty of the program is that we have a strong relationship with the incubators (their landlords), so we have much less risk than a usual loan. We can communicate with their landlords very easily, and we're able to really understand their financial capacity and credibility. If they run into some delays collecting their accounts receivable, we are able to work with them through flexible terms to ensure that they get us paid back."
Of the 86 loans, only one required collection action, and it was a loan of less than $10,000, she says. "This has been the most enjoyable program for me because generally I do at least one of these each week, and I get insight into such a broad spectrum of ,businesses."
The Regional Planning Commission of Greater Birmingham also operates a revolving loan fund providing supplemental financing for expanding and new businesses with projects that will create permanent new jobs. Funds can be used for purchase and development of land and buildings, renovations, purchase of equipment, and for working capital. The commission's Microloan Program serves start-ups, new businesses and expanding small businesses, with a focus on manufacturing, distribution, healthcare and technology-based companies. Microloans may be used for acquisition of materials, supplies, furniture, fixtures and equipment, and for working capital. The maximum amount is $35,000, for a maximum of six years.