North Bay Business Journal

Monday, December 5, 2011, 6:00 am

Non-bank financing increases options for small business


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    NORTH BAY — Non-bank financing, representing a broad range of practices from government-supported loans to private investing, can help businesses fulfill their needs for capital and do so at a time when qualifying for a traditional bank loan can be difficult.

    Several options exist in the North Bay, often tailored to particular industries or offering unique financing models that those working at non-bank financing institutions said have increased in popularity in recent years.

    “I think non-traditional financing channels are becoming more popular after the banking meltdown,” said John Connelly, business development consultant at the State Assistance Fund for Enterprise, Business and Industrial Development Corporation, commonly known as SAFE-BIDCO.

    Created by the California Legislature in the early 1980s, SAFE-BIDCO is a non-deposit institution facilitating a number of specific loans.

    Those products include low rate, fixed-interest loans for improving energy efficiency, U.S. Department of Agriculture-enhanced business loans for historic logging counties like Mendocino and Lake, and the administration of the recently-enhanced California Small Business Loan Guarantee Program.

    “You’re not finding a lot of banks nowadays doing specialty lending,” said Mr. Connelly.

    Non-bank financing also includes options like factoring, a practice in which businesses sell their outstanding accounts receivable for immediate cash.

    David Kocharhook, business development manager at Riviera Finance, said that his company has been purchasing the accounts since 1969. Mr. Kocharhook described the practice at the recent Next Steps small business event in Santa Rosa, sharing the three times a typical business could most benefit: during startup, during a rapid growth phase and when bank financing is difficult.

    “Because it’s an asset transfer, there’s no liability,” he said.

    The cost of factoring varies, commonly from 2 to 6 percent, up to 8 percent, Mr. Kocharhook said.

    Other options for non-bank financing in the North Bay include investors like the North Bay Angels and the Keiretsu Forum, as well as the Warren Capital Corporation.

    A specialist in financing the purchase and leasing of equipment, Warren Capital has been working with companies in the North Bay and beyond for nearly 30 years. The close connection with manufacturers helps them obtain optimal rates and arrangements for clients, said Clay Stephens, president and CEO of the company.

    “When you specialize in equipment, you have a competitive advantage,” he said.

    For many companies, the non-bank financing route allows them to keep their bank-sourced credit line devoted to operating costs and other uses while facilitating expansion, said Mr. Stephens.

    “Always check us out — know what’s available out there,” said Mr. Stephens.

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    1. December 5, 2011, 10:16 am

      by Karlene Sinclair-Robinson

      It is important that small business owners understand the benefit that can be derived from accessing non-bank financing methods. Mr. Kocharhook of Rivera is right on where Factoring is concerned. It is a critical non-traditional financing option business owners must take seriously. This type of financing can travel the bumpy road of entrepreneurship with the business owner, whether they are in a growth mode or just trying to survival.

      Other options entrepreneurs must consider are purchase order financing and other forms of microloans, not bank affiliated. Many are now using Peer-to-Peer Lending and Crowdfunding sites to access some capital.

      It is about survival and those who do, will come out ahead but to do so, we must get creative and possibly diversify our business and our ways of doing business.

    2. December 5, 2011, 4:44 pm

      by Lester Salvatierra

      Great points made here; traditional business financing has been on the decline for several years. The banking guidelines have strangled small and mid size businesses and independent financing companies have formed to fill the void for business lending. Private investor groups fund specific types of projects and equipment; the key is to work with the lending source or broker to make sure you get through the process accomplishing your goals.

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