Non-bank financing increases options for small business

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.

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