Osceola Economic Alliance
Facilitating Community & Economic Development in
Osceola County, Michigan
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Financing
The Myth of Grants
Starting a business or expanding an existing business requires capital; however, before getting into different financing programs a few words must be mentioned about a type of financing that is generally not available. Grants for the purpose of starting a business are usually just a myth. If the government provided free money to start a small business don't you think more people would be starting small businesses?
The following is a quote from the 2006 Edition of the Michigan Small Business Source Book:
"Unfortunately, there is much misinformation circulating about the availability of grant funds. SBA does not provide grants to individuals to help them start a business, nor does any other public or private source of which we are aware. Our advice to grant seekers is to save your money and avoid purchasing a book or software program about grants...."
You can click here for an article which provides more information on grants.
The Way It Is Really Done
The most common forms of financing a business include an individual's own money, a loan or equity position from family or friends, and bank financing. A September 2006 Census Bureau press release shows that over 6 in 10 small businesses are started with the owners or families (this includes part-time businesses) own assets. Slightly less than 3 in 10 entrepreneurs start or acquire their business with no capital at all. Click here to read the press release.
In some cases an individual or business is unable to meet all of its financing needs through these more common forms of financing. In these cases alternate sources of financing may be available; however, factors such as creditworthiness, type of project, experience of the owners, and many other factors will be considered.
Types of Programs
Banks & Similar Lending
Institutions
Business &
Industrial Development Corporations
Business & Industry Guaranteed
Loans
Capital Access Program
Certified
Development Companies (CDCs), SBA 504 Loans
Community Development
Financial Institutions
Industrial Development
Revenue Bonds
Intermediary Relending Programs
Microloans
Small Business Administration
Rural Economic Development Loans
Venture Capital
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A bank loan is one of the more common forms
of business financing. Listed below are banks with a branch in
Osceola County. Also listed is the GreenStone Farm Credit Services
branch that serves Osceola County. GreenStone provides short,
intermediate, and long-term loans to the agricultural industry. Contact:
Chemical Bank
(http://www.chemicalbankmi.com)
Reed City, MI 49677
Evart, MI 49631
Citizens Bank (http://www.citizensbank.com) 107 N. Pine St. 120 Mackinaw Trail 201 E. Main St. Evart, MI 49631 LeRoy, MI 49655 Marion, MI 49665 (231) 734-5582 (231) 768-4489 (231) 743-2491
GreenStone Financial Services (http://www.greenstonefcs.com)
7597 S. Mackinaw Trail
Huntington National Bank (http://www.huntington.com) 214 W. Upton Reed City, MI 49677 (231) 832-5534
Lake-Osceola State Bank 217 S. Chestnut 109 E. Church St. Reed City, MI 49677 Tustin, MI 49688 (231) 832-0022 (231) 829-3351 |
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BIDCOs are privately owned and operated financial institutions. Each BIDCO sets its own geographic service area, eligibility criteria, and loan range. BIDCOs have substantial flexibility in the types of financing they can provide. They may provide subordinate loans with equity features, royalty financing, for product development, equity investments and guaranteed loans. Although the amount of return varies between each BIDCO, typical returns range between 20% to 40%. For more information about BIDCOs contact the
individual BIDCO or the Michigan Department of Labor and Economic
Growth,
Office of Financial and Insurance Services. |
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Contact:
Michigan Department of Labor
& Economic Growth |
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The B&I Guaranteed Loan Program does have a maximum guarantee limit and the percentage of the guarantee is tied to the size of the entire loan; 80% for loans of $5 million or less, 70% for loans over $5 million and up to and including $10 million. Special approval is required for loans over $10 million. Interest rates for B&I Guaranteed Loans may be fixed or variable. The rate is negotiated between the borrower and lender. Variable rates cannot be adjusted more than quarterly. Additionally, in order to access the program the lender pays a one-time guarantee fee of 2%. This fee may be passed on to the borrower. The maximum repayment terms are 7 years for working capital, 15 years or useful life for machinery and equipment, and 30 years for real estate. The B&I Guaranteed Loan Program can be used for many
business purposes; however, there are several limitations. The
Business
Programs section of the USDA
Rural Development website provides more information on the Business
& Industry Guaranteed Loan Program as well as other USDA Rural
Development business programs. |
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Contact:
United States Department
of Agriculture |
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The State of Michigan has reestablished the Capital Access Program (CAP) in an effort to assist small businesses with their financing needs. The program is for use by companies that need assistance in obtaining a loan from a traditional financial institution. The program can be used to finance most types of business; however, CAP loans can not be used for construction, renovation, the purchase of residential or rental housing, nor property. The loan can even be used as a line of credit. There are no restrictions on the size or terms of the loan. Participating banks offer the Capital Access Program directly to companies that need credit enhancement. The State is a partner in the loan loss reserve fund; however the loans under the program are strictly private transactions between the bank and borrower. In other words the borrower must meet the banks loan criteria and it is the banks decision whether or not to make the loan. As of April 2007 there are 52 financial institutions
in Michigan participating in the program. Go to the
Capital Access Program section of the
Michigan Economic Development
Corporation website to learn more about the program and see which banks
participate. |
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Contact:
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A Certified Development Company (CDC) is a nonprofit
corporation that administers the SBA's 504 loan program.
Previously CDCs were limited to specific geographic areas; however,
CDCs can now serve any area of the state. Currently there are
six CDCs in Michigan. CDCs administer the SBA's 504 loan program and work
with the SBA and private-sector lenders to provide growing
businesses with long-term, fixed-rate financing for major fixed
assets, such as land and buildings. |
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Contact:
Economic Development Foundation
Lakeshore 504 (North)
Lakeshore 504 Metropolitan Growth and
Development Corporation Michigan Certified Development
Corporation Oakland County Business Finance
Corporation SEM
Resource Capital SEM Resource Capital |
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One typical aspect of a CDFI's mission is to provide business loans in selected areas of the State. Osceola County is served by one CDFI, Northern Michigan Initiatives. Northern Michigan Initiatives can provide financing
for either start-ups or existing businesses. Loans range in size from
$2,000 to $500,000. |
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Contact: |
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(IDRBs) can be used for manufacturing projects, not-for-profit corporation projects, and solid waste facilities; however, certain restrictions apply. For manufacturing projects, bond proceeds can only be used to acquire land, building and equipment directly related to the manufacturing process. Warehouse space and other "non-core" items are ineligible unless they are directly related to the manufacturing process, and then are limited to 25% of the project. At least 70% of bond proceeds must be spent on "core manufacturing" costs. If you acquire existing facilities, a minimum of 15% of the bond proceeds must be used to renovate the facility. Used equipment is generally ineligible. Loans for such purposes as working capital or inventory are not permitted. There is also a maximum amount that can be borrowed using IDRBs. Up to 1,000,000 can be borrowed free of any restrictions on capital expenditures or up to $10,000,000 can be borrowed without any spending conditions. There is no limit for solid waste disposal facilities or nonprofit corporations. The
Industrial Development Revenue Bond Program section of the
Michigan Economic Development
Corporation website provides much more information on IDRBs. |
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Contact: |
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Intermediary Relending Programs assist in the development of new small businesses and the expansion of existing businesses by providing financing to individuals and businesses that are unable to obtain conventional financing. Osceola County is served by several Intermediary Relending Programs. Eligibility criteria as well as minimum and maximum loan amounts vary between each program. Great Lakes Energy Great Lakes Energy offers an Intermediary Relending Program which loans up to a maximum of $100,000. There is no minimum. At the discretion of the Great Lakes Energy Board of Directors, the interest rate on these loans varies from one-half of the prime rate at the time of the loan approval to one-half plus 2%. Great Lakes Energy can finance 30% of the total project (not to exceed $100,00), with a financial institution financing 50% of the total project, and the applicant having a 20% equity. The loan term is set to match that of the participating financial institution, up to 10 years. Any "for profit business" can apply; however, job creation will be considered as a factor when reviewing the application. Applications are reviewed quarterly. The Northern Lakes Economic Alliance administers the program on Great Lakes Energy's behalf. To obtain complete information on the program contact the Northern Lakes Economic Alliance. Rural Michigan Intermediary Relending Program
As its name indicates the Rural Michigan Intermediary Relending Program operates an Intermediary Relending Program. This program uses funding from the United States Department of Agriculture.
The minimum loan made is $50,000 and the maximum loan is $200,000. Individuals interested in the program should contact the Rural Michigan Intermediary Relending Program for other loan terms.
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Contact:
Northern Lakes
Economic Alliance
Rural Michigan Intermediary Relending Program 121 E. Front St. Suite 201 Traverse City, MI 49783 (231) 941-5858 |
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Count-Me-In is the nation's first online micro-lender. Count-Me-In is a national program that champions the cause for women's economic independence by providing access to business loans, consultation, and education. Count-Me-In makes loans of $500 to $10,000.
Rural Michigan Intermediary Relending Program
The Rural Michigan Intermediary Relending Program receives funding from both the Small Business Administration (SBA) and the United States Department of Agriculture. The Rural Michigan Intermediary Relending Program is able to use its SBA funding to operate a microloan program.
The minimum loan made is $5,000 and the maximum loan is $35,000. Individuals interested in the program should contact the Rural Michigan Intermediary Relending Program for other loan terms.
Northern Michigan Initiatives
The
Northern Michigan Initiatives is actually a
Community
Development Financial Institution; however, some of their loans are
very similar to microloans. Minimum loans made by Northern
Michigan Initiatives begin at $2,000. |
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Contact: 240 Central Park South, Suite 7H New York, NY 10019 (212) 245-1245
Northern Michigan Initiatives
Rural Michigan Intermediary Relending Program 121 E. Front St. Suite 201 Traverse City, MI 49783 (231) 941-5858 |
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The Small Business Administration (SBA) has a number of different programs to help meet the needs of small businesses. As such the SBA is the largest source of long-term small business financing in the nation. The SBA does not lend directly to borrowers. Instead it guarantees a portion of the loan in the event the borrower does not repay the loan. SBA 7(a) Loans
The most
basic and commonly used is the SBA 7(a) loan. These
loans are provided by lenders who choose to structure their own loans by
SBA's requirements and then apply and receive a guaranty from SBA on a
portion of this loan. The SBA does not fully guaranty 7(a) loans. The
lender and SBA share the risk that a borrower will not be able to repay
the loan in full. Under the guaranty concept, commercial lenders
make and administer the loans. All businesses seeking a 7(a) must be for-profit, meet SBA size standards, not already have the personal or business resources to provide the financing, and be able to demonstrate an ability to repay the loan. The SBA website has more detailed information concerning:
Special Purpose Loans The SBA offers a number of special purpose loans that, unlike the 7a program, are targeted to a very small defined audience. Export Working Capital: The SBA's Export Working Capital Program (EWCP) supports export financing to small businesses when that financing is not otherwise available on reasonable terms.
International Trade Loans: To qualify for these
loans an applicant must establish that the loan will significantly
expand or develop an export market, is currently adversely affected by
import competition, will upgrade equipment or facilities to improve
competitive position, or must be able to provide a business plan that
reasonably projects export sales sufficient to cover the loan. Pollution Control: The program is designed to provide financing to eligible small businesses for the planning, design, or installation of a pollution control facility. This facility must prevent, reduce, abate, or control any form of pollution, including recycling. CAPlines: The SBA's CAPLines is the umbrella program under which the SBA helps small businesses meet their short-term and cyclical working-capital needs. Summary Its beyond the scope of this website to fully discuss the purpose, eligibility requirements, and specifics of each SBA program. To learn more about SBA programs visit their website or contact a commercial lender. |
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The Zero Interest Loan Program is a fantastic opportunity for companies seeking large scale financing for projects that will create jobs in rural communities. Any "for profit" business can apply. The minimum loan amount is $100,000 and the maximum loan amount is up to $600,000. Great Lakes Energy's participation can not exceed 30% of the total project. Great Lakes Energy can finance 30% of the total project (not to exceed $600,00), with a financial institution financing 50% of the total project, and the applicant having a 20% equity. The loan term is set to match that of the participating financial institution, up to 10 years. Any "for profit business" can apply; however, job creation will be considered as a factor when reviewing the application. There is an expectation that one job will be created for every $10,000 borrowed. Applications are reviewed quarterly.
The Northern Lakes Economic Alliance
administers the program on Great Lakes Energy's behalf. To obtain
complete information on the program contact the Northern Lakes Economic
Alliance. |
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Contact:
Northern Lakes
Economic Alliance
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Such investors are referred to as venture capitalists or Angel investors. Venture capitalists may be: a) privately owned firms licensed and regulated by the U.S. Small Business Administration or; b) non-regulated firms. The former group is known as Small Business Investment Companies (SBICs). SBICs provide financing in the form of equity capital, debt financing with an equity sweetener, and in some cases, straight long-term loans. The non-regulated firms, which specialize in equity financing, are referred to as Venture Capital Companies (VCCs). A list of Venture Capital Companies doing business in
Michigan can be found in the
Michigan
Business/Organization Directory section of the
Michigan Economic
Development Corporation's website. |
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Contact: |
Osceola Economic Alliance
301 W. Upton ● Reed City, MI 49677
Phone: 231-832-7397 ● Fax: 231-832-3381
Email the OEA
August 21, 2008