Grants are money that does not have to be paid back. There
are advertisements that offer to help you access government
funds and grant money for your business. Most of those ads
want you to pay a fee to find out the information, and the
only one who actually makes money is the person selling you
the information.
There are very limited grant funds available to businesses.
The grants that are available are not typically related to
the business itself, but through a social service program that
is helping someone work toward being self-supporting. These
grants are typically limited in use and in dollar amount.
WCI cannot legally make a grant to a for-profit business
without jeopardizing our own non-profit charitable foundation
status. WCI does have loan programs for both startup and expanding
businesses.
Where
do I get the special loans/grants for women-owned businesses?
There are no special grant programs in our area to help women
go into business. There are also no special loan programs in
our region specifically for woman. Loan programs to help small
businesses get started, such as WCI's Small Enterprise Loan
Fund, are available to everyone. Women's applications are reviewed
in the same manner as any other loan application.
Why
do I need to have a bank lend my money if WCI has loan
funds available and your interest rate is lower?
WCI's role is typically that of a "Gap" lender,
and our loan funds are intended to be only one part of a
plan to help a
business grow. WCI's loan programs are like stepping stones
to help a business get to the next level in their business
growth.
For the long-term viability and growth
of a business, a relationship with a commercial lender is
very important. We like to see
our loan recipients outgrow their need for "gap" financing
because that means they are a financially stable company.
When
I bought my house, I only needed 5% down. Why can't I
borrow 95% of the money I need to start a business? The
bank tells me I need 25% or more.
When you purchase a home, the lender has the house as collateral.
The house has a higher value than the amount of your loan.
If you stop making payments, the bank can usually sell it to
someone else without losing very much money. Owning a home
is very important to most people, so they will do all they
can to avoid losing their home for not making their payments.
Therefore, the risk to the lender on a home mortgage is relatively
low.
When you start a business, the collateral is rarely as secure
as a house. Hand tools or inventory, for example, are highly
portable and can be readily sold to someone else for cash by
an unscrupulous borrower, and the collateral for the loan is
gone. Computer equipment becomes obsolete and declines in value.
Loans made to cover operating expenses, such as rent and utilities,
provide no collateral to the lender.
Business startups also have a high failure rate within the
early years, and some types of businesses fail more often than
others. Your past experience managing and/or owning a business
is only one indicator of how well your business will succeed.
Most lenders agree that if they are going to lend you money
for a business, you must be willing to accept a personal risk
as well. If you could start a business with 95% loans and only
5% of your money, it would be much easier to walk away. If
you personally had invested 25% or more of the money to start
the business, you are more likely to keep working on the business
to avoid losing your investment.
I
plan to incorporate my business, so why is the lender
asking for my personal guarantee on my business loan?
A personal guarantee is your promise that the loan will be
repaid, even if the business fails. Until a business becomes
established and has grown to a point that total assets exceed
all loans by a healthy margin, lenders will require personal
guarantees from the owners of the business. They may even ask
to take a second mortgage on your home, or secure your personal
guarantee with some other type of collateral. This is a method
of reducing the lender's risk of making the loan to you and
your business. Owners of some very large businesses, with annual
sales in the millions of dollars, are still asked to personally
guarantee the company's business loans.
I
know there are many loan programs available, but how
do I find out about them all? Who can help me with the
paperwork?
The Minnesota
State University Moorhead Small Business Development Center provides
free business consulting services to business owners. They
are available to assist with preparation of loan applications,
and can help identify sources of financing for a business.
The consultants work throughout our region, and can be reached
by calling 218-236-2289.
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