Access to Capital - Loans
Access to Capital - Loans
There are many different options for financing a business through loans. This page will help you understand what loans are, how they can be used, and different types of lenders who offer loans, including microlenders, subsidized nonprofits, banks, and government programs. If you need more information on financial terminology please refer to the Business & Financial Literacy page
for additional resources.
What are loans?
Loans are a form of debt financing that provide a business with capital that can be used to help grow small to mid-sized businesses. Loans are offered through a variety of entities, including local municipalities, federal agencies, nonprofit lenders, community lending institutions, banks, credit unions, and more. The Council of Development Finance Agencies (CDFA) - Food Systems & Access to Capital White Paper provides more information and examples of debt financing.
How can loans be used?
Different loan programs have different restrictions on how the money can be used. Loans are typically used for operating capital, acquisition of land and buildings, new construction and renovations, and purchasing machinery and equipment.
What else should I know?
Loans are typically paid back over a set period of time with interest. Loans are often issued at competitive rates, but also tend to offer flexibility with collateral and terms that make them accessible to an extremely wide range of businesses.
What about business grants?
Business grants are very rare and usually address a very specific programmatic, geographic, or industry-specific purpose. A small business should be extremely cautious about planning any future growth or development around business grants. If you’re looking for financing that does not have to be paid back or require giving over a percentage of ownership then your best option may be crowdfunding sites such as Kickstarter, Indiegogo, GoFundMe, or iFundWomen.
What about social enterprises?
Social enterprises are businesses that seek to maximize both profits and positive social impact on society or the environment. Some nonprofit philanthropic organizations will offer financing to social enterprises when their missions align. The Wells Foundation is one local example - they offer startup financing and loans for capital improvement and equipment to nonprofits and for profit social enterprises through their Impact Investing program.
Lenders and Loan Programs
Microlenders provides access to capital for the smallest businesses, which are commonly referred to as “microenterprises” and defined as small businesses with less than five employees, capital needs of less than $35,000, and an average loan size of $7,000. Lenders often perceive these companies as having a high level of risk due to their small size and entrepreneurial nature, making microlending an important tool in supporting the growth of microenterprises. Most microlending programs also include mandatory technical assistance for businesses to assist with management, marketing, or financial issues.
Subsidized Nonprofit Lenders
There are many subsidized nonprofit lenders across the state offering subsidized loans for small businesses. Subsidized nonprofit lenders are mission-driven lenders who focus on serving entrepreneurs and small business owners who face barriers obtaining loans or lines of credit from traditional banks. Many of these lenders also provide technical assistance and business support programs. Most subsidized nonprofit lenders are either Community Development Financial Institutions (CDFIs) or Community Development Corporations (CDCs), which designate lenders that have access to subsidized loan dollars from the federal government.
Banks offer traditional loans to traditional borrowers. A bank loan will generally require a higher credit score and sufficient collateral from borrowers. Many banks are wary of working with small businesses because of the risks involved so you may need to consider additional financing options when you’re starting your business.
Lenders that have a history working with food businesses:
State Government Programs
The State of Ohio offers several loan programs addressing the needs and opportunities of entrepreneurs and small businesses. These programs have a wide variety of requirements and restrictions - please do your own research!
- 166 Direct Loan Program - Provides capital for expansion projects to companies that have limited access to capital and funding from conventional, private sources of financing.
- Ohio GrowNOW Program - Enables small business owners to receive up to a 3% interest rate reduction on new or existing small business loans for two years, with the opportunity for renewals.
- Ag-LINK - Ohio farm operators and other agriculture businesses can apply for an interest rate reduction on a loan or line of credit up to $150,000.
- Collateral Enhancement Program (CEP) - Facilitates increased lending by banks to small businesses, and minority-owned businesses for growth or expansion
- JobsOhio - Growth Loan Fund - Provides capital for expansion projects to companies that have limited access to capital and funding from conventional, private sources of financing
- ReEnergize Ohio - Helps businesses renovate existing buildings, expand their business, upgrade equipment, install energy saving products and systems
- Targeted Investment Program (TIP) - Provides financing to targeted small businesses that demonstrate high-growth potential over a relatively short period of time
- Ohio Minority Business Direct Loan Program - Provides fixed, low-interest rate loans to certified minority-owned businesses that are purchasing or improving fixed assets resulting in creating new jobs for Ohioans
- Ohio Capital Access Program (OCAP) - Enables small businesses to obtain credit to help them grow and expand their businesses
Federal Government Programs
The federal government offers several loan programs addressing the needs and opportunities of entrepreneurs and small businesses. These programs have a wide variety of requirements and restrictions - please do your own research!
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