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If you've tried to get a loan from a traditional institution and been turned down, there's another source of business financing to consider.
"There are about 450 Community Development Finance Institutions (CDFIs) in the country that act as bridges to link unconventional borrowers to conventional capital," says Mark Pinsky, executive director of the National Community Capital Association, a CDFI trade association.
Until recently, CDFIs concentrated primarily on helping people get mortgage loans. But the advent of entities like Chicago's Southshore Bank inspired President Clinton to create a national network of more than 100 such institutions.
Today there are a growing number of partially government-backed CDFIs, such as the Austin Community Development Corp., which focus almost exclusively on lending to entrepreneurs. "We have approximately $2.2 million in our capital fund," says Margo Weisz, executive director of the Austin CDFI. "We just got half a million from the federal CDFI fund, but our primary funders are banks."
CDFIs typically lend to businesses other lenders deem unfundable, but their default rate is only 1.5 percent, says Pinsky.
According to Weisz, "We work within the Austin city limits in low and moderate income census tracks and primarily make loans to minority- and women-owned businesses. But you don't have to be a minority [or a woman] to access the financing."
The Austin CDFI funds ventures that will provide high-quality jobs or make improvements in blighted neighborhoods in its target area. Loans start at $20,000 with three- to seven-year terms and interest rates that range from 11 to 13 percent.
Although CDFI lending may seem implausible to the larger financial community, there's nothing magical about it, says Pinsky. They're just lenders that have the flexibility to devise creative solutions and that are willing to take risks.
Bridging The Gap
Bank rejections didn't stop this entrepreneur.
I was raised in a small town near Lubbock, Texas, and my family were migrant workers," says Joe Salinas Jr., 33, president of Austin-based Advanced Networking Solutions (ANS). "It was in high school, after being exposed to the cotton fields, that I knew what I didn't want to do for the rest of my life."
In 1991, after serving in the military, earning a degree in computer science from the University of Texas and working as a computer analyst for IBM, Salinas used $4,000 in savings to co-found ANS with his brother Bob. ANS provides networking solutions from software and workstations to cabling.
Six years later, with $750,000 in sales, 15 employees and four pending projects worth about $4 million in revenue, Salinas sought $150,000 in expansion funding.
"We went to some pretty good-sized banks, but they felt we had grown too fast, that we had too much business; they wanted to see how we would manage growth before lending to us," remembers Salinas.
Margo Weisz of the Austin Community Development Corp. didn't have the same reservations. "We needed manpower and equipment, and we needed to beef up our statewide infrastructure to handle the projects, and [Weisz] was willing to assist with that," says Salinas.
About a month after talking with Weisz, Salinas obtained a bridge loan of $50,000 from her organization. That paved the way for bank loans a few months later.
Today, ANS has 100 employees, projected 1999 sales of $9.5 million and five bank credit lines.
"We wouldn't have gone out of business without the financing from Margo," says Salinas, "but the road would have been bumpier, and we would have had to slow our growth or even give up a piece of the company."
Advance Networking Solutions Computers Inc., 1111 S. Congress Ave., Austin, TX 78704, email@example.com
Austin Community Development Corp., 5407 N. IH35, #307, Austin, TX 78723, (512) 371-1776