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Where Did all The Small-Business Loans Go?
By Paul Gori :: Friday, April 30, 2010 :: 107734 Views :: Article Rating :: Community & Culture, Business & Finance

Chaldean business owners know if you want to expand your business, you're going to need some cash.  Money still isn't falling off trees for small businesses, and the lending process can be a challenge to navigate. As a professional loan officer for a large banking company Haisha helps small businesses prepare loan request packages.  He also serves as the corresponding secretary of a private Chaldean investment group in Michigan.  The Chaldean group pulls their financial resources, investor connections, and business expertise together to help fund new Chaldean business ventures. 

Banks have tightened their lending policies, and it is more difficult for a Chaldean entrepreneur to get financing.  “The difficulty in getting a loan from a bank is causing many Chaldean small-business owners to have to get creative with finding sources of capital.”  Haisha adds, “Many Chaldeans have great businesses ideas, but do not have the money, business contacts, or expertise to make a go of it.  Chaldean entrepreneur candidates submit loan or investment requests to our members and we decide as a group, which we will fund.”

The Chaldean venture capitalists group is mostly composed of successful business entrepreneurs, professionals with funds to invest, and businesses able to provide services to new businesses.  The group tend to invest or loan money to Chaldeans who have developed a thorough plan for the success of their business.  Loans are provided with untraditional collateral requirements and terms. 

Chaldeans have received hundreds of thousands in loans by offering gold for collateral, property in Iraq, or agree to equity shares of their business says Haisha.  “Our members each buy shares into a proposed business opportunity.  Shares prices range from a few hundred dollars to hundreds of thousands, depending on the amount needed by the business selected to be funded.”

The club’s members are comprised of Chaldeans interested in investing in private local businesses that have the potential of being profitable.  “Membership in our group is usually by invitation only.  We are private and selective with our members,” says Haisha. “Getting a loan by traditional means is becoming more and more difficult.”

In the past there were local banks willing to offer lower interest rates and long repayment plans. Not anymore.  Chaldean entrepreneurs have found that stricter underwriting guidelines make it nearly impossible for these loans to be approved.

Haisha makes clear that Chaldean should understand that every bank's lending requirements are different, so shop around. Start with your personal bank. If a banker knows you, he or she may offer additional help when you apply.

Haisha suggests other methods of securing financing include:

Government loans - Like traditional bank loans, loans with a government guarantee can be tough to get, and the process can be painstakingly long. It's not uncommon for Chaldean borrowers to bail before the loan is approved.

Loans from family and friends - No one wants your business to succeed more than your loved ones or good friends, so your nearest and dearest may be a good funding source. In return for the loan and your gratitude, your new lender could receive a decent interest rate on the loan--better than a bank CD or money market fund.

Make sure you do it right. Draw up a contract or promissory note for the loan with specific repayment terms so that you don't run afoul of the IRS. (If you're offered an interest-free loan, the IRS can actually attach a rate to it for you--or even decide that the loan was a gift, which will have tax consequences.)  Also, remember that anytime you mix business and personal, though, you risk hurting your relationship.

Your Home  - Home equity is one of the quickest and easiest ways to obtain cash, but that's what got so many homeowners in trouble during the past few years. Since then, banks have cut home equity lines of credit and have imposed stricter loan-to-value ratios.  If you have home equity available, use caution before putting your home on the line.  “If things go wrong with the business, you could end up losing your home, as well as being held personally responsible for the repayment of any shortfall,' Haisha says.

Credit Cards
- Personal and business credit cards can seem to be a solution to your borrowing needs, but they can be costly, with interest rates exceeding 20 percent--a huge spread over a bank loan. Also, business credit cards are not subject to the new CARD Act rules that apply to personal credit cards.  Use credit cards sparingly and never for long-term financing.

"If you have a short-term need for a purchase that you are 99.9 percent sure you will have the money to pay off the credit card when it comes in, then it is a good use of your resources,' Haisha says.

A Partner - If you're willing to share your future successes, consider a partner who can pour some money into your business.  “Select a partner as you would a spouse, only more carefully,' says Haisha.  While a partner could bring cash, she could also bring her own ideas about how to run your business. You'll have to be willing to share, and you'll need to draw up some specific legal agreements outlining the partner's role in the company.

Your Retirement Accounts - This should be the funding source of last resort. You've set money aside for your future and although you hope your business venture will add to your future, it's an enormous risk. If the business goes under, you can kiss your nest egg goodbye. 

Some 401(k) plans offer loans against your plan's value, and through payroll deductions you make payments on the principal and interest. But if you lose or leave your job, most plans require that the entire loan be repaid immediately. 

If you choose to withdraw funds from an IRA or 401(k) before age 59 1/2, you'll be subject to taxes and penalties, making this source of cash very expensive indeed.

Peer-to-Peer Funding – “This is what we do,” Haisha says.  We match-up potential Chaldean borrowers and Chaldean lenders who agree to loan or invest in qualifying opportunities with clearly defined rates.  

The Chaldean Venture Group is structured by a leading CEO with committees.  Each committee is tasked with conducting due diligence work like researching the borrower or the business, preparing a loan package, or crafting a feasibility study.  Members are presented with a share amount and terms of the businesses selected.  Those members interested in participating may do so at their own will.  Their membership qualifications include an annual fee of $250, a signed non-disclosure agreement, and board approval.