Just a little cash can make the difference between dreaming about starting a new business and making it a reality. Entrepreneurs who want to borrow a few thousand dollars may find that banks and other lenders are disinterested. The lenders consider small loans risky and not worth their while. A small California-based bank entered the Nevada lending arena in April with a plan to provide financing for new ventures and established small businesses needing working capital. Innovative Bank of Oakland, Calif., granted 137 loans with a total value of $230,000 in its first three months of operation in Nevada. The bank is utilizing two U.S. Small Business Administration (SBA) programs that guarantee a percentage of the loans will be paid back if the borrower defaults.
Innovative has a cap of $5,000 for its loans, although it has lent more to Nevada businesses on a few occasions. It has plans to gradually extend this cap to $25,000. “This program has been a real success in Nevada so far,” said Jim Bek, vice president in charge of Innovative Bank’s lending program to small businesses. “We are very pleased with the numbers. We have concluded there is a big demand for this kind of loan, which
focuses on embryonic businesses. Many of these businesses have a big need for working capital.”
Jerry Stephens, deputy director of the SBA in Nevada, said, “Most of the lending has been in Southern Nevada, but [Innovative Bank] made two or three loans in the Reno area as well.” Stephens said the potential for small loans is great, not only in Reno, where
Innovative plans to have two lending officers, but also in rural areas. “There is almost no access to this kind of capital out there (in rural Nevada),” he said.
The approval rate of the loans is about 50 percent. The qualifications are less stringent than the larger “mainstream” SBA-guaranteed loans, Bek said. However, in the case of start-up businesses, which do not yet have assets for collateral, the bank will look closely at other factors, such as how long the entrepreneur has lived in the community and whether the person owns a home.
The bank utilizes the Community Express and SBA Express programs, both of which have caps of $150,000. Community Express guarantees 85 percent of the loan and SBA Express guarantees 50 percent. Bank officials try to make it easy for their clients with a one-page questionnaire and a credit-scoring system to determine quickly if the borrower qualifies. Some of the loans have been granted in less than a week. Typically, a $5,000 loan will be amortized over seven years, with the borrower making payments of about $80 per month.
In its first three months in Nevada, Innovative Bank has granted loans to several restaurants, a company that sells maps, a tool repair operation, a company offering specialty candles, a commercial home-cleaning service, a wedding gown retailer and a variety of other businesses.
Innovative Bank is not approved to take deposits and do other traditional banking services in Nevada, although this is a possibility in the future, Bek said. The bank utilizes the services of an affiliate, Innovative Merchant Solutions, to develop business and market its lending program in Nevada. The affiliate also provides credit card processing services to small businesses.
The bank and SBA want borrowers to have a solid business plan. The SBA has a partnership with the Nevada Small Business Development Center (NSBDC) to help clients determine their objectives and formulate plans. The center provides a variety of services for entrepreneurs, including counseling and seminars on various aspects of succeeding in business. “I think if this program works its can spread throughout the country,” said Sharolyn Craft, who heads the NSBDC in Las Vegas.