Myra L. Moss
Public sector finance programs can be a useful tool for small businesses in their efforts to start or grow. A wide variety of local, state, and federal programs are available in the State of Ohio to assist small businesses with their financing needs. These prigrams are basically of two types: 1) direct loans, and 2) load guaranty programs.
Direct loans usually provide only a portion (usually 30- 40%) of the total financing needed and are designed to meet fixed asset needs. Most public sector direct loans provide "gap" financing. "Gap" financing fills the void between the total cost of the project and the total amount of funds the borrower has available from other sources such as owner's cash and private bank loans. Community Development Block Grants and Revolving Loan Funds are examples of "gap" financing programs. These programs are often competitive and contain certain requirements, such as the creation of new jobs and benefit to low and moderate income persons.
Business owners may also wish to consider loan guaranty programs. A loan guaranty program protects a lender, such as a bank or savings and loan, from default if the business is unable to repay their loan. The most familiar of these financing tools is the SBA 7(a) program which will guaranty up to 90% of a loan in the case of default. Loan guaranty programs can be accessed through most lending institutions and are often dependent upon the denial of conventional financing as a prerequisite for application.
Very small businesses, known as microenterprises, will find new alternatives for financing including the SBA's Micro Loan Program and the Child Day Care Direct Loan. These programs have reduced paperwork and are more flexible in terms of equity and collateral requirements. They often provide working capital and financing for inventory and supplies, assistance much needed by very small businesses but often not available through public programs.
Small businesses utilizing public sector financing should be aware that the loan approval process and credit analysis is similar to that used by banks and other private financial institutions. Documentation such as personal and business financial statements showing loan repayment ability will be required. New businesses should also expect to provide an acceptable business plan.
This chart provides a brief overview of most public financing tools available in the State of Ohio. In addition a glossary of terms that a business should understand before applying for public financing is included for reference.
Glossary of TermsAmortize: Write off or depreciate the initial cost of an asset over a period of time. Collateral: Property offered by the borrower as security on a loan. Debenture: An acknowledgment of a debt (loan) on which fixed interest is being paid. Depreciation: The decline in value of a fixed asset due to wear, destruction or obsolescence. Equity: Contributions, usually in the form of cash, by the owner or others to a business. FTE (full time equivalent): Full time employee hours based on 2,080 hours per year. Fixed Assets: Durable resources of value owned by a business such as land, buildings, machinery and equipment. Guaranty Program: A loan from a private lending institution that is partially paid by a government program in case of default by the borrower. Interest: Price paid for the use of borrowed funds over the term of the loan. Can be fixed, remaining constant over time, or variable, fluctuating with prime rate or other economic indicator. Key Person Life Insurance: Often required on president or owner of business; repays loan to lender in event of owner's death. Letter of Credit (LOC): 1) Bank guarantee of payment for goods not yet received. Often used in international trade; 2) Bank guarantee of a bond issued in the capital markets. Line of Credit: Pre-approved credit of a specified amount that allows the borrower to draw funds on demand. Maturity: The date a loan is due to be paid in full. Microenterprise: Very small businesses. Personal Guaranty: Commitment by business owner to repay the business's debt in the event of default. Prevailing Wage Rates: Categorical wage rates established by state or federal government that must be paid to construction workers on projects financed through certain state and federal programs. Prime Rate: Interest rate charged by banks on loans to their most creditworthy customers. Principal: The amount of a loan excluding interest charges or payments. Term: The length of time between loan date and maturity. Working Capital: The day-to-day cash operating needs of a business including rent, wages, salaries, inventory.Public sector finance programs can be a useful tool for small businesses in their efforts to start up or grow. A wide variety of local, state and federal programs are available in the State of Ohio to assist small businesses with their financing needs. These programs are basically of two types: 1) direct loans, and 2) loan guaranty programs. |
Small Business Development Centers (SBDCs): 1-800-848-1300 or 614-466-2711
Located in a network of regional centers throughout the state, SBDCs provide confidential, in-depth assistance at no cost to small businesses in the area of business planning, management, finance, and start-up. SBDCs in Ohio are a program of the U.S. Small Business Administration (SBA) operated in collaboration with the Ohio Department of Development (ODOD). For the SBDC in your area, contact the telephone number listed above.
Women's Business Resource Program (WBRP): 1-800-848-1300 or 614-466-4945
Operating under the umbrella of the SBDCs, the WBRP provides training, counseling, and financial assistance to women who are starting, expanding, or managing a business in the state of Ohio. The WBRP facilitates networking among Ohio women-owned businesses by publishing a directory and calendar of events, conducting workshops, and maintaining a clearinghouse of women business organizations throughout the state.
One-Stop Business Permit Center: 1-800-248-4040 or 614-466-4232
Also operating through the SBDC network, the Permit Center provides free informational kits on permits and licenses necessary to start-up or expand businesses in the state of Ohio. These kits are designed to address the start-up/expansion needs and requirements by specific business type. For more information or to receive a kit, contact the number above.
Procurement Technical Assistance Program: 1-800-848-1300 or 614-466-1876
Also known as Procurement Outreach Centers (POC), the program provides counseling and in-depth assistance at no cost to businesses interested in bidding on federal contracts. These programs are offered under the SBDC umbrella. For further information, contact the number above to find the center in your area.
Ohio State University Small Business Program: 614-292-8436 or 614-292-6470
Offered through the OSU Extension network, the Small Business Program provides assistance in the identification of appropriate sources of counseling for entrepreneurs and offers seminars, workshops, and a series of fact sheets on topics of concern to small business in Ohio. For assistance, call the number above or contact your local county Extension office.
All educational programs conducted by Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, creed, religion, sexual orientation, national origin, gender, age, disability or Vietnam-era veteran status.
Keith L. Smith, Associate Vice President for Ag. Adm. and Director, OSU Extension.
TDD No. 800-589-8292 (Ohio only) or 614-292-1868