I wish barrels full of such money for small businesses existed, however, they don’t. I have visited this topic in the past so I won’t dwell on the matter further.
I did want to share with you some information about three new programs that have been developed and are administered by the Kentucky Cabinet for Economic Development and the Kentucky Economic Development Finance Authority that could be of interest to small business entrepreneurs.
These fall under the Kentucky Small Business Credit Initiative or KSBCI. This initiative is designed to increase the availability of credit to small businesses by reducing risk to banks and other certain financiers.
The first program is the Kentucky Capital Access Program, a.k.a. KYCAP. This program provides for loan insurance to the bank for the loan. The Commonwealth provides for a matching contribution equal to the amount the bank (or borrower) contributes toward a loan loss reserve.
The amount maximum would be 7 percent of the loan amount. The bank (or borrowers) contribution plus the state’s matching contribution would then be available to offset against any losses the lender experiences.
The second is the Loan Participation Program, or KYLPP.
This program is designed to assist small businesses in improving their cash flow to meet a lender’s underwriting requirements. This is done by the Commonwealth purchasing a portion of the loan (up to 20 percent) and potentially offering a grace period for payment of interest and/or principal for up to 24 months.
The third program is the Kentucky Collateral Support Program, KYCSP.
This program allows the Commonwealth to pledge a dollar amount to an eligible lender in order to enhance the collateral coverage of a small business borrower that is otherwise qualified, but unable to meet the lenders security requirements.
There are some restrictions on the small business side. The business must have 500 or fewer employees and the borrowers must be Kentucky residents. Eligible borrowers can include corporations, sole proprietorships and partnerships but also nonprofits, cooperative and faith-based organizations provided the loan is for a qualified business purpose.
The loans can be used for many purposes including start-up costs; working capital; business acquisitions; equipment purchases; inventory financing; owner occupied commercial real estate construction; renovation or acquisition. Please note that these programs cannot be used in conjunction with a Small Business Administration guarantee.
It is important to remember that these programs are accessible only through approved lenders so if you have interest contact your bank to see if they are a participating bank. The applications cannot be accepted by any other entity than an approved lender.
Each program has much more in the way of detail and requirements than I have indicated here, however I think it can be seen that there could be some powerful assistance to encourage lending in some cases.
These programs can only be originated with participating lenders. Lenders can apply to the KCED by contacting J. Don Goodin, 300 West Frankfort, Frankfort, KY 40601. Call 502-564-4554.
While these can be effective programs, they will not make a bad loan a good loan. A deficient debt structure or an unsustainable business model cannot be cured by adding more money. These programs, just as most loan and guarantee programs, make good business projects more bankable.
And how does a small business entrepreneur decide if the business model does work? Well, for those who follow my columns, it goes back to planning. Preparing a business plan is the basic first step to success in business. Starting a business without a plan is a plan to fail.
Hard words? Yes, but not near as hard as the words a small business entrepreneur hears when the business is failing or has failed.
The Murray State University Small Business Development Center is a proud partner with EntrePaducah and its executive director, Terry Reeves. Both organizations work to see that small business owners have the tools and the knowledge to succeed. One such opportunity will be in January.
We will present our first Entre 101 for the year from 5:30 to 8 p.m. Jan. 31 at the Paducah Area Chamber of Commerce office within Commerce Center. It is free but preregistration is required.
And yes, business plans are part of the presentation. To register, contact Reeves office no later than Jan. 27. Call Reeves at 270-443-1746, ext. 208. Reeves and I hope you consider attending.
Chris Wooldridge is district director of the Murray State University Small Business Development Center, a member of the Kentucky SBDC network. The center provides high quality, in depth and hands on planning, consulting and training. Call 270-809-2856 for more information or to schedule an appointment. On the web: ksbdc.org.