F. Leroy Pacheco, President and CEO, The Loan Fund

Tommy Padilla works full time for the state Livestock Board and owns a 2,000-acre cattle ranch near Quemado, a rural community that’s home to 781 people. In 2008, he saw an opportunity to provide a needed service to motorists driving through the town.

Quemado is on U.S. Highway 60 in rural western New Mexico. For decades, the community supported five gas stations and four restaurants that served travelers heading to and from Arizona and California. But after east-west Interstates 10 and 40 were built in the 1960s, Quemado began a slow decline.

In recent years, Padilla noticed that people were rediscovering Quemado as they sought alternatives to the heavy volume of truck traffic and high speeds on the interstates. “Our traffic counts now are the same or a little more than when I-40 was built,” Padilla said. As  he watched the traffic grow, Padilla predicted an increased demand for motorist services given that the nearest gas station with a convenience store was 30 miles away.

With $150,000 of his own money, Padilla bought, cleared and cleaned an abandoned property with an existing building, hooked up power, water and sewer lines, laid down a cement pad for a parking lot and installed an ATM machine. But he needed to make a substantial additional investment to purchase gas pumps and stock a spacious and attractive 3,000-square-foot convenience store.

Padilla turned to The Loan Fund, a nonprofit organization that provides loans, training and advice to entrepreneurs, business owners and nonprofit groups throughout New Mexico and the Navajo Nation. The Loan Fund awarded Padilla a $350,000 Small Business Administration 504 loan, which is specifically designed to help businesses purchase buildings and equipment. It was one of the first 504 loans made by The Loan Fund, which works to build communities by lending money to qualified borrowers whose financing needs may not fit a bank’s traditional lending guidelines. In the past 22 years, The Loan Fund has made loans as small as $2,000 and as large as $750,000 to more than 1,200 New Mexicans, who in turn created or preserved 6,000 living-wage jobs. (Thirty percent of the lending total has been disbursed during the recession of the past two years.)

Quemado Rito Convenience Store

Now employing five people, Quemado Rito grossed $1.8 million in its first 18 months of operation. The store serves between 250 and 450 people each day; the ATM machine alone receives 400 to 600 “hits” each month.

Padilla credits the support of his family and The Loan Fund for his success. Of the latter, he said, “They take on riskier loans, including startups.” His little store has had a big impact on this small community: “People are feeling better about the town.”

For more information about loans available through The Loan Fund, visit www.loanfund.org.

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Floyd Morelos, Vice President, Century Bank

One silver lining in the economy’s slow recovery is that deflated real-estate values have given many business owners the opportunity to purchase the building they’ve been leasing or to buy land on which they can construct a new building for their business. The federal government helps by offering loan guarantees through its 504 loan program. Under temporary provisions of the Small Business Jobs Act, the 504 program lets borrowers refinance mortgages on properties they already own.

Created in 1980 to encourage economic development, the 504 program has made it easier for businesses — the biggest job-creators in the country — to expand through the acquisition of assets. The program provides long-term, fixed-rate financing for the purchase of land, buildings, machinery, equipment and certain improvements.

Under the legislation, the Small Business Administration is temporarily lifting the provision that requires expansion-only loans. This is especially good news for businesses with equity in real estate that may be difficult to refinance.

How it works

Under established rules, a 504 loan could be used for any “fixed asset” used for expansion. It could be used to buy land or a building or to construct a new facility or renovate an older one. Other eligible site improvements have included road building, installing utilities, adding a parking lot, landscaping and buying durable machinery and equipment with a 10-year work life.

The program allows the borrower to assume as little as 10 percent of the cost of the project being financed. The federal government underwrites 40 percent and takes a subordinate position. This has allowed the borrower’s bank or financial institution to limit its risk to 50 percent, thereby improving the overall loan package.

As of this year, under the expanded temporary provisions, borrowers can finance up to 90 percent of the appraised value of property they own. Borrowers with more than 10 percent equity can thus obtain cash to pay eligible business expenses. Any business with a commercial mortgage two or more years old may refinance its debt, regardless of maturity.

The temporary rules are also more attractive to financial institutions, allowing them to deliver more money to businesses. Rather than asking a bank to underwrite 50 percent of a project, the SBA only requires the bank to assume an amount equal to or greater than the SBA amount. This lets the business use the maximum amount of long-term, low interest, fixed-rate financing available.

Joseph Sierra, who heads the 504 loan program at Century Bank in Santa Fe, feels the program is under utilized. “In my opinion, the majority of the business environment isn’t aware of the program,” he said. “With favorable rates and terms ranging from 10 to 20 years, it’s surprising that more businesses aren’t taking advantage of the program.

The temporary provisions expire Sept. 27, 2012, when 504 loan program rules revert to previous specifications. For more information, contact Joseph Sierra at 505-798-5914.

Download 215_Jobs Act Frees Cash for Small Business Borrowing PDF

F. Leroy Pacheco, President and CEO, The Loan Fund

Kimberley Calvo relishes creativity. The former executive chef at Intel and UNM introduced healthy cuisine to employees and students before starting The Seasonal Palate, a catering company. While looking for a restaurant location to expand her business, Calvo realized that her business model could be just as creative as her cooking.

“It was going to be a small fortune,” she said about the cost of renting and equipping the building she was considering in the small town ofPlacitas. She also wondered if there were enough residents to support a full-time restaurant. “So instead of trying to bring them to me,” she said, “I would bring me to them.”

Calvo invested in a self-contained truck with fully equipped chef’s kitchen. “I have my mobile restaurant and I can take it anywhere,” she said.

Calvo’s business expansion was made possible with a loan from The Loan Fund, a tax-exempt organization that provides loans, training and consulting to entrepreneurs, business owners and non-profit organizations throughout the state and the Navajo Nation. The Loan Fund works to build communities by improving underlying social and economic conditions through loans to qualified borrowers whose financing needs may not fit a bank’s traditional lending guidelines.

Since its founding in 1989, The Loan Fund has made loans as small as $2,000 and as large as $750,000 to more than 1,200 New Mexicans who created or preserved 6,000 living-wage jobs. Thirty percent of the lending total was disbursed during the recession of the past two years when the need for business financing increased.

With $16 million in assets and a loan pool from sources as diverse as state and federal agencies, banks, individual donors and faith-based organizations, The Loan Fund is eager to deploy capital where it can help people build communities. The results have been noticed; The Loan Fund received the National 2011 Minority Enterprise Development Week Award for Access to Capital by the U.S. Dept. of Commerce’s Minority Business Development Agency.

In addition to providing loans and credit, The Loan Fund offers technical assistance and consulting – services that can help entrepreneurs turn financing into long-term success. Loan officer Cathy Sorenson helped Calvo anticipate some of the business issues she might face. “Not many loan officers would go to that length,” said Calvo. “They’ve been extremely supportive and a great resource.”

Calvo, a Seattle Culinary Institute graduate and self-described adventurous eater, is now taking her Seasonal Palate cuisine to those who appreciate freshly prepared food made with local and organic ingredients. The truck, which has health department approval, has given her a niche within the catering field. With maneuvering space for two to three people and systems adjustments that compensate for high elevation cooking, Calvo works with party rental companies to cater parties in remote locations. “I can take it anywhere – in the mountains ofTaosor out on the BLM,” she said.

On Wednesdays Calvo and her truck can be found preparing lunch atAlbuquerque’s Talin Market and most days serving breakfast and dinner in Placitas.

For more information about The Loan Fund, visit www.loanfund.org. To contact the Seasonal Palate’s Kimberley Calvo, go to www.theseasonalpalate.com.

Download 209_Chef on Road to Prosperity PDF

Leslie Hoffman, V.P. of Lending and Client Service, ACCIÓN New Mexico ∙ Arizona ∙ Colorado

The last few years have been a bumpy ride for many small businesses. Sales may have slumped. Costs could have gone up. Small business owners have weathered this economic storm with a courageous combination of resilience, creativity, clarity and passion. Those who have been able to keep their doors open understand that important fundamentals about how to manage money in a small business are as true today as they’ve ever been.

Financial institutions do not want saddle people with loan payments they cannot afford. Community-based lending organizations, such as ACCION New Mexico •Arizona •Colorado, are in the business of helping people understand their financial health and providing access to healthy business credit. That credit is a tool, and like all tools, performance must support its cost. Lenders do not want credit to become overwhelming and prevent a small business from reaching its goals.

One tool lenders use to determine the financial health of a business is a mathematical expression called the debt-to-income ratio. Calculated by dividing total monthly debt payments by total monthly net income, the ratio is expressed as a percentage and provides a quick indication of the ability of a small business to pay its current debts. A number that exceeds 20 percent could be a sign that the business may have trouble paying off its current obligations and should not take on additional debt.

When an owner finds herself in this position, it’s time to refocus and get a handle on both business and personal financial health.

Make a list of business debt obligations, including the current balance and the typical payment amount. At the top, record the most expensive debts or those with the highest annual percentage rates. Note whether the interest rate is fixed or variable; if variable, note the maximum amount of fluctuation allowed in the near future. If a loan is a revolving line of credit – a loan whose account balance may go up or down over a given time period with a varying payment amount – make note of the current balance and corresponding payment. An owner should make a similar list reflecting personal debt.

The resulting debt schedule is a guide to payment priorities when the small business owner is able to commit a little extra money to paying off debt. The faster debt is paid off, the less money the business spends on interest and the more that is available for operations and growth.

If current debt obligations are overwhelming and payments are at risk of being missed, begin by calling the lender. A change in terms, such as a temporary payment reduction, might be possible.

More serious problems should be discussed with a reputable credit counseling agency. They provide advice, budgeting assistance and may be able to negotiate with lenders for modified payment terms.

The recession created an abundance of disreputable counseling agencies, and it’s vital to find one that is honest, law-abiding and trustworthy. One resource is Money Management International. Visit www.crediteducation.org for more information.

To learn more about ACCION New Mexico • Arizona • Colorado, visit www.accionnm.org.

Download 208_Get Insight from a Debt Schedule PDF

Paul F. Goblet, Financial Advisor, NM SBIC

Tight credit markets of the past few years have made it difficult for business owners to obtain loans to expand their business. Getting a loan is still as hard as ever, even though most financial institutions have plenty of capital to lend. With the interest rate charged banks by the Federal Reserve Bank at almost zero, it’s surprising so little capital is moving around.  Loans, as a percentage of deposits, are very low.

Credit will loosen eventually because banks can’t survive long-term without making loans. Stung by losses when loans defaulted, banks are understandably more conservative; but they need interest revenue from loans to grow.

Recent financial activity suggests money might be starting to flow again. That’s why now is a good time to build a relationship with one or more financial institutions through dialogue. Before dialogue starts, business owners should fully understand their financial position.

Most business owners have a clear grasp of the sources and amount of cash generated by their business.  While it’s important to be aware of all revenue sources, it’s far more important to understand every line item in the expense chart. The past few years have forced many companies to face reduced revenues, yet expenses have continued to go up.

Salaries and benefits make up a large portion of expenses in a service business, while a retail business has inventory and a much higher cost of goods sold. Owners focused on these may overlook smaller expenses that make a business less profitable. A little time spent understanding each expense will go a long way toward making necessary reductions.

A banker will want to see financial reports from the past two to three years so changes in the business’s financial position can be ascertained. Any changes, whether good or bad, will have to be explained. Negative changes don’t necessarily mean the loan will be denied, but the bank will want to understand what happened, the corrective measures being taken, and the effect on the business’s future.

Virtually every financial institution uses credit scores to evaluate the credit history of businesses and individuals. A person’s credit score can be the most critical reflection of his or her reputation. Loan defaults destroy it, and high debt loads lower it. A large number of credit cards can indicate high debt, and late payments can signal inability to pay. Even if minimal monthly payments are made, bankers question if additional interest and principal on a new loan can be afforded.

Bankers also like to see a written business plan to understand the direction the business is going and its viability. A business plan is just as valuable to the business owner, and the time spent writing one is a good investment in the business’s future. A written plan will also help communicate variances that might be present in prior year’s financial reports. Assistance with writing a comprehensive business plan is available at the 20 New Mexico Small Business Development Centers around the state.

It’s not easy to get a loan these days. Having a business plan, managed expenses, and credit score awareness is the starting point for thoughtful dialogue and good relations with a lender who can make a loan happen.

Download 201_Be Ready When Banks Step Up Lending PDF

Tom Stephenson, Managing General Partner, Verge Fund

Anyone looking for a business investor must examine their personal goals before looking for funding – different reasons for starting a business mean different ways of finding money.

Venture capitalists classify entrepreneurial businesses into two groups: growth businesses and lifestyle, or legacy, businesses. Only growth businesses will be attractive to venture-capital firms.

Lifestyle businesses are those started by people who want to have control over what they do and how they spend their time. These businesses tend to be focused on a local market, and entrepreneurs expect to own and run the business indefinitely. Heads of families sometimes start these businesses to provide a legacy that can be passed on to children, ensuring future family security through ownership and employment.

Growth business entrepreneurs are interested in getting rich. Often, this means identifying a national or global market that can be reached with limited personnel from limited locations. These business owners want to build as much value as they can and sell for a profit. “Serial entrepreneurs” expect to do this repeatedly, turning new deals about every six years.

The first thing an entrepreneur has to learn when taking equity money is that the investor is now also an owner. Venture capitalists, like successful stock market players, make money one way — by buying low and selling high. This means making an investment, helping management develop the company, then selling that investment for a substantial profit once the company has matured. This may be acceptable to the owner of a growth business but it is contrary to the lifestyle-business owner’s need to retain control. And while there are mechanisms to allow investors to recoup their investments without selling the entire business, these solutions seldom produce a venture capitalist’s required level of return.

By understanding personal motivations for starting an enterprise, entrepreneurs can identify the right capital partner. Entrepreneurs interested in building a business and selling it for a lot of money will find venture capital appropriate. If goals are personal, business owners will be better off looking for loans or other sources of funding. Both are equally valid and both have contributed significantly to the creation of wealth and jobs in America.

New Mexico’s Small Business Development Centers offer workshops on finding appropriate business capital. Visit www.nmsbdc.org for workshops held in 20 locations around the state. To learn more about Verge Fund, visit www.vergefund.com.

Article 180

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F. Leroy Pacheco, President and CEO, The Loan Fund

Sandra Monica has a passion for working with children. That’s why after 15 years as an employee, Monica decided it was time to start a day care center of her own.

Starting out was no easy task but with her husband’s support and financing from The Loan Fund, Monica opened Kid’s Castle Child Development Center in Las Cruces. The center has helped alleviate New Mexico’s shortage of daycare providers by offering early education to children six weeks to 12 years of age. Kid’s Castle serves more than 100 children and employs approximately 25 full-time teachers.

After approaching several lenders, the Small Business Administration referred Monica to The Loan Fund. “If it wasn’t for The Loan Fund, I wouldn’t have been able to start up,” Monica said. “I made a presentation … and they were very supportive.”

The Loan Fund is an alternative lender, founded in 1989 by people affiliated with the New Mexico Conference of Churches, with a $70,000 investment from the Michigan-based Adrian Dominican Sisters. Today it is a non-profit organization, with $16 million in assets and a loan pool from sources as diverse as state and federal agencies, banks, individual donors, and faith-based organizations.

In 2010, The Loan Fund reached several significant milestones when it surpassed $41.5 million in loans to more than 1,200 New Mexico clients that created or preserved 6,000 living-wage jobs. More than $12.5 million – 30 percent of the overall total – has been disbursed during the recession of the past two years, as the need for business financing increased and many banks stopped lending.  More than $11 million is in The Loan Fund’s portfolio for businesses and nonprofits that collectively generate over $80 million in sales annually.

Focusing on hard-working, low- to middle-income people whose financing needs may not fit a bank’s traditional lending guidelines, The Loan Fund has made loans as small as $2,000 to a home-based coffin maker and as large as $750,000 for a chile processing plant. Loans are not limited to businesses; non-profit organizations have also received funding. These are people who are starting or expanding sustainable organizations that enrich their communities.

As The Loan Fund grows, its services are expanding. In 2010, it started offering SBA 504 loans, which provide long-term fixed-rate financing to purchase fixed assets such as real estate or equipment. The organization also began managing Bernalillo County’s $1 million Revolving Loan Fund under the County’s “Increment of One” initiative.

As an alternative lender, The Loan Fund can be flexible with terms and conditions. Collateral is required, but loan packages seek to balance social and fiscal responsibilities, which includes the number of jobs a loan helps create or preserve. It is the only alternative lender in New Mexico providing financing to nonprofits.

In addition to providing loans and credit, The Loan fund offers technical assistance and mentoring – services that can help entrepreneurs turn financing into long-term success. As one business advisor for The Loan Fund said, “Financing doesn’t do you much good if you don’t know how to use it.”

Sandra Monica says the consultation and follow-up helped her stay on track. “They’ve been great,” she said. “Even though they are based in Albuquerque, someone is always checking in with us. When they’re in Las Cruces, someone always stops by and sees how everything is going.”

For more information about The Loan Fund, visit www.loanfund.org.

Article 174

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Kim T. Blueher, Director of Lending, WESST

Asking for a loan is a type of negotiation. As with any negotiation, an entrepreneur is more likely to succeed if she understands the needs of the other party: the lender.

It also helps to know the language of lending. A knowledge of terms like assets, liability, net worth, gross or net profit, collateral, receivables, payables, amortize and depreciate tells the lender that a borrower understands the financial aspects of his business.

Would-be borrowers will need to answer personal questions about their credit history, business plan and personal stake in the business.

Money matters

Because a credit report carries weight with lenders considering a loan request, borrowers should check their report at least once a year to ensure the information is correct. A credit score is another number lenders will review as it shows how well a borrower has paid her debts.

Borrowers with low credit scores and unflattering credit reports can still get loans if they can explain their circumstances to a lender’s satisfaction. A borrower with a recent bankruptcy, tax liens, unpaid judgments, unpaid child support and student loan defaults, however, should resolve these more serious problems before applying for a loan.

Lenders also want to know the state of a borrower’s personal and business finances. Most will request a personal financial statement, personal and business income tax returns and other financial statements from the business. If the business is new, the lender will want to be sure it has few debts and enough cash flow for the borrower to make loan payments.

What’s the plan?

Entrepreneurs considering different types of loan requirements should determine if they’ll need to write a business plan to present to a potential lender.

A good business plan takes time to research and write, but the investment can spell the difference between success and failure for a business. A plan also shows a lender that an entrepreneur has thought through the most important aspects of starting a new business or expanding an existing venture.

Many lenders require a business plan before approving a loan, but some lenders will waive this requirement.

The owner’s stake

Lenders want to see what borrowers are risking in their own business, so they’ll ask the borrower for collateral in the form of cash or another valuable asset owned by the borrower or business, such as a car, equipment or equity in real estate. Some community lenders allow collateral in the form of artwork, jewelry or other personal possessions the borrower is loath to lose.

Borrowers are asking lenders to invest in something which the lender has no control, so it’s only fair that lenders want assurance that borrowers will work hard to repay their loans.

Article 161

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Leslie Hoffman, V.P. of Lending and Client Service, ACCIÓN New Mexico ∙ Arizona ∙ Colorado

Emmy Award-winning documentary filmmaker Lena Carr needed money to buy filmmaking equipment and to travel to Arizona to wrap up work on a video about the life of an 18-year-old Native American man — a project she began when her subject was 6 years old.

The owner of Indian Summer Films turned to ACCIÓN New Mexico ∙ Arizona ∙ Colorado, a nonprofit lender, two years ago for her first loan of $500. ACCIÓN approved the loan for several reasons, including the social benefits of Carr’s chosen profession, which also provides her an income through DVD sales. As collateral for that loan, Carr offered a traditional Navajo dress woven by her mother — a sentimental possession that demonstrated her commitment to her business and her lender.

Carr has returned to ACCIÓN three more times for loans needed for working capital and to distribute her films.

Nontraditional lenders are out there

ACCIÓN is one of several New Mexico-based nontraditional lenders that lend money at competitive rates to small-business people. Since its inception, the community development organization has helped 2,800 small businesses with loans as small as $200 and as large as $150,000.

Besides lending money, ACCIÓN provides training and other support services to help people realize their ambitions and be catalysts for positive economic and social change. The organization looks for character: hardworking small-business owners and emerging entrepreneurs who share the organization’s values of passion, a pioneering spirit, integrity, commitment to excellence and a history of accountability. ACCIÓN and most lenders also require borrowers to meet basic criteria, including:

Cash flow: The lender evaluates the business’s monthly income and expenses to determine whether the borrower can cover a monthly loan payment. The organization considers whether the loan will increase the business’s income and often works with borrowers to make the most of their financial resources.

Credit history: A credit report provides insight into a potential borrower’s previous relationships with creditors. The lender reviews the most important elements of the credit report, including the credit score.

Collateral: A willingness to pledge items of value to secure a loan until it is repaid is an important indicator of client commitment.

An ACCIÓN loan can be used for a variety of business purposes that promise to improve an individual’s financial health. Loans can be used to buy or upgrade equipment, purchase inventory or property or for marketing. If the borrower doesn’t meet ACCIÓN’s loan standards, the organization will work with him to improve his financial position.

Learn more about ACCIÓN New Mexico ∙ Arizona ∙ Colorado

Article 146

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Marci Rulon, CEO, Southwest Federal Credit Union

Whether an entrepreneur is starting a new business or expanding an existing venture, applying for a loan can be daunting. A good business plan makes the process less intimidating and more likely to succeed.

In writing a business plan, the business owner should consider her business from the lender’s perspective and demonstrate why she is a good credit risk.  The business plan should include the following sections:

Executive summary: This one- or two-page narrative appears first but is written last – after the owner has prepared the other components. The summary highlights the plan’s contents and explains why the loan is needed.

The company: This is the place to describe the legal status of the company and its history.  If it’s a new company, it should reveal the company’s startup plans and any collateral needed to secure the loan.

The market: A lender wants to know that a business owner has a clearly defined market that’s big enough to make the business profitable.  The borrower needs to know his customers – what they need, where they are and how to reach them.

Product or service: The entrepreneur must explain to the lender what she’s selling and how the product or service will benefit customers.  The lender wants to know why the borrower’s product or service is better than the competition’s. The borrower must show an ability to control the delivery and quality of the product or service.

Management team: The business owner’s personal qualities and character and the management team’s skill and expertise matter to a lender. The owner should describe his personal investment in the company – both in “sweat equity” and money.

Company strategy: Here’s where to outline specific plans to build and expand the business and to project a budget for the next one to five years. If it’s a new business, the lender wants to see well-prepared, realistic strategies for building the venture from the ground up.

Financial section: The lender will closely evaluate the company’s most recent asset/liability and income/expense statements and especially the projected profit and losses statements and cash flow tables. These reports show the lender whether the borrower has enough resources to handle the loan payments. (Some lenders want to review the business owner’s personal finances and see two years of the company’s tax returns. These don’t need to be part of the business plan, but borrowers should be prepared to provide them if the lender asks for them.)

For help in preparing a business plan, a business owner can visit one of the 20 local Small Business Development Centers around the state. For the nearest office, visit www.nmsbdc.org.

Learn more about the New Mexico Small Business Development Centers.

Article 141

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