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New program aims at providing crucial cash for small businesses

African American Businessman & Woman Shaking Hands

Saying small businesses apparently aren’t worth the time of banks, two business groups are working to connect these operations with people with cash to lend — albeit at a premium.

The new program sets up a single online point for companies that may need as little as $5,000. And the service is designed to have would-be lenders bidding for the business.

Lea Marquez-Peterson, president and chief executive of the Tucson Hispanic Chamber of Commerce, said Monday this alternative is critical. She said up to 80 percent of small businesses find themselves turned away from banks and credit unions.

“Perhaps they survived or recovered from the recent recession with a lower credit score or are in an industry that banks or credit unions particularly don’t want to touch at this time,” she said.

Lucy Howell, a business lending specialist for the chamber, said it isn’t even a question of creditworthiness.

“Those 25-person small business owners, they don’t need the dollar amount that the big bankers get excited about,” she said. What they need, Howell said, are loans between $5,000 and $50,000, particularly those not backed by real estate that a lender could use as collateral.

The service is not limited to southern Arizona, or even to Hispanic businesses or even members of the Hispanic chamber. The Arizona Chamber of Commerce and Industry is working with that group to funnel inquiries about money from businesses statewide.

Congressman David Schweikert said he’s not blaming banks and other institutional lenders for avoiding small businesses.

He said they’re hampered by various underwriting standards and lending guidelines which require them to gather certain information about a particular business that might show up in a traditional credit report, like its heating or air conditioning bill. Even the fact that a small firm does not own its own building can disqualify a would-be borrower.

“If you’re going to reach out and say, ‘Hey, I need $50,000 to buy this piece of equipment or do this or that,’ a lot of our regulated institutions, our community banks, couldn’t actually give that loan if they wanted to because they can’t paper their file in the traditional fashion,” he said.

Sergio Rodriguera, chief strategy officer at The Credit Junction, one of the lenders, said his firm and others have other criteria they use to determine if a business is creditworthy.

“We’re looking at UPS data, Amazon data, supply chain information,” he said, that allow his firm to “capture the health of a business.”

All that, however, comes at a cost.

Rishi Gera, vice president of business development for Fundera, which will be doing the referrals under the new program, said a borrower with good credit who can get money from a bank or credit union might pay interest rates in the 6 to 15 percent range, “which is pretty good.” Businesses borrowing from nontraditional lenders should be prepared to pay much more in interest.

“On the low end they’re going to be at least twice what you would get from your community bank or a large bank like Chase,” he said.

Schweikert said none of that should be surprising.

“You don’t necessarily have the types of assets that would provide a credit enhancement,” he said, even if that’s only a home. “How do you take the person that says, ‘I rent, I’m running my business out of a series of storage buildings and we have three trucks but we have all this equipment and these receivables?’”

But Schweikert said having a clearinghouse that works with multiple lenders should help ensure that business owners get the best possible interest rates given their individual circumstances.

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