Alternative programs unlock business capital

When business partners Allen Vaughan and Brett Johnston opened TAG Media in December 2009, operating from their homes was fine.

They met sources and clients at coffee shops and outsourced anything they couldn’t do in-house.

As TAG Media grew to include a weekly sports radio show and a monthly magazine in addition to its Web site, podcasts and social networking avenues, Vaughan said they knew it was time for the entertainment-focused media company to move. “We needed an office to show people what we did and how we did it,” Vaughan said.

Finding funding for a move presented a hurdle. Vaughan said he first approached his dad, who is a commercial lender, to get a feel for what they might be up against. Vaughan’s father viewed their prospects at landing a traditional commercial loan as slim, but there are a handful of other funding options when private money or traditional loans won’t fit the bill.

Vaughan and Johnston turned to the city of Springfield’s business incentive program. “It’s for working capital for businesses, either startups or expanding businesses in a certain areas of Springfield,” said Ann Peck, the city’s community development loan officer.

To qualify, businesses or startups must fall within the boundaries of Grand Street, Kearney Street, West Bypass and Glenstone Avenue. They also need to meet credit, collateral and other conditions, and create one new job for the first $25,000 borrowed and one job for each $10,000 after that.

Since the program began in 2008, more than $1 million has been loaned to 36 businesses in central Springfield, Peck said, and last year, 14 loans were approved.

Vaughan said the loan terms were particularly attractive. For the first two years, the borrower pays interest only, which is fixed at 5 percent. After that, it’s amortized at 10 years with the 5 percent fixed rate.

Peck said a $25,000 loan, for example, would cost the borrower $104 a month for the first two years and $265 a month for the following 10 years.

Vaughan said the program well suited TAG Media’s needs. “We have to have office space downtown – well, we were going to do that anyway. To be able to take advantage of that, it was a perfect marriage,” he said.

Since borrowing $50,000 through the city’s program, TAG Media has moved into a new home at 334-B E. Walnut St., invested in new studio equipment and hired two full-time employees and two part-time employees.

Peck said interest in the program has grown.

“We used to beg people to borrow money from us. We don’t have to do that anymore,” she said with a laugh.

Another lending program is offered through the Springfield Finance and Development Corp. and funded by a pool of 13 banks, with loan packaging services provided by the city.

While the boundaries for qualifying loans is the same as the city’s lending program, there are several differences.

“(These loans) provide gap financing for businesses where they’ve maxed out their bank financing and maxed what they can put into it and there’s still a gap,” said Peck, who processes the loans. She noted that the loans can be used for real estate or equipment purchases, leasehold improvements or working capital.  

“(The SFDC) will price those loans not at the terms of the city’s loan program, but based on the risk of the project they have collateralized,” she said.

Since its 1997 inception, more than $2 million has been loaned through SFDC, Peck said.

Businesses that can’t take advantage of these programs because of geography or other reasons can still turn to the U.S. Small Business Administration to find out what assistance might be available, said Brent Jones, lender relations specialist at the SBA’s Springfield office.

Jones said there are several programs available that cover everything from working capital to real estate to revolving lines of credit, but he recommends that business owners start by inquiring at their banks, because the SBA doesn’t actually grant the loans, stepping in only when a guarantee is needed.

Before approaching a bank or any other lender, Jones recommends that business owners get in touch with Score, which offers free counseling to entrepreneurs.

Experienced volunteers can review business plans and help develop plans of action to open or expand a business.

“Most startups are on a shoestring, and you sure don’t want it to break before you get the shoe tied,” Jones said.