Financing Your Business in Montana Financing Your Business in Montana—USDA Rural Development Step One: Planning Your Business The first step in securing financing for your business is not filing a loan application. Instead the busi- ness owner needs to develop and refine a business strategy. Nothing improves one’s chance of secur- ing financing like a thorough business plan with informed financial projections. Generally, the best place to start in your search for financing is with “technical assistance’ (i.e., business counseling). Ex- isting or prospective business owners can get help with their business planning and financial manage- ment from a number of organizations. Technical assistance providers are very familiar with their local business community, and they offer invaluable expertise and impartial advice. Furthermore, these consultants are in routine contact with the local lending community, so they can often provide helpful referrals. Generally, their advice is free. There are many technical assistance organizations. Each com- munity is unique in what is available. Small Business Development Centers (SBDC) http://sbdc.mt.gov Montana has established SBDC throughout the state. These centers provide advice to small busi- nesses on marketing, growth, and planning issues as well as guidance on seeking financing. -1- Financing Your Business in Montana—USDA Rural Development Montana Business Guide http://wsd.dli.mt.gov/local/kalispell/bdkv7/index.html The Flathead Regional Business Center developed a site to guide entrepreneurs through the steps in starting a business and is an excellent place to start your research. Service Corps of Retired Executives (SCORE) http://www.score.org SCORE is a volunteer business counseling program sponsored by the U.S. Small Business Administra- tion (SBA). Active and retired business executives provide workshops and one-on-one management advice on all aspects of business operations. Great Falls SCORE 601 10th Avenue North (406) 761-4434 Helena SCORE 10 W. 15th Street, Suite 1100 (406) 441-1081 Bozeman SCORE 2000 Commerce Way (406) 586-6241 Billings SCORE McDonald Hall, 100 Poly Drive, Suite 108 (406) 294-4422 Butte SCORE 1000 George Street (406) 723-3177 Bitterroot SCORE 702 N. 1st Street, Hamilton (406) 363-6158 NW Montana SCORE 15 Depot Park, Kalispell (406) 756-5271 Montana Department of Commerce http://businessresources.mt.gov The Department of Commerce has a wealth of information available for business owners. Their com- prehensive website is an invaluable resource for a small business. Montana Cooperative Development Center http://www.mcdc.coop If you are considering a co-op business model, the Montana Cooperative Development Center is an excellent resource serving our state. They can be reached at (406) 727-1517. Montana Chamber of Commerce http://www.montanachamber.com Often the best way to find local help is to contact your nearest Chamber of Commerce. Montana cur- rently has 88 registered chambers throughout the state, as well as the Montana Chamber of Com- merce located in Helena. Techranch http://www.techranch.org TechRanch is a leading business development assistance organization focused on the high tech sec- tors. Based in Bozeman, Techranch seeks to provide entrepreneurs access to capital, business devel- opment advising, educational events and infrastructure necessary for success -2- Financing Your Business in Montana—USDA Rural Development Step Two: Financing Your Business Once your business plan has been refined through technical assistance, you are ready to seek financ- ing. In many instances, businesses obtain assistance from more than one of the following sources: Commercial Loans Commercial banks and credit unions are the primary source of business financing. The institution with which you have an established banking relationship is the logical place to start your search for a busi- ness loan. Be sure to be prepared before you approach your banker, and review step one of this guide. Lenders make their money by charging businesses for the privilege of using their deposits. Lenders are conservative because they want to assure that their loans will be repaid with a minimum of time and cost to themselves. This natural conservatism is reinforced by internal and external audi- tors who monitor their lending decisions. The things that lenders look for in evaluating a loan applica- tion are a conservative business plan, a significant equity contribution, capable management, realistic repayment ability, good credit history, and ample collateral to fall back on, just in case. Guaranteed Commercial Loans Even a strong business may find commercial lenders reluctant to lend to them without certain incen- tives. Various federal and state programs have been created to encourage lenders to provide financ- ing to businesses, usually by providing a guarantee on the bank’s loan. The guarantee protects the bank against loss, and this helps the bank to justify the loan to its examin- ers. Often, the guarantee gives the lender other benefits as well, such as the ability to make larger loans, or to increase their profits by selling the guaranteed portion of the loan on the secondary mar- ket. Guaranteed programs are lender driven, meaning it is up to the lender, not the business, to seek the guarantee. However, you may want to ask your lender to consider a guaranteed program. Here are the main programs that lenders may consider using: SBA 7(a) Guaranty Program The Small Business Administration (SBA) can provide 50-85% guarantees for all types of busi- ness needs—real estate, equipment, and working capital. Generally, SBA guaranteed loans range from $20,000 to S2 million. For loans of $150,000 or less, SBA has a streamlined pro- gram called “Low Doc.” For loans of $350,000 or less, SBA has a streamlined program called “SBA Express.” SBA can provide you with a list of banks that participate in the SBA program. These programs are administered statewide by SBA’s Helena office—(406) 441-1081 or http://www.sba.gov/mt. Business & Industry (B&I) Guaranteed Loan Program Operated by USDA Rural Development, the B&I program picks up where the SBA 7(a) program leaves off, providing 70-80% guarantees on loans of up to $10 million. B&I guaranteed loans are only available to businesses in rural areas. The program is ineligible within the city limits of Missoula and Billings. It is administered through the Rural Development area offices across the state. See the coverage map in the appendix or visit http://www.rurdev.usda.gov/mt. -3- Financing Your Business in Montana—USDA Rural Development Grants While government grants are not available for starting or financing typical commodity, retail or wholesale businesses, those interested in developing innovative new products or services should con- sider the federal SBIR (Small Business Innovation Research) program, and related STTR (Small Business Technology Transfer) program, described below. Free assistance in determining if your idea is suit- able for SBIR or STTR, and in developing a competitive proposal, is available from both the Montana Department of Commerce’s MTIP program (Montana Technology Innovation Partnership), at www.mtip.mt.gov, and from TechLink at Montana State University (www.techlinkcenter.org). Mon- tana companies currently secure about $10 million annually in SBIR/STTR financing, which may take the form of either grants or contracts. SBIR and STTR Programs Under the SBIR program, eleven federal agencies (including USDA) award funds to small busi- nesses for research and technology development leading to commercializable products or ser- vices, through a competitive, structured process. The SBIR program is designed to stimulate technological innovation and create new market opportunities for small businesses, with total program funding exceeding $2 billion annually nationwide. STTR is a smaller, related program that differs from SBIR mainly in requiring collaboration with a university or other research in- stitution, while SBIR allows such collaborations. For more information, see www.sbir.gov. Self Financing Lenders will want to see that you have money of your own invested in your project (i.e., equity). Many new business owners end up drawing on savings, personal loans, or other “bootstrap” financing sources. Be careful with debt and seek technical assistance before incurring obligations. Venture Capital & Other Investors Usually, the cheapest but most difficult to find source of financing is venture capital (i.e., finding in- vestors or partners who are willing to contribute money to your business). Relatives, friends, and business associates are often the main source of venture capital, though commercial sources of ven- ture capital also exist. Venture capitalists have exacting standards for choosing an investment and of- ten require some management and ownership control in the business. A good primer can be found at: http://www.sba.gov/financialassistance/borrowers/vc. Small Business Investment Companies (SBIC) SBIC are private venture capital funds overseen by the Small Business Administration (SBA). The SBIC licensed to operate in Montana is the Glacier Venture Fund LP at (406) 443-2160. Small Business Innovation Research (SBIR) Program Under the SBIR programs, eleven federal agencies (including USDA) award research and devel- opment funds to small business via a highly competitive, targeted process. The SBIR program is designed to stimulate technological innovation and provide opportunities for small busi- nesses. For more information, see http://www.sbir.gov. -4- Financing Your Business in Montana—USDA Rural Development Loans from Non-Commercial Sources - Gap Financing Programs When a commercial lender is unwilling to make a loan for the full amount requested, even with a guarantee, it may still be possible to get a loan for a portion of the amount needed. The difference (or “gap”) may be borrowed from another source in participation with the commercial lender. There are a number of sources of gap financing. Certified Development Companies (CDC) - SBA 504 Program CDC, established by the Small Business Administration, are able to provide gap financing on real estate and some heavy equipment projects. The applicant puts up 10-20% of the cost; a commercial bank generally lends 50%; and the CDC finances the rest. The CDC can lend up to $1.5 million at a fixed interest rate on a 10-20 year term. Prepayment penalties are common. The following CDC lenders are active in Montana with most operating statewide: Montana Community Finance Corporation (406) 443-3261 High Plains Financial, Inc. (406) 454-1934 Big Sky Economic Development Corporation (406) 256-6871 Loans from Non-Commercial Sources - Revolving Loan Funds (RLF) and Microloan Programs Smaller and newer businesses often cannot qualify for commercial financing or may find that a com- mercial loan plus gap financing still cannot meet their entire financing needs. In such instances, local revolving loan funds and microloan programs may be the answer. These loan programs are often run by economic development non-profits or public bodies, which may be willing to consider lending on projects that do not meet more conservative commercial standards. Intermediary Relending Program (IRP) Revolving Loan Funds USDA Rural Development lends money to non-profits and public bodies, which in turn re-lend it to small businesses unable to get credit elsewhere. A business loan from an IRP fund can fi- nance up to 75% of the cost of a business project. Typically, IRP loans to ultimate recipients do not exceed $150,000. The ultimate recipient must be in a rural area (cities below 25,000 popu- lation or unincorporated areas). USDA Rural Development has capitalized revolving loan funds for the following IRP lenders. Many of these lenders operate other RLF too: Anaconda Local Development (406) 563-5538 Deer Lodge County Bear Paw Development Corporation (406) 265-9226 Hill, Chouteau, Liberty, Blaine, and Phillips County Beartooth RC&D (406) 962-3914 Big Horn, Carbon, Stillwater, Sweet Grass, and Yellowstone County Butte Local Development Corporation (406) 723-4349 Silver Bow County Prospera Business Network (406) 587-3113 Gallatin and Park County City of Kalispell (406) 758-7738 City of Kalispell and 5 mile donut MT Business Assistance (406) 447-1510 Broadwater and Lewis & Clark County Great Northern Development (406) 653-2590 Roosevelt, Valley, Sheridan, Daniels, McCone, and Garfield County Headwaters RC&D (406) 782-7333 Deer Lodge, Beaverhead, Silver Bow, Broadwater, Granite, Jefferson, Madison, and Powell County High Plains Financial (406) 454-1934 Cascade, Teton, Toole, Pondera, and Glacier County including the Blackfeet Reservation Jobs Now, Inc. (406) 257-7711 Flathead County Lake County Community Development (406) 676-5901 Lake, Mineral, Lincoln, and Sanders County including the Flathead Reservation Missoula Area Economic Development (406) 728-3337 Missoula, Ravalli, Lake, and Mineral County Montana Community Development Corp. (406) 728-9234 Missoula, Ravalli, Lake, Sanders, Mineral, Powell, and Granite County Ravalli County Economic Development (406) 375-9416 Ravalli County Snowy Mountain Development Corp. (406) 535-2591 Fergus, Judith Basin, Wheatland, Golden Valley, Musselshell, and Petroleum County Southeastern Montana Development Corp. (406) 748-2990 Rosebud, Custer, Treasure, and Powder River County -5- Financing Your Business in Montana—USDA Rural Development Loans from Non-Commercial Sources - Revolving Loan Funds (RLF) and Microloan Cont. Other Local Revolving Loan Funds and Microloan Funds In addition to IRP lenders mentioned previously, there are many other non-profit economic development organizations that operate RLF programs. Their loan funds derive from a variety of federal (including USDA Rural Development, U.S. Forest Service, Small Business Administra- tion, Economic Development Administration, Housing and Urban Development), state, and local grant sources. As with the IRP program, they provide a variety of direct loan products to small businesses unable to qualify for bank loans. Your local SBDC can help you find RLF in your area. Special Montana State Loan Programs Alternative Energy Revolving Loan Program (AERLP) The Montana Department of Environmental Quality (DEQ) offers a financing option to Mon- tana homeowners, small businesses, non-profits and government entities to install alternative energy systems. The program is designed so that the energy produced is used by the generat- ing entity, although net-metering is allowed. The program offers low interest, fixed rate loans of up to $40,000. For more information, call (406) 841-5243 or http://deq.mt.gov/energy/ renewable/altenergyloan.mcpx. Brownfields Program The Brownfields Loan and Grant Program is administered by the Montana Department of Envi- ronmental Quality. It provides funding to support the redevelopment of property with envi- ronmental concerns. For more information contact the DEQ at (406) 444-2544 or http:// www.deq.mt.gov/Brownfields/Grants.mcpx. Growth Through Agriculture (GTA) The GTA program works to strengthen and diversify Montana’s agricultural industry. Through grants and loans, the program assists in the development of innovative agricultural products and processes to add value to the agriculture industry, create new jobs, and expand small business opportunities. Visit http://www.agr.mt.gov/business/GTA.asp for more information. Beginning Farm/Ranch and Rural Assistance Loans These loans may be used to purchase agricultural land and other depreciable agricultural property and/or to enhance producer’s operations. More information may be found at: http:// www.agr.mt.gov/business/finance.asp. Special Federal Loan Programs Farm Operating and Farm Ownership Loans These loans are available to family size farm operators from the USDA Farm Service Agency (FSA). Direct loans up to $300,000 and guaranteed loans up to $1,112,000 are available for ei- ther operating expenses, livestock & equipment, or real estate. For information, call (406) 587- 6872 or http://www.fsa.usda.gov/mt. -6- Financing Your Business in Montana—USDA Rural Development Native American Loan Guarantee Program This program is administered by the Bureau of Indian Affairs (BIA) and can provide up to 90% guarantees on business loans up to $500,000. For a business to be eligible, (1) members of federally recognized tribes must own at least 51% of the business, and (2) the businesses must be located in a county where there is a reservation. For more information, contact BIA at (406) 247-7943 or http://www.bia.gov/WhoWeAre/AS-IA/IEED/LoanProgram/index.htm. Export Oriented Loan Programs SBA Export Finance Program The Small Business Administration has several guaranteed loan programs; Export Working Capital Program (EWCP) and Export Express to support small business exporters. Montana’s Export Assistance Center is an excellent starting point. Call (406) 370-0097 or visit http:// www.buyusa.gov/montana. Export-Import Bank and Overseas Private Investment Corporation These two organizations provide direct and guaranteed financing for U.S. exporters. Find more information at http://www.exim.gov and http://www.opic.gov. Foreign Agricultural Service (FAS) Guaranteed Programs USDA FAS has several guaranteed loan programs; Supplier Credit Guarantee Program, Facility Guarantee Program, and Export Credit Guarantee Program (GSM-102 & GSM-103) to support businesses involved in exporting farm commodities and related products. More information can be found at http://www.fas.usda.gov/excredits/ecgp.asp. Special Federal Grant Programs Rural Energy for America Program (REAP) USDA Rural Development has a loan and grant combination program that awards funds to ru- ral small businesses and agricultural producers proposing to either install energy efficiency im- provements in their operation or to develop renewable energy generating systems (wind, bio- mass, solar, geothermal). Administered by the Rural Development area offices, see the cover- age map in the appendix or visit http://www.rurdev.usda.gov/mt. Value Added Producer Grant Program (VAPG) USDA Rural Development has a grant program that awards funds to agricultural producers for planning or working capital to establish a value-added agricultural product.. Administered by the Rural Development area offices, see the coverage map in the appendix or visit http:// www.rurdev.usda.gov/mt. Trade Adjustment Assistance for Firms Program (TAA) This Economic Development Administration administered program provides cost sharing fed- eral assistance to pay for half the cost of consultants or industry-specific experts for projects that improve the competitiveness of manufacturers affected by import competition. For infor- mation, call the Northwest TAA Center at (206) 622-2730 or see http://taacenters.org. -7- Financing Your Business in Montana—USDA Rural Development Grant Programs You May Hear Of NOT for Businesses Directly Most government grants are not available directly to for-profit enterprises. Instead, grants are typi- cally awarded to non-profit groups, local governments, and tribes in support of the general economic well-being of the community. Examples of grants that support business but are not available directly to businesses include: Rural Business Enterprise Grant (RBEG) Program USDA Rural Development’s RBEG program provides funds for technical assistance, workforce training, feasibility studies, revolving loan funds, demonstration projects, and real estate de- velopment in support of specifically identified small rural businesses. See the coverage map in the appendix or visit http://www.rurdev.usda.gov/mt for more information. Rural Business Opportunity Grant (RBOG) Program USDA Rural Development’s RBOG program provides funds for strategic planning, technical as- sistance, leadership training, and feasibility studies that promote sustainable economic devel- opment in rural areas. See the coverage map in the appendix or visit http:// www.rurdev.usda.gov/mt for more information. Rural Microentrepreneur Assistance Program (RMAP) USDA Rural Development’s RMAP is a new program for organizations that make loans and pro- vide technical assistance to microentrepreneurs in rural areas. See the coverage map in the appendix or visit http://www.rurdev.usda.gov/mt for more information. Rural Cooperative Development Grant (RCDG) Program USDA Rural Development’s RCDG program provides funds to centers for cooperative develop- ment to help establish and strengthen coops in rural areas. See the coverage map in the ap- pendix or visit http://www.rurdev.usda.gov/mt for more information. Other Useful Links To Financing & Business Resources USDA Rural Development in Montana http://www.rurdev.usda.gov/mt Small Business School http://smallbusinessschool.org Entrepreneur Resource Center http://www.lowe.org My Own Business http://www.myownbusiness.org U.S. Business Advisor http://www.business.gov U.S. Small Business Administration http://www.sba.gov Minority Business Development http://www.mbda.gov IRS Business Topics http://www.irs.gov/businesses Montana Bankers Association http://www.montanabankers.com Montana Cooperative Development Center http://www.mcdc.coop -8- The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental status, religion, sexual orientation, genetic information, political beliefs, reprisal, or because all or a part of an individual's income is derived from any public assistance program. (Not all prohibited bases apply to all programs.) Persons with disabilities who require alter- native means for communication of program information (braille, large print, audiotape, etc.) should contact USDA's TARGET Center at (202) 720-2600 (voice and TDD). To file a complaint of discrimination write to USDA, Director, Office of Civil Rights, 1400 Independence Avenue, S.W., Wash- ington, D.C. 20250-9410 or call (800) 795-3272 (voice) or (202) 720-6382 (TDD). USDA is an equal opportunity provider, employer, and lender.