FAQs for Borrowers
How is The Business Development Company different from a bank?
Loans are our only product. Our ability to be more flexible results from not being regulated like a bank because our funding is not coming from depositors. Also, our deeply experienced team is laser focused on the mission of helping companies create jobs.
What is typical loan size? Structure?
Current portfolio loans range from $90,000 - $600,000, and loans larger than $600,000 are possible through syndication. Loan structures are created to suit the needs of the borrower, and fall into variations of Term Loans, Lines of Credit, Asset Based Lines of Credit, Purchase Order Financing and SBA-backed loans. Term loans may allow an interest only period if the business needs to build cash.
How long does the process take?
Preliminary interest can be established within a week of receiving basic financial information and meeting with management. Once a prospective borrower has provided all the requested information, formal approval and a closing can be accomplished within 30 – 60 days.
What are the most important criteria for approval?
A proactive management team and a thoughtful plan substantiating the ability to repay the loan. The first pass of information needed includes historical financial data, projections, a sources / uses summary, and a personal financial statement.
Is collateral required?
Not necessarily. However, collateral availability permits more attractive pricing and makes a big difference if historic profitability has been weak or inconsistent.
Are personal guarantees required?
In most cases, yes. Our loans are often not fully secured, and a personal guaranty reinforces confidence in the business’s ability to repay the loan.
Is my company eligible if it already has a bank relationship?
Yes, our loans frequently supplement bank borrowings.
How do interest rates compare to banks?
Every deal is different. We don’t compete with banks on low risk loans, and when we’re asked to assume greater risk, we charge a higher rate. The borrower needs to consider whether the value created by the loan proceeds justifies the cost.
Does the Business Development Company serve a particular niche?
No. We are committed to considering any loan request from any borrower that makes fundamentally sound business sense; however, we cannot take speculative equity risk.
Can the loan proceeds be used to pay off bank debt?
Our debt can create availability and/or provide additional liquidity. For instance, we will term out a portion of an evergreen line of credit to create availability.
What is debt subordination and how does it benefit the borrower?
Payments on a BDC loan can be suspended when a company is experiencing unforeseen challenges. Halting the loan payments alleviates some of debt service pressure, hence the BDC debt can be considered quasi-equity.
Is there a minimum personal score for the business owner?
All lenders consider the ability to manage personal credit as indicative of the ability to manage a business’s finances. Credit scores above 650 are satisfactory, but we have accepted lower scores when they result from life events (e.g. illness, divorce).
What are the estimated costs of a loan transaction?
We commonly charge one percent of the loan amount to cover our underwriting costs. Legal fees typically range from $3,000 to $5,000 depending on the complexity of the transaction. Appraisal fees may be required if a transaction involves real estate.
What are financial loan covenants, and do you require them?
A financial covenant is an agreement between the lender and borrower that the company will operate within certain parameters. The borrower’s projections play a key role is setting the covenants. We usually require a minimum debt service covenant which measures the borrower’s ability to repay the scheduled principal and interest payments on all debt.
I recently obtained a loan from an on-line lender before fully understanding the exorbitant cost of the debt. Will you re-finance debt of this nature?
Yes, provided the borrower otherwise meets our approval criteria.