Small Business Financing Initiative 1.0 

Many small businesses are finding it extremely difficult to obtain financing.  There are several reasons for this, two of which are: (1) the recession has weakened many businesses’ balance sheets, making them less attractive to lenders; and (2) banks are adopting much more conservative lending standards.  This combination has created a “perfect storm” of weaker clients attempting to borrow from more cautious lenders.  Worse yet, there is new lending model for which most small businesses are poorly situated.  In the past, banks primarily engaged in asset-based lending in which they extended business credit on the strength of the assets that collateralized the loan.  Today, banks are less comfortable with the ability to liquidate collateralized assets.  As a result, they are lending on the basis of cash flow – the borrower’s ability to make its loan payments.  Businesses seeking to borrow capital on the basis of cash flow must be able to present solid cash flow projections to lenders.  Unfortunately, many small businesses don’t have this capability.

The LCIC is working with local banks, the University of Toledo, Toledo Regional Chamber of Commerce Small Business Development Center (SBDC), Lucas County, and the City of Toledo to facilitate the flow of capital to small businesses.  This ongoing initiative includes channeling public funds to local lenders and working with the SBDC to help businesses adapt to a cash flow-based lending model.  We will report out on our efforts at the end of 2011.