Capital in the Capital: Two unconventional funding sources that are feeding entrepreneurs
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From the pages of In Business magazine.
Six years after the Great Recession technically ended, Frank Staniszewski has noticed a much healthier appetite for risk among Dane County businesses. Staniszewski, president of Madison Development Corp., believes that appetite is back to prerecession levels and shows no signs of abating.
While financial institutions have regulatory considerations weighing on them, many banks have been very aggressive, and there is real momentum in emerging industries. “We’ve been making technology loans since the early days of Sonic Foundry and Mirus, and we’ve been working with the [university] research park,” Staniszewski noted, “but in the past three years, it’s just a different world than we’ve ever seen in 20 years of working with the technology community.
“It’s gone from just biotech to biotech and medical research, medical health records, to the IT-Internet, to mobile games and Internet games.”
The hunt for capital is no game, however, and not every small business qualifies for conventional bank lending. So in this look at business finance, IB profiles business resources that have emerged as alternative sources of capital — the community-based Madison Development Corp. and the statewide Wisconsin Business Development Finance Corp.
Madison Development Corp.
With an active loan portfolio of more than 80 loans totaling $6 million, the MDC, a nonprofit development company, helps hard-to-finance small businesses, whether they are growing or just starting up, with loans. The term “hard-to-finance” means they can’t fully meet the underwriting standards of private commercial lenders — lenders that often refer businesses to the MDC.
MDC’s lending programs are funded in part by the City of Madison’s Community Development Block Grant program. Under its business loan program, MDC can lend up to $200,000 to qualifying businesses for working capital, inventory, equipment, leasehold improvements, and real estate, but the average borrower receives about $50,000. It also has a venture debt program for emerging technology companies, from which it can lend higher amounts.
There are certain loan parameters for eligible borrowers. Businesses must be located in the City of Madison, and borrowers must increase employment by approximately one job for every $35,000 in loan funds received, a requirement that is tracked on an annual basis.