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July 29, 2009 > Hayward's small business loan program

Hayward's small business loan program

By Simon Wong

Banks and specialist commercial lenders are not the only source of finance for small businesses situated or wishing to locate in Hayward.

The City's Small Business Loan Program provides gap funding up to $100,000 to make a business viable. Most applications are between $10,000 and $50,000. Businesses must match each $1 of City financing with $2 of private lending and/or owner equity.

The loan program helps businesses create jobs, especially for low- and moderate-income residents. There are incentives for businesses serving the Harder-Tennyson and Burbank neighborhoods.

Loans may be used to purchase equipment, for leasehold improvements, as working capital and to acquire/renovate real estate for owner-occupiers.

Besides being situated or wishing to locate in Hayward and offering job opportunities for low- and moderate-income local residents, businesses must satisfy other criteria for their loan applications to be considered.

They must be for-profit entities, at least two years old or have equivalent experience, be creditworthy, fit the Small Business Administration's definition of a small business, operate from retail or commercial premises and require bridging finance to close the gap between the owner's equity or bank financing and the business' needs.

Businesses must sign a First Source Hiring Agreement to offer 51% of all jobs to low- and moderate-income applicants. Minimum retained earnings, or equity, must account for 10-20% of the overall project cost.

Thrift or consignment stores and start-up businesses, where the owner has no previous, equivalent experience, are not funded by this program.

Loan applications must be accompanied by a non-refundable $35 application fee. An origination fee of 1% of the loan amount is charged for successful applications. The interest rate is fixed at the prime commercial lending rate on closing.

Most loans are repayable over the useful life of the asset being financed. Loans are reviewed annually and subject to call as per the loan agreement.

City loans are secured. Collateral may take the form of real property, equipment, other business or personal assets. The loan may be subordinate to the bank or other commercial lender.

"The program was first funded by City Council in 1990 and has been in continuous operation since then. Monies for the Small Business Revolving Loan Fund are provided though the City's Community Development Block Grant (CDBG) Program. The CDBG program is funded by an annual grant from the federal Housing and Urban Development (HUD) Department," stated Economic Development Coordinator Sally Porfido.

"The allocation request [for the Small Business Revolving Loan Fund] can vary depending on the availability of funding and the program's needs. City Council allocated $230,000 in FY 2008-09 and $261,780 in FY 2009-10.

"Loan repayments modestly replenish the fund each year and every other year, or so, additional funds are requested through the CDBG application process.

"A small business may apply more than once for this program. There is no set limit on how often a business may apply. However, the program tries to assist as many eligible Hayward businesses as possible. In addition to making loans, the City facilitates lending from conventional sources, and often the City's funding is applied as "gap" financing, bridging the difference between what is available from conventional sources and the needs of the small business,' explained Porfido.

"The program is proving important because banks have tightened their lending criteria. We've had more applications this year than in each of the previous eight years. There are many good, eligible companies. We've had no defaults. The City Manager wants us to carefully consider each application for the Downtown area which we are revitalizing.

"We're also part of the North Silicon Valley Partnership with Newark, Fremont and Union City. We sponsor venture capital events at which companies pitch their ideas for venture capital funding," concluded Porfido.

The City's small business loan program's investment in local businesses generates interest income, property and sales tax revenues for Hayward and provides employment opportunities within the local community.

For more information, email Sally.Porfido@hayward-ca.gov, call 510 583 4236 or visit www.hayward-ca.gov. Apply at the Department of Community and Economic Development, City of Hayward, 777 B Street, Hayward.

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