One of the most important decisions you will need to make when considering starting a business is how to finance it. It is critical that you have a very good understanding of the start-up funds you need as well as six months of working capital to make sure you have cash on hand to perform day-to-day operations. There are many ways to finance a business, it is very important that you seek help to explore all your options. You might decide to self-finance, take out a small business loan, or depending on you concept seek angel or venture capital funds. Take a look at the funding options below and see if they work for you.
GOVERNMENTAL FINANCING & INCENTIVE PROGRAMS
Job Opportunity Building Zone (JOBZ):
JOBZ provides local and state tax exemptions to qualified companies that start up or expand in targeted areas of Greater Minnesota. The program promotes development in places that are already poised for business growth and have adequate infrastructure in place. It also seeks out places where favorable conditions exist for restoring productivity to under-used and unproductive properties through development, redevelopment, reclamation or recycling. The JOBZ program offers substantial tax savings the following areas: corporate franchise tax, income tax for operators or investors, including capital gains tax, sales tax on goods and services used in the zone if the goods and services were purchased during the duration of the zone, property tax on commercial and industrial improvements but not on land, wind energy production tax, and employment tax credit for high paying jobs. For more information, please visit www.positivelyminnesota.com or contact your City Administrator.
Tax Increment Financing:
Tax increment financing (TIF) may be used to help finance costs of real estate development. TIF uses the increased property taxes that a new real estate development generates to finance up-front costs of the development. In Minnesota, TIF is used as an incentive to encourage developers to construct buildings or other private improvements, pay for public improvements, such as streets, sidewalks, sewer and water, and similar public infrastructure improvements that are related to the development. For more information, please visit www.positivelyminnesota.com or contact your City Administrator.
LOAN PROGRAMS
Small Enterprise Loan Fund:
The Small Enterprise Loan Fund is available through the Southern Minnesota Initiative Foundation (SMIF). The loans are available to start or expand a manufacturing, retail, or service business. Loans of up to $35,000 may be used for inventory, supplies, machinery/equipment, or working capital. For more information, please visit www.smifoundation.org.
Revolving Loan Program:
The Revolving Loan Program is available through the Southern Minnesota Initiative Foundation (SMIF). The loans are designed for gap financing. The loans are fundamentally used for businesses that innovate, particularly ventures that develop high-tech products and services (preference is given to biobusinesses and minority entrepreneurs). Loans of up to $200,000 may be used for building acquisition, expansion, machinery/equipment, inventory or working capital; and may not exceed 50% of project cost. For more information, please visit www.smifoundation.org.
Small Business Development Loan Program:
The Small Business Development Loan Program is designed to help small manufacturing and industrial businesses located or intending to locate in Minnesota. The purpose is to create jobs and provide loans for business expansions. This program in offered via the Department of Employment and Economic Development. For more information, please visit www.positivelyminnesota.com.
CDC/504 Program:
Certified Development Company (CDC), a 504 Loan Program is a long-term financing tool that provides growing businesses with long-term, fixed rate financing for major fixed assets such as land and buildings. The 504 Loan Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing. The CDC/504 Program is administered by the Small Business Administration (SBA). For more information, please visit www.sba.gov and www.504corporation.com.
Business and Industry Loan (B&I):
The Business and Industry Loan program is administered by the USDA. The program is designed to help create jobs and stimulate rural economies by providing financial backing for rural businesses. Businesses located in towns or cities with a population less than 50,000 may use this program for acquisition, start-up, and expansion of businesses that create rural employment. For more information, please visit www.rurdev.usda.gov.
Six County Revolving Loan Fund:
The Six County Revolving Loan Fund is administered by Region 9 Development Commission. Eligible businesses will be engaged in manufacturing, service, retail, distribution, or value-added agriculture. The fund can be used for real estate, machinery and equipment, and working capital. The business must be located in one of the participating counties with priority given to businesses that employ full-time skilled or semi-skilled workers. For more information, please visit www.rndc.org.
Nine County Revolving Loan Fund:
The Nine County Revolving Loan Fund is administered by Region 9 Development Commission. The fund can be used for real estate, machinery and equipment, and working capital. The business must be located in one of the participating counties with priority given to businesses that employ full-time skilled or semi-skilled workers. For more information, please visit www.rndc.org.
Micro Enterprise Loan Program:
The Micro Enterprise Loan Program is administered by Region 9 Development Commission. The program is meant to provide capital for start-up and expansion for the small business activity not served by traditional lenders. The funds may be used for all costs demonstrated as essential for the project, including working capital, inventory, machinery/equipment, and building/leasehold improvements. For more information, please visit www.rndc.org.
Rural Economic Development Loans and Grants (REDLG):
The REDLG Program is administered by the USDA and can be used for projects that create jobs in rural areas, or that provide infrastructure or community facilities in rural areas that will lead to economic stability. This program uses Rural Utilities Service Borrowers as a third party to promote rural economic and job creation projects. For more information, please visit www.rurdev.usda.gov.
Minnesota Community Capital Fund (MCCF):
MCCF has a $50,000 minimum and a $2,500,000 maximum with fixed and adjustable rate loans available. Funds may be used for fixed assets, new building construction, building remodelling/renovations, leasehold improvement, business acquisitions, machinery/equipment purchases, moving expenses, and working capital. For more information, please visit www.mncommunitycapitalfund.org.
Growth Acceleration Program:
The Growth Acceleration Program is administered by Enterprise Minnesota, and is a program that assists manufacturing businesses to accelerate business improvements that result in the creation and retention of jobs, increased sales, reduced costs, and business investments. This program is a matching funds program of up to $50,000 per year per business. For more information, please visit www.enterpriseminnesota.org.
GRANTS
Grants are a great source of capital to finance primarily non-profits or new initiatives. However, it is often a challenge to identify relevant grant opportunities to submit a proposal. Depending on your available capital reserves, you might want to consider hiring a grant writer to assist you with the process.
Federal Grants
www.grants.gov
Minnesota Office of Grants
www.grants.state.mn.us
Foundation Directory Online
www.foundationcenter.org
Minnesota Council on Foundations
www.mcf.org
Minnesota Council of Non-profits
www.mncn.org
VETERAN PROGRAMS
SBA Patriot Express Loan Program
The Patriot Express Loan Program is for veterans or members of the military community wanting to start or expand a business. The funds can be used for start-up costs, intentory, equipment, working capital, and much more. Patriot Express loans are generally the SBA’s lowest interst loans at about 2.25%-4.75% over prime depending on the size and maturity of the loan. Click here for more details.
Minnesota Reservist & Veteran Business Loan Program
The Minnesota Reservist & Veteran Business Loans are one-time $5,000-$20,000. Loan terms are 4.5 years, with no repayment for the first 1.5 years and equal monthly payments over the remaining 3 years. The loans are interest-free. Click here for more details.
*The financing programs outlined on this page make up only a small portion of what is available to business owners. Please contact us if you are seeking assistance finding financing that suits your needs.