Philadelphia Program Transforms Small Business Loan Process

Philadelphia Program Transforms Small Business Loan Process

By Chelsea Eddy, March 16, 2017

While owning your own business may be part of the American Dream, funding it can be a real nightmare.  Under normal circumstances, a business owner seeking funds for capital improvements, inventory purchase, or start-up assistance approaches a variety of potential lenders. From meetings with loan officers to completing a highly detailed application for each lending prospect, it’s a time-consuming process — that all too often results in a deflating no.

But an innovative program launched last summer in Philadelphia turns that process around. By completing and submitting a single standardized form to the Philadelphia Capital Consortium (PCC), a Philly business owner seeking capital gets their initial application in front of all PCC lenders and is contacted by those interested in helping them move their business forward.

I spoke with Jonathan Snyder, Director of Business Financial Resources for the Philadelphia Department of Commerce, to learn more. Snyder manages the PCC process as a neutral third party.

How the PCC Works
Business owners within Philadelphia seeking capital are invited to apply to the PCC via the online Business Information Form. Department of Commerce staff receive the form and forward it to the Consortium’s 33 lending members — a collection of banks, credit unions, Community Development Financial Institutions (CDFIs), approved online lenders and others. The diverse funders have a variety of funding interests and abilities, increasing possibilities for a match with a given capital seeker.

Consortium members review the form, which asks for common information most financial lenders require from a potential borrower. Consortium members who think the business owner may be a good fit for their lending initiate contact within ten days.  Since the PCC form is not a full application, business owners complete one simple form to be reviewed by all interested lending institutions.

Though setting up the PCC — specifically identifying and confirming the Consortium members — took considerable time, the program now is mostly self-operating. Snyder continues to curate incoming applications and inquiries about the PCC and convenes quarterly meetings with the Consortium members. As of February 2017, the PCC had received 34 eligible applicants, 27 of whom had been contacted by at least one eligible lender. Four loans have gone through and several more are in process. 

About the Consortium
A Philadelphia-based CDFI had the initial idea for the PCC. As the idea took shape, the CDFI reached out to other Small Business Administration (SBA) lenders in Philadelphia. SBA lenders responded enthusiastically to the idea, recognizing a streamlined process would generate new borrowers and provide access to new markets and businesses.

Due to conflicts of interest arising from a lender hosting the program, a neutral third party was needed. Enter Snyder and the Philadelphia Department of Commerce. Housing the program in government created a level of trust among participants and incentivized other lenders to join the Consortium. Since Snyder only permits regulated lenders to join, business owners are assured they are applying to reputable lending sources. The partnership between the lenders and the government helps both validate the lenders in the eyes of business owners and helps owners view local government as an ally.

Snyder started meeting with vice presidents, branch managers, loan officers and others to solidify commitment among prospective Consortium members. Snyder valued inclusivity, as a variety of lenders with varying focus would generate more opportunities for business owners to receive capital.

Baltimore Ave in Philadelphia is home to many businesses eligible to apply for loans through the PCC. Photo: J. Fusco.

A Look at the Business Information Form
Initially, the PCC envisioned a common application for business owners to send to all Consortium members. However, diverse lending specifications for each institution made using a common application all but impossible. Snyder and the lenders shifted their plan and created the common information form as a first step for potential borrowers. Business owners still apply directly to the lending institution after submitting the form, but the process eliminates the guesswork of which institutions may be interested in funding them — and saves applicants precious time. Business owners complete applications they know are realistic, rather than applying to a bevy of uninterested lenders.

Business owners currently cannot choose which Consortium members receive their information. As of now, business owners working with the PCC are excited to get their application to as many lenders as possible and have not requested their information only be sent to certain lenders.

Community Partnerships
Since the PCC does not yet have a marketing budget, Snyder partners with community-based organizations to help spread word. A trusted neighborhood organization vouching for the PCC raises the program’s credibility, since some small businesses, especially those in underserved neighborhoods, are skeptical of working with government and formal lenders. Further, the diverse languages and cultures throughout the city make communication a challenge, and the partner organization helps bridge these divides. The PCC also partners with the Welcoming Center for New Pennsylvanians to connect with immigrant-owned businesses.

What Next?
Currently the modest number of applications the program receives allows Snyder to keep the process and oversight simple. However, if the PCC begins receiving more applications, an automated system to collect, screen and distribute applications to Consortium members may become necessary.

Establishing guidelines regarding the kinds of institutions allowed to join the Consortium has been challenging and is slated to be completed in June, 2017. When the PCC first started, Snyder only contacted regulated lenders he thought would fit well in the Consortium. However, as the PCC gains recognition, other lenders — including unregulated ones based online — are seeking entry. Though keeping the PCC inclusive is a priority, its success demands distinguishing between reputable and predatory lenders to protect both its integrity and applying businesses.

Considerations for Local Business Coalitions

Location of Funders
The PCC does not have geographical requirements for Consortium lenders – however, this may be worth consideration when establishing lender guidelines toward keeping with your mission of both supporting independent businesses and building the interdependence between them. Do you want lenders to be headquartered in the community? In the county? In the state? Will you allow online lenders or national lenders to participate? Will you differentiate between lenders who have a local branch versus lenders who are locally and independently owned?  Much will be determined by community circumstances.

Geographic Location of the Business
As the PCC is housed with the City of Philadelphia, only businesses located within its boundaries may apply to the PCC. Consider implementing the program to fit your organization’s geographic boundaries or work with your local government economic development office to implement the program.

Funding Institution and Business Ownership
The PCC permits any business within Philly city limits or lenders who will fund Philly-based businesses to participate. However, an Independent Business Alliance might use this opportunity to bring local independently-owned and other appropriate lenders into your organization’s membership. Then draw your lending Consortium from those members. Other lenders to consider include community development corporations, microlenders, your area SBDC, and perhaps more.

Who will house the Consortium?
Philadelphia chose to host its Consortium in the city government – but your local business coalition could be a great place to house this kind of program and open the door for strong partnerships with local lenders, businesses and economic development entities.

Additional Resources:
PCC Common Application (print version – pdf)

Learn More!  Toward encouraging other communities to launch this program to benefit local entrepreneurs, AMIBA hosted a webinar May 23, 2017 with Jonathan Snyder to encourage more conversation about the program and provide the opportunity for you to learn more.

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