Frequently Asked Questions - Loan Program
Loan Term Questions:
Credit History Questions
Business Education Questions
Application process for a loan from MCNW:
You will need a business plan and financial projections to apply for a loan. If you don’t have these, we suggest you start by formulating your business plan and financial projections. When your business plan and financial projections are complete, fill out the online loan inquiry found on our website, and send your business plan and financial projections to MCNW.
Once these have been reviewed by a staff member, and if your financing needs fit our program parameters, we will ask you to complete a loan application. When the application is complete, and all of our questions and clarifications have been answered, we can proceed with underwriting the loan to present to our loan committee. Your loan officer will create a summary of your business plan, application and financials and present these to our loan committee. The committee meets the last Thursday of each month. To present an application, we need to have all information submitted and all questions answered by the middle of the month to allow sufficient time for underwriting.
Businesses MCNW cannot fund:
Due to the organization’s policies and procedures and requirements of its funders, MCNW is not able to fund the following types of businesses:
- Adult Entertainment
- Liquor Stores
- Tobacco Store
- Passive Real Estate Investments
- Pyramid business structures
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Time until loan approval:
We analyze and underwrite loan applications in the order they are received. Historically, the more time owners have invested in preparing their business plan, financial projections and loan application, the more favorable the outcome has been for them. Loan committee meetings happen only once a month. The average amount of time past clients spent preparing everything before submission to the committee was 3 months. In general, if all information has been provided to us, and all our questions have been answered, we will be able to underwrite the loan and submit it to our committee for a decision within 60 days. Once a loan has been approved, closing can happen within a few days, and funds are immediately available. (See also Application Process)
Disbursal process of an approved loan:
MCNW, as a non-profit organization, does not write a check or transfer funds directly to you once a loan is approved. Instead, we utilize the budget approved by the loan committee that details specific uses of funds and we disburse to third party vendors. This means: 1) you obtain a price quote, invoice, purchase order or other documentation of a purchase that identifies the item or items being purchased, the price, and the seller’s contact information, 2) a check for the purchase price is written and sent directly to the seller. If you are making multiple small denomination purchases, we can reimburse you for those purchases based on the receipt from the transaction.
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Increasing a loan request after committee approval:
You can increase your request prior to loan committee, as long as: 1) there is enough time for the staff to analyze and underwrite the loan for a revised amount and 2) there is sufficient cash flow and collateral to cover the increase. Once the loan committee approves a loan request, the loan amount cannot be increased without formally re-presenting the additional request to the committee.
If I don’t use all the funds I’m approved for, what happens:
Loan closing fees are based on the loan amount you request and are non-refundable; to save yourself money, you should make every possible effort to ensure that your loan budget is reasonable and realistic. If an approved loan request is larger than what is needed for the business, a few things can happen (at the discretion of Mercy Corps Northwest staff in consideration with the business owner). In most situations, our loan tracking and billing software will recognize you have not drawn down the full amount of the loan, and you will simply pay off the principal balance earlier than originally scheduled. You will continue to pay the agreed upon monthly payment.
If the amount used is significantly smaller than the loan amount, the loan may be re-amortized over the same or a shorter period of time, reducing the loan amount (and the interest the client pays). No matter what, you only pay interest on the money you actually borrow—you will not be charged extra interest simply because you did not use your entire loan amount.
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Range of loan amounts considered::
MCNW will consider funding loans between $500 and $50,000. The amount of the loan will affect the cash flow needed to repay the loan, and the amount of security or collateral needed. A larger loan will require more collateral. The repayment terms of the loan will also be affected. (See also average loan size)
Average loan amount:
With close to 200 loans in the portfolio, the average loan amount at MCNW is $10,200, and the average amortization period for the loan is 3 years (36 months). We have underwritten loans that were repaid in as little as 2 months and loans that were amortized up to 5 years (60 months).
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For loan requests above $50,000, can MCNW co-lend or participate with another lender?
As long as it is not for the purchase of real estate, MCNW can co-lend or participate with another lender to fund a small business loan. Organizations that MCNW has worked with in the past include:
- Washington CASH (link)
- Portland Development Commission (link)
- Albina Opportunities Corporation (link)
- Hispanic Metropolitan Chamber (link)
Allowable and non-allowable uses of loan funds:
The list of allowable uses of loan funds is long and each loan and business plan is considered on a case by case basis. It is easier to define what the loan funds cannot be used for. Non-allowable uses include:
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Interest rate for loans from MCNW:
MCNW charges a fixed interest rate between 8-12% for all loans. This rate acknowledges the risk associated with the types of businesses our organization finances, as well as our cost of funds (between 0% and 3%). Since we don’t hold deposits like a bank, we have to borrow money to be able to lend it. The interest rate also takes into account the additional technical advisory assistance we offer our clients.
Why is your interest rate so high? I heard banks are only charging 8%.
MCNW’s interest rate correlates to our costs and risk of loans we provide. Although the interest rate is higher than a bank, it is lower than a credit card. The difference between an $8,000 - 36 month loan at 8% and the same loan at 12% is only $15 per month. Our loans are primarily for those not able to access bank funding. We always encourage you to apply for a loan from a bank or credit union first.
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Closing fees for a loan from MCNW:
MCNW charges a minimum of a 1% loan closing fee for all loans, due at the time of signing. Some loans are subject to a 2% loan closing fee— depending on a number of factors (loan size, loan type, etc.). Closing fees, like the interest rate, are fixed. There is a $10 fee for filing a UCC with the State of Oregon. If a car title is being used as collateral for the loan, there is a $55 Title Registration fee. If equity in real estate is being used to collateralize the loan, the fee for that varies, but is generally $116. All fees are due at the time of closing, and can be deducted from the loan.
What qualifies as collateral/ security for a loan?
MCNW generally considers all business assets as the primary security for the loan, and perfects that security interest through a Security Agreement and a UCC filing with the state of Oregon or Washington. If the business assets don’t provide sufficient collateral for the loan, MCNW is willing to consider one or multiple car titles, equity in real estate through a trust deed and/ or co-signers or guarantors for the loan. (See also co-signers/ guarantors section.)
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Co-signers/ guarantors used for a loan in place of other sources of collateral or security:
MCNW is often able to consider a co-signer and/ or guarantor for a loan in place of sufficient collateral for the loan or discretionary income for personal expenses. Guarantors and co-signers might be a silent business partner, a parent or other family member, or someone else who is willing to take on the legal responsibility. It might also be someone willing to pledge collateral (a car title, etc.). To be a co-signer or guarantor on a loan, the following application forms must be completed by the co-signer or guarantor:
- Client Information
- Household Budget
- Household Financial Statement and
- Credit Research Authorization.
- As well, two years of personal federal tax forms and a government issued photo ID are required.
When MCNW approves a loan to a business with multiple business partners, each business owner, member or shareholder is responsible for personally co-signing on the loan. Each business owner, member or shareholder must individually submit the aforementioned application forms.
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Flexibility in structuring repayment of the loan once it is approved:
Loan repayment is set prior to approval, though it is subject to change by the committee. In general, loan repayment begins the second full month after the loan is approved. For example, if a loan is approved at the July committee meeting and closed that month, the first loan payment would be due on September 1st.
Depending on the loan amount, loan type, and business type, various loan structures can be instituted to accommodate the cash flow of the business. This may include, but is not limited to:
- a moratorium on payments for a specific number of months after the loan is approved;
- interest-only loan payments for a specific number of months (2-6) after the loan is approved;
- a balloon payment somewhere in the amortization that corresponds to projected income. (See also unused funds).
If I have good credit or good collateral, can I qualify for a lower interest rate?
If you have good credit and collateral, you may qualify for a bank or credit union loan at a lower interest rate. We encourage you to apply there first. Consider checking with a local community bank or a bank that offers SBA guaranteed loans. (See also interest rate)
Past credit issues:
MCNW reviews every loan application and business plan on a case by case basis. In general, we can provide financing to people who have filed for bankruptcy (and had the bankruptcy discharged) in the last ten years, when it still appears on your credit report. We are able to work with people with other credit “issues,” such as medical accounts that have gone to collections or are past-due, as long as there is proof of 6 months of repayment, or proof that alternative arrangements have been made to fulfill existing financial obligations. For information on how to improve your credit visit these websites: Clear Point Credit Counseling Mercy Corps Northwest Counseling
If you are currently in the process of filing for bankruptcy, or your case has not been discharged or dismissed, we can not consider you for a loan. If you currently have judgments, tax liens, child support, or student loans that have gone into default and are not being addressed, we can not consider you for a loan until these have been addressed.
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I don’t have a formal credit history:
If you don’t have a formal credit history, we won’t hold that against you, and will consider you the same way we would consider an applicant with a good credit record.
Business and financial planning assistance at MCNW:
MCNW offers direct, one-on-one business planning and financial projections planning assistance. We also offer start-up and existing Business Foundations Workshops I and II and a business plan class. Our clients can access legal and bookkeeping counseling for a nominal fee. These are not pre-requisites to or requirements for being considered for a small business loan, but are meant to support your business success. Other resources for small business planning and technical assistance include the Small Business Development Centers (SBDCs), SCORE, and Washington CASH.
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Requirements to participate in other programs/ services offered by MCNW to qualify for a loan:
It is not a requirement for you to participate in the Foundations Business Planning course, or the IDA program, to be eligible for the small business loan program. These resources may be very beneficial to you as it can improve you business network and business plan, and help MCNW get to know you and your business. The IDA program can be used to purchase assets, freeing up loan funds to be used for other purposes.
Is Mercy Corps Northwest a bank?
Mercy Corps Northwest is not a bank. We are a Community Development Financial Institution (CDFI), which is a US Treasury Department designation for “a specialized financial institution that works in market niches that are underserved by traditional financial institutions.” (http://www.cdfifund.gov/what_we_do/programs_id.asp?programID=9)
MCNW gives loans and provides technical assistance, but we do not issue accounts or hold deposits like a bank or credit union. We are a small organization with only 4 loan officers (2 in Oregon/Southern Washington and 2 in Seattle).
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