Frequently Asked Questions - Loan Program
Below is a list of frequently asked questions about the loan program. Please read this page thoroughly before contacting us with your question. Thank you.
- What is the range of loans that MCNW will consider?
- What is the average loan size?
- Is there any flexibility in structuring the repayment of the loan once it is approved?
- What is the application process for a loan from MCNW?
- How long does it take to get approved for a loan from MCNW?
- What is the interest rate for loans from MCNW?
- Why is your interest rate so high? I heard that banks are only charging 8 percent.
- If I have good credit or good collateral, can I qualify for a lower interest rate?
- What are the closing fees for a loan from MCNW?
- Could I use a co-signers/ guarantor for a loan in place of other sources of collateral or security?
- What if I have past credit issues that prevent me from applying at a bank?
- What if I don’t have a formal credit history?
- What are the allowable uses loan funds, and what is not allowable?
- Once a loan has been approved, what is the disbursal process of the loan?
- Can I increase my loan request after the committee has approved my loan?
- What if I don’t use all of the funds that I have been approved for?
- What is MCNW willing to consider as collateral/ security for a small business loan?
- Does MCNW offer business and financial planning assistance?
- Are clients required to participate in other programs/ services offered by MCNW to qualify for a loan?
- Can MCNW co-lend or participate with another lender for a loan request that is above the $50,000 limit?
- Are there any types of businesses that MCNW cannot fund?
- Is Mercy Corps Northwest a bank?
What is the range of loans that MCNW will consider?
MCNW will consider funding loans between $500 and $50,000. The size of the loan will affect the cash flow needed to repay the loan and the amount of security or collateral needed, with a larger loan needing more collateral. It also affects the repayment terms of the loan. (See also average loan size).
What is the average loan size?
With close to 200 loans in the portfolio, the average size loan at MCNW is $10,200, and the average amortization period for the loan is three years (36 months). We have underwritten loans that were repaid in as little as two months and loans that were amortized up to 60 months.
Is there any flexibility in structuring the repayment of the loan once it is approved?
The loan repayment needs to be set prior to approval, though 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 size, the type of loan, and type of business, various loan structures can be instituted to accommodate the cash flow of the business. This might include, but isn’t 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 (two-six) after the loan is approved;
- a balloon payment somewhere in the amortization that corresponds to projected income. (See also unused funds).
What is the application process for a loan from MCNW?
In general, we suggest that you start by formulating your business plan and financial projections as this is a more time consuming and ultimately more important process than completing the loan application forms. When you have a complete business plan and financial projection, send them to MCNW for review along with a completed loan inquiry form.
Once your business plan and financial projections have been reviewed by one of our staff members, and if your financing needs are deemed to fit our program parameters, we will encourage you to complete a loan application. When both are completed, and all of our questions and clarifications have been answered, we can proceed with underwriting the loan and present it 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.
How long does it take to get approved for a loan from MCNW?
In general, if all information has been provided to us, and all of 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, as loan committee meetings only happen once a month and we analyze and underwrite loan applications in the order they are received. Historically, we have seen that the more time that is dedicated to preparing the business plan, financial projections and loan application, the more favorable outcome for the potential borrower. The average amount of time past clients have spent preparing everything before it was submitted to the committee for approval is three months. Once a loan has been approved, closing can happen within a couple days, and funds are available immediately. (See also Application Process.)
What is the interest rate for loans from MCNW?
MCNW charges a fixed interest rate of 12% for all loans. This rate acknowledges the risk associated inherent to working with the types of businesses that our organization finances, as well as our cost of funds (between 0% and 3%) as we don’t hold deposits like a bank. We have to borrow the money to be able to lend it. This interest rate also takes into account the additional technical assistance advisory that we offer our clients.
Why is your interest rate so high? I heard that banks are only charging 8%.
MCNW charges an interest rate that correlates to our costs and the risk of the loans we are providing. The difference between an $8,000 - 36 month loan at 8% and the same loan at 12% is only $15 per month. And, we don’t want to price our loans so they are in competition with banks, as these are higher risk than bank loans. The interest rate is higher than a bank and lower than a credit card.
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 be able to qualify for a loan at a bank or credit union at a lower interest rate, and so 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).
What are the 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.). The closing fees, like the interest rate, are fixed. There is also 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.
Could I use a co-signers/ guarantor for a loan in place of other sources of collateral or insufficient discretionary income?
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 just pledge collateral (a car title, etc.) To be a co-signer or guarantor on a loan, the following application forms need to 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.
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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. To do so, each business owner, member or shareholder must individually submit the aforementioned application forms.
What if I have past credit issues that prevent me from applying at a bank?
MCNW reviews every loan application and business plan on a case by case basis. In general, we are able to 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. As well, we are able to work with people who have other credit “issues,” such as medical accounts that, have gone to collections, or are past-due, as long as there is proof of six months of repayment, or proof that alternative arrangements have been made to fulfill existing financial obligations.
If you are currently in the process of filing for bankruptcy or your case has yet to be discharged or dismissed, we are not able to consider you for a loan. As well, if you currently have judgments, tax liens, child support, or student loans that have gone into default and are not being addressed, we are not able to consider you for a loan until these have been addressed.
What if 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.
What are the allowable uses loan funds, and what is not allowable?
Each loan and business plan is considered on a case by case basis. The list of allowable uses of loan funds is long, so it is easier to define what the loan funds cannot be used for. Non-allowable uses include:
Once a loan has been approved, what is the disbursal process of the loan?
MCNW, as a non-profit organization, does not write a check or transfer funds directly to you once a loan has been approved. Instead, we utilize the budget that was approved by the loan committee detailing specific uses of funds, and we disburse to third party vendors. So, you obtains 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, and a check for the purchase price is written and sent directly to the seller. In the case where you are making multiple small denomination purchases, we can reimburse you for those purchases after they have been made based on the receipt from the transaction.
Can I increase my loan request after the committee has approved my loan?
Once a loan request has been approved by the loan committee, the loan amount cannot be increased without formally re-presenting the additional request to the committee. But, you can increase your request prior to loan committee, as long as there is enough time for the staff to analyze and underwrite the loan for a revised amount, and there is sufficient cash flow and collateral to cover the increase.
What if I don’t use all of the funds that I have been approved for?
If an approved loan request, due to whatever circumstances, is for a larger amount of money that what is deemed necessary for the business, there are a few things that can happen (at the discretion of Mercy Corps Northwest staff in consideration with the business owner.) In most situations, the client will continue to pay the agreed upon monthly payment. Our loan tracking and billing software will recognize that you have not drawn down the full amount of the loan, and you will simply pay off the principal balance earlier than originally scheduled.
In the event that 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, effectively reducing the loan amount (and the interest the client pays). No matter what, you only pay interest on the money you have actually borrowed—you will not be charged extra interest simply because you did not use your entire loan amount. However, keep in mind that loan closing fees are based on the loan amount you request and are non-refundable; you should make every possible effort to ensure that your loan budget is reasonable and realistic.
What is MCNW willing to consider as collateral/ security for a small business 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. In the situation where the business assets don’t provide sufficient collateral for the loan, MCNW is also 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.)
Does MCNW offer business and financial planning assistance?
MCNW does offer direct, one-on-one business planning and financial projections planning assistance, as well as offering a business plan class called “Foundations Business Planning.” This one-on-one technical assistance and the business planning class are not pre-requisites to or requirements for being considered for a small business loan. Other resources for small business planning and technical assistance include the Small Business Development Centers (SBDCs), SCORE, and Washington CASH. (with links)
Are clients required 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. It can be very beneficial for you to avail yourself of these resources as it gives MCNW a chance to get to know you, it can improve you business network and business plan, and the IDA program can be used to purchase assets, freeing up loan funds to be used for other purposes.
Can MCNW co-lend or participate with another lender for a loan request that is above the $50,000 limit?
MCNW can co-lend or participate with another lender to fund a small business loan, as long as it is not for the purchase of real estate. 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)
Are there any types of businesses that MCNW cannot fund?
MCNW, due to the organization’s policies and procedures and requirements of its funders, is not able to fund the following types of businesses:
- Adult Entertainment
- Gaming
- Liquor Stores
- Tobacco Store
- Passive Real Estate Investments
- Pyramid business structures
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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 three loan officers (two in Oregon/Southern Washington and one in the Seattle area.)
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