When we ask entrepreneurs what their challenges are, we often hear that it continues to be difficult in this state to find capital. Our next guest’s nonprofit is working to alleviate that situation. Mike Switzer interviews F.A. Johnson, CEO of CLIMB Fund in Charleston, SC.
TRANSCRIPT:
Switzer: Hello and welcome to another edition of the South Carolina Business Review. This is Mike Switzer. When we ask entrepreneurs what their challenges are, we often hear that it continues to be difficult in this state to find capital. Our next guest nonprofit, though, is working to alleviate that situation. F.A. johnson is CEO of CLIMB Fund, and he joins us now by phone from his office in Charleston. F.A., welcome to the program.
Johnson: Thank you, sir.
Switzer: First of all, give us an overview of your organization.
Johnson: Certainly, the CLIMB Fund is a mission based lender, so we are a nonprofit, but we do provide small business loans and working capital lines of credit to small, and emerging businesses across the state.
Switzer: Are you part of a larger network of nonprofits, that do this kind of thing?
Johnson: Yes, we are one of several across the state. Community Works is present in the Upstate and LISC as well. Some of us focus on small business, some of us do small business and real estate. But nationally, those organizations provide mission based capital across the country.
Switzer: All right, and so community development financial institutions, do they require entrepreneurs and small businesses to already have a stream of revenue?
Johnson: No, we particularly do fund startups, so they may not necessarily have existing businesses. certainly we work with a number of existing businesses, but we provide a little bit more flexible terms in terms of collateral, payment history, operating history than your traditional bank. I will say one of the things that differentiates us from a traditional bank is that we provide technical assistance and capacity building and business coaching to help make sure that they're ready. So one of the first things that we require new businesses to do is to take our application workshop in terms of like, getting ready to ask for money, getting ready to do your business plan, getting ready to understand your cash flow and really help businesses get themselves up to speed on what it is that they need to know to start that journey.
Switzer: So really getting in at the ground floor level?
Johnson: Yes, yes. So, and a lot of a fair amount of our businesses are at the ground floor level. And so, one of the things, our particular niche in the CDFI world, we work with the SBA on their micro lending program, which is basically 50,000 and below for startups.
Mike Switzer: And so is collateral often required or always required?
Johnson: It is preferred and often required. Sometimes we have to get a little bit of creative, exactly how we're going to structure that. But, you know, the insufficiency of collateral is one of those challenges that startup businesses face. And so sometimes we have to really look at how can we work around that. We do have to look at how we mitigate risk because we are providing a loan and we're expecting to get repaid, but we try to be more flexible than, you know, your retail banks.
Mike Switzer: How do rates from organizations like yours compare to traditional bank financing rates?
Johnson: They might have a little bit of additional spread on some of our rates to absorb some of that risk. So we do take a risk based approach as we look at it. But one of the things that we're able to do is leverage our capital with some grants in some instances to provide some below market interest rates.
Switzer: All right, now, what recommendations do you have for entrepreneurs who are thinking about coming to an organization like yours before they apply for that first business loan? What should they know?
Johnson: I think one of the first things is to start off with some basic financial literacy, meaning that, you know, starting off with separating the business bank account from your personal bank account if they are existing and operating. You know, you can't just take going out to debt in or out of the business account. You gotta keep those funds separate. One of the unfortunate hurdles you see with very small businesses and startups is this belief that they're keeping some of their money off the books, that they're saving on their taxes. But what it means is that they don't have the track record on paper that we and some other institutions are going to need in order to provide them the financing. So, you know, it's really. So one of those first steps is getting the fundamentals and understanding of what it takes to operate a business and doing it in a businesslike manner. A related item is there are a number of resources that people aren't aware of. There's score, there's SBDC, the Small Business Development Center, that provides some of that startup training. And a lot of our referrals for our loans come from those organizations like the SBDC and score.
Switzer: And I noticed that the name of your organization is in all caps, CLIMB. Can, you tell us what that stands for?
Johnson: A lot of our referrals come from traditional banks where they have their deposits, where we get them established, we get them their first loan and then they can step up to go back to the traditional bank for the next line of credit. So it is about an elevation of, their own business structure along the process.
Switzer: Well, F.A., thank you so much for spending time with us today.
Johnson: Thank you sir. Look, appreciate the time.
Switzer: F.A. Johnson is CEO of the CLIMB Fund in Charleston, South Carolina. We will have a link to his organization posted at our webpage so you can learn more. SouthCarolinaPublicRadio.org just look for our show and remember, you can hear this show again at our webpage, and you can hear us again wherever you find podcasts. With the South Carolina Business Review, this is Mike Switzer.
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