Tuesday, June 16, 2015

How to structure a minority contractor loan fund, courtesy of St. Louis American

Attorney Eric E. Vickers, courtesy of St. Louis American

"I read in The American about the establishment of the $10 million minority contractor loan fund. Congratulations to all involved. I know from talks with principals that many have been working diligently on this for some time, so I am glad to see it come to fruition.  

I have been involved in a lot of conversations about what it seems to take for a minority firm to succeed in this tough and discriminatory business environment. And with the establishment of this loan fund I want to share some thoughts on the criteria that should be used in lending. I noticed in the article that this fund will have a "relaxed qualifying criteria," which hopefully means that lack of collateral or credit scores will not be a barrier.  
First, I would concentrate on second- and third-generation minority firms. Business success requires mistakes, and I see many sound second- and third-generation minority contractors who have learned from the mistakes of their parents.  Also, they tend to be more educated about business and management, as the first generation consisted of the skilled craftsmen rather than back office managers.
Second, I would look to do contract financing, using contracts as the collateral for loans. I have not seen banks in Missouri do this, though I have seen banks in Illinois do a very effective job of lending on the basis of contracts.
hird, I would ask for references. The construction industry here is one where everyone pretty much knows each other. So you can find out from other contractors whether a contractor is reliable, does good work, and has integrity in how they operate their business.
Fourth, require that they have a short-term and long-term strategic plan for their business. Minority firms are generally so caught up in a week-to-week survival mode that they don't have time or the inclination to focus on the big picture of where they want their business to be five to 10 years from now. So let the loan allow them the opportunity and space to be able to think ahead.
Finally, make support services and resources available as part of the loan. Having that accounting, management and legal infrastructure in place is both vital to them being able to service the loan and to grow their business.  
Vickers is a St. Louis attorney and minority inclusion advocate". Courtesy of St. Louis American .  

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