Frequently asked questions about CDFI loans and business advisory services (2024)

PCAP finances small businesses, nonprofits, and commercial real estate loans. We make loans of all sizes and can work with you to structure a loan to fit your needs. A PCAP loan can be senior or subordinated debt that is part of a larger financing package. PCAP loans can be used for:

• Real Estate purchase (land or building)
• Business acquisition
• New building construction (construction to permanent financing)
• Building renovation/leasehold Improvements
• Equipment (including vehicles)
• Refinance debt
• Working capital (including inventory)
• Solar/energy efficiency

PCAP does not offer lines of credit.

Yes. PCAP can lend to nonprofit organizations. Please note that in some cases, we may require a personal guaranty.

After submitting a completed application (including all requested documents), it can take 4 weeks to several months to originate a new loan. Timing depends on the size of the loan request, complexity of the project, responsiveness of the borrower, and whether or not the loan will use an external credit enhancement or guaranty program. Your loan officer can address any project-specific questions or concerns you may have.

PCAP looks at four key areas when underwriting a loan: cash flow, sector/management experience, community impact, and LTV. Check out our Eligibility and Underwriting page for more information.

The list of required documents varies depending on the type of loan. Generally, we will ask for:

• Three (3) years of business and/or personal tax returns
• Year-to-date income statement
• Year-to-date balance sheet
• Financial projections
• Resumes for all key managers
• Business plan (if the business is less than 3 years old or if the loan is to acquire a business)
• Legal entity documents (Articles of
• Incorporation, By-Laws, Membership Agreements for LLCs, etc.)

Note: This is not an exhaustive list and your loan officer may request additional documentation in order to underwrite the loan.

Collateral requirements vary based on the type of loan.

We sure do! Check out the Advisory Services page to learn more about the business and advisory services we can offer.

PCAP does not charge prepayment fees on our loans.

Great! Next steps:

1. Take the Potential Borrower Quiz.
2. Review PCAP’s lending terms and what we look for in a loan application.
3. Reach out to the lender in your area! In your initial email/phone call, please remember to share:

• • Business name and location
  • Age of business
  • Contact phone number and email address
  • Estimated size of loan needed
  • How you plan to use your loan

Amortization period is the length of time that it would take the borrower to pay back a loan making regular payments.

When the loan term is shorter than the amortization, a borrower ends up with a balloon payment. This is because the term is too short for the borrower to pay back the full loan making regular payments. For example: A borrower gets a loan for $100k and a 10-year amortization period. In this case, the borrower can make regular payments to pay back the loan in full in 10 years. But, if the borrower has a 10-year amortization period and a 5-year term, then the borrower makes regular payments for five years. Then, at the end of the five-year term, the borrower has to pay back the remaining balance of the loan in one big chunk.

Amount of $$ coming into the business and going out of the business. Positive cash flow means the business is bringing in more money than it is spending. Lenders usually need to see that a business has a positive cash flow.

Cash reserve = business savings. It’s the amount of $$ that a business does not spend on regular expenses. Lenders like to see that a business has some savings.

Something that has resale value that is used to secure a loan. If the loan can’t be repaid, then the lender can sell the collateral and recoup the money it lost on the loan. Lenders generally like to be fully collateralized, or, have collateral that is worth at least as much as the loan amount. Examples of collateral include, but are not limited to, real estate or equipment.

Debt service refers to the amount of money needed to cover all debt payments (loans, credit cards, etc.) Lenders typically look at monthly debt service and annual debt service. For example, if a business has a monthly loan payment of $100 and a monthly credit card payment of $150, then the total monthly debt service is $100+$150 = $250.

Debt Service Coverage Ratio (DSCR) is a ratio that shows how much income is available to pay for current debts. It’s the amount of money a business owes in debt payments compared to the amount of money a business brings in. Lenders use DSCR to help evaluate the risk of a loan. For example, if a business has a net income of $10k every month and debt service (loans, credit cards, potential future loan, etc.) totaling $8k every month, then the DSCR would be $10k/$8k or 1.25. The more money a business has leftover at the end of every month to pay its current and projected debt service, the better.

To guarantee a loan is to promise to pay the loan if the borrower should default, or become unable to pay the loan. A third party or loan program can guarantee a loan, or business owners can personally guarantee a loan.

The loan term is the length of time that a lender is giving the borrower to pay back the loan

This is the dollar amount of the loan compared to how much the collateral (thing of value that can be sold if needed) is worth. For example, if a loan is $100k, and the real estate being used to secure the loan is worth $200k, then the loan-to-value (LTV) is $100k/$200k, or 50% (.5). If a loan is $100k and the real estate being used to secure the loan is worth $50k, then the LTV is $100k/$50k or 200% (2.0). For a typical business loan, PCAP typically looks for an LTV of 1.2 or less depending on the size and type of loan. Sometimes, we can use guaranty or other specialty programs to reduce a project’s LTV. Be sure to ask your PCAP lender for more information.

The interest rate, the cost of borrowing, or the amount of money a borrower pays in addition to the principal they are repaying. For example, if a $100k loan has an interest rate of 10%, and a loan term of 60 months (5 years), then you will be paying back a total of $127.482 ($100,000 in principal and $27,482 in interest).

At PCAP, the interest rate is calculated during loan underwriting.

Note, the interest rate is different from an Annual Percentage Rate (APR). The APR is the annual cost of borrowing money and includes interest and other fees. Often, the APR is higher than the interest rate.

How much money the borrower can put towards the project. Think of equity as a down payment. The lender will give you a loan, but only if you put some of your own money in, too. Lenders usually like to see borrowers pay for 10-30% of the total project cost with their own money. PCAP’s equity requirements vary based on the size and type of loan, so be sure to ask your lender for more information.

Sometimes, PCAP works with another lender or lending program to share risk. We do this by selling (or buying) a portion of a loan. Loan participations can be used to fund larger and/or riskier loans that a single lender is unable to support alone.

Principal refers to the original amount of the loan.

Projections, financial projections, or cash flow projections, are conservative best-guesses for how a business will make and spend money in the future. Projections are typically broken down monthly and show how, when, where, and how much money a business will earn and how, where, when, and how much money a business will spend. Think of projections as a prediction of a business’ future. Lenders use projections to get a sense of how much money a business will make and if it will be able to pay back a loan. Check out PCAP’s cash flow projections template here.

This is a financial statement that every business needs. It tracks the money that a business earns and the money that a business spends over a period (month, quarter, year).

To underwrite a loan means to analyze a loan application to decide whether to approve the loan. Underwriting a loan includes reviewing historic and projected cash flow, evaluating assets and debts, determining managerial expertise, examining market conditions, and ultimately deciding if the benefit of making the loan is worth the risk of potential default. Financial institutions have policies guiding what loans can and cannot be approved.

Money that is used to cover short term expenses, or the day-to-day costs of running a business.