On a daily basis I get asked to explain how KABA’s revolving loan fund (RLF) programs work, and if an individual’s business is eligible.
KABA RLF’s are most commonly used as gap financing sources, in coordination or partnership with a conventional lender. Gap financing helps bridge capital needs in a project when private sector financing, and owner’s equity are not enough to cover the total project costs. For many borrowers, the cost of capital is not as critical as access to the capital. KABA RLF’s are meant to leverage private lenders and investors to ensure that access to that capital is extended to businesses that are credit-worthy, but not considered good risks from a traditional banking perspective.
One of the primary roles of KABA is to invest in projects that will benefit the community. In these cases, the economic or social benefits outweigh the financing risks. Many factors are considered when measuring the economic benefits of a project, including but not limited to, job creation potential, neighborhood development, is the project in a targeted industry, the potential to create new tax revenue, and so on.
KABA can help lower the cost of capital to the business. By providing gap financing, KABA helps minimize the risk of the private investment by covering a part of the risk, and providing capital at a lesser cost than the capital that cannot be found in the private marketplace. KABA is not designed to replace conventional financing. Those that can obtain their financing needs from the private sector should do so.
Written by Brock Portilia, Director of Finance & Administration, Kenosha Area Business Alliance