B:Side Capital, (formerly Colorado Lending Source) is a highly regarded non-profit Certified Development Company (CDC) lender based in Denver, Colorado. Over its 30+ year history, B:Side has funded thousands of loans to entrepreneurs in Colorado, most of which have been under the SBA through the 7(a), 504, and Community Advantage programs.
Since 2011, B:Side has offered a standalone direct lending product that has become a staple institution for local economic development, known especially for its alternative underwriting process. These loans, which B:Side refers to as “responsible lending” or “pre-bankable lending” provide capital to entrepreneurs who have viable businesses but may not yet qualify for typical, low-rate bank loans. Over the direct loan product’s 10-year history, B:Side has reached hundreds of Colorado entrepreneurs with nearly $9.4M in capital deployed. In 2019, it created a sister non-profit entity, now called B:Side Fund to house its direct lending programs moving forward with a plan to become a Community Development Financial Institution (CDFI) in the near term. B:Side offers funding options according to the following terms:
- Loan amounts ranging from $20K to $100K
- Guaranteed interest rate maximum of 12%
- Typical term length of 7 years
- Funding may be used for: working capital, asset purchases, inventory, business acquisitions, and debt refinance
Ultimately, the B:Side Fund is a highly self-sufficient engine for economic development, yet it still relies on philanthropic and grant capital to subsidize its cost of doing business. This is common for CDC and CDFI loan funds and is typically one of the principal uses of grants from the CDFI Fund.
B:Side Direct Lending Underwriting Process
B:Side Fund’s direct loans differ from traditionally underwritten term loans primarily in the underwriting process. Lenders on B:Side Fund’s Direct Lending team think more like venture capital investors; they give credence to entrepreneurs’ business plans and potential for future growth. They assess the project in its entirety and are not deterred by borrowers who have taken a non-traditional path and need the extra space to tell their whole story. The B:Side lending team weighs the following key elements heavily in their Alternatively Underwritten loan decisions:
- Business plan and financial growth projections
- Entrepreneurs’ industry experience and historical business background
- Business and borrower character assessments
Example B:Side Loan: Thrive Yoga, Brittany Phelps
In 2017, the opportunity to purchase a yoga studio in Crested Butte presented itself to local resident Brittany Phelps, who, at the time, was working several jobs in the outdoors and fitness community. She immediately started working on financial planning and jumped on the opportunity. Eight months later, Brittany became the proud owner of Thrive Yoga. She opened a second studio location in town and went on to open a third location in Fruita. However, at this stage in her growth, Brittany found her business cash flows squeezed by an unfavorable licensing agreement with the former owners of the business. Ultimately, the former owners of the business wanted Brittany to buy them out, and she needed to refinance their aggressive sellers’ note to be able to continue operating the business.
Brittany Phelps (left) and a client at Thrive Yoga in Crested Butte, Colorado
Despite owning and running a successful and growing business, Brittany was unable to secure a traditional bank loan due to her less than perfect credit history. However, when B:Side took a look at Brittany’s financials and her business plan, they could see that refinancing her outstanding debt could cut her monthly debt expense in half, freeing up a substantial portion of monthly cash flows for essential business expenses. Ultimately, B:Side lent Brittany $95,000 over eight years at an interest rate of 7.5% to pay off her debts, which resulted in a monthly savings of roughly $1,500 for the business. With these funds, Brittany was able to continue her plans of growing the business, andB:Side accomplished its goal of bringing lending capital to a borrower who represented multiple target demographics (rural-based, woman-owned).
B:Side Direct Lending Fund Outcomes:
- 20% of loans made to pre-revenue enterprises
- 39% of loans made to early stage enterprises — defined as less than 24 months in business
- 48% of loans made to women-owned businesses
- 42% of loans made to rural-based businesses
- 58% of loans made to businesses located in low-to-moderate income census tracts or CDFI investment areas
- After 10 years of history, the loan write-off rate is 5.9% (based on $ amount of initial charge-off, not including recovery efforts)