SERVICES PROVIDED BY HEAD CORPORATION

HEAD provides debt financing, business planning and deal structuring assistance to small and mid-sized companies in the target market. HEAD uses two financial instruments:

1. Lending through is own loan fund,
2. Lending using the resources and services of Appalachian Federal Credit Union (AFCU).

Lending limits are based on the characteristics of each individual project. HEAD Corporation considers loans for both the short-term and long-term capital needs of businesses. The loan fund has a formal agreement to work with the AFCU to take advantage of the credit union’s designation as a Small Business Administration (SBA) lender.

AFCU and HEAD agree to allow the credit union to administer lines-of-credit. Although short-term debt instruments provide the necessary working capital to allow small companies to grow, a shortage of this type of debt instrument exists in the service area. Neither Kentucky’s Cabinet for Economic Development, other state government agencies, area CDCs nor other area non-profits promote this type of credit because they do not have the administrative systems necessary to effectively manage such debt instruments. Local banks provide most lines-of-credit financing, but they are reluctant to extend this service to many small companies. As often cited by entrepreneurs, this creates a void in the market. AFCU’s and HEAD’s collaborative effort to provide lines-of-credit increases the potential for deal flow as well as increases the credit union’s presence in the target market.

The two entities have established an agreement to provide credit union services to each company financed by the loan fund. HEAD works with the business owners and management to design creative incentive programs using credit union services. Based on performance, companies absorb a portion of fees or interest charges to lower employees cost of borrowing, contribute to their savings account to boost the effective yield on employee’s investments or help provide credit where it is otherwise unavailable.

Beyond the skills required to successfully manage the loan fund, HEAD’s staff provides assistance in structuring loan packages to satisfy the capital requirements of entrepreneurs. Several sources of capital exist in the eastern Kentucky region, but these sources are fragmented and difficult to consolidate into a cohesive financial package. Although they exist to promote economic development, the complexity of assembling the various programs into one financial package is challenging. Average small business owners find the application process arduous and the numerous guidelines and regulations prohibitive. HEAD’s staff’s ability to provide knowledge of and access to federal government grants and loans, state loan and incentive programs, community development financial institutions’ funds and the regional banking community creates a valuable resource for the business community.

HEAD acts as a “one-stop shop” for these resources. This stimulates the deal flow for the organization and brings a valuable service to the region. HEAD’s concentrated service area covers nearly 18,000 square miles and consists of 51 predominantly rural Appalachian counties in the eastern portion of Kentucky.

In developing leveraged financial packages, HEAD concentrates on projects in the range of $200,000 to $2.5 million. Projects of this scale typically have a broad range of financing needs and provide an opportunity for the fund to carve out a niche that satisfies its lending guidelines. Most commonly, HEAD finances:

1. Long-term working capital needs for inventory, receivables and other operating needs;
2. Equipment to expand production capacity or increase operating efficiency;
3. Land and building costs when conventional bank financing alone is not sufficient to cover the expense;
4. Short term financing needs that cannot be met by other lenders.

HEAD focuses on the small and mid-sized lending sector with the ultimate goal of creating employment for low-income people.