The company: NYCIC is a neighborhood place. It was founded to help small businesses on its metaphorical front stoop -- New York City's five boroughs, though it now serves all of New York State. NYCIC was created by New York's 10 largest banks: Citibank, Chase Manhattan, J.P. Morgan, Banker's Trust, Bank of New York, Republic Bank, EAB, Marine Midland, U.S. Trust, and Fleet -- all of which chipped in $1 million each.

The fund's clients are as diverse as the city itself. Most recent to its roster are an apparel company and an online equity-trading firm, and funding for a natural-foods cooking school is in the pipeline.

NYCIC is a two-armed creature: Its venture-capital arm takes stakes in or lends to the riskiest of small companies -- new ones (whose founders lack a track record in their fields), unprofitable companies, or those that are changing business models. Its vehicles are straight equity stakes, convertible bonds, debt with warrants, and other hybrid debt-equity structures.

The second arm is the Rapid Access Subordinated Debt Program, which helps expanding companies that already have loans from one of the partner-banks. NYCIC agrees to get paid after other creditors if you default. For that, you need meaty credentials -- a strong credit profile, two years in business, growing profits and sales, and a positive net worth. Typically, banks tell their clients about NYCIC and are active in the funding process.

The goal: NYCIC seeks to give capital to small businesses that need less than $1 million. Although all New York small businesses are eligible, NYCIC focuses on women- and minority-owned companies and businesses in distressed areas. More than half of the companies it funds fall within these categories.

Subordinated-debt loans are generally at 1 percentage point over the primary bank's lending rate or 2.5 points over prime, whichever is larger. Loans can be made for up to seven years, but NYCIC prefers to lend for five. The components of the venture deals can be structured myriad ways. The base lending rate is typically 3.5 points over prime. But there's always a "kicker," an enhancement such as warrants or royalty payments on sales that gives the investor additional compensation for the risk, say NYCIC officials.

Typical deal: SoundBytes, a direct-mail catalog of products for the hearing-impaired, needed $125,000 to send out 400,000 mailings. Laurie Kraus, founder and CEO, already invested $250,000 of her own money and needed capital to keep her business alive. As a woman-owned business serving the disabled, Kraus thought it would be a cinch to win a SBA-guaranteed loan through a special prequalification program for women and minorities. "It was a nightmare," she says. Her business plan and financial projections were rejected, though she believed her proposal and credentials were a good match for the program. That left her few alternatives. "No bank wanted three years of business and no profits," she says.

Kraus, who had a background in direct mail, didn't give up. After all, 24 million people in the U.S. are deaf or hard of hearing and need such products as an alarm clock that shakes the bed or a doorbell that flashes. Finally, the Manhattan Borough Development Corp. invested $25,000 and recommended she try NYCIC's venture-capital program. "NYCIC was God sent," says Kraus. "It takes a more personal approach instead of looking at the bottom line."

After studying her business, NYCIC agreed to lend Kraus $125,000, with an option to convert the loan into equity and then become a limited partner. "The deal with NYCIC enabled me to mail my holiday catalog," she says.

The process: For venture-capital and subordinated loans, entrepreneurs must submit a business plan that demonstrates they understand the various aspects of the company and its competition. "The business plan must represent the intelligence, experience, and maturity of the principal, because NYCIC is betting on the person," CEO Howard Sommer says.

If NYCIC finds the plan interesting, it meets with the entrepreneur to create a proposal. After the deal is structured, NYCIC begins due diligence, which lasts three to eight weeks. If you come out clean, its attorneys draw up the paperwork.

What works: "The company must have a business plan and must have a financial forecast," Sommer says. But with venture-capital applicants, historic financial statements aren't the only criteria. NYCIC "wants to know where you are going," Sommer says. It's also important that you carefully pick such advisers as accountants and attorneys. NYCIC isn't looking for big-name firms, but the quality of their work reflects on your judgment -- and can be an asset or a liability in the process.

What doesn't: "Not being specific about how much money you need," Sommer says. Entrepreneurs must identify how much capital they'll require to survive a period of slow growth and to fund expansion when things pick up.

Parting advice: Sommer says: "The process of raising money is analogous to...building a business: If you become discouraged or despondent, don't go into business."

By Carlye Adler in New York

To: LENDER PROFILES