Published in Finance

Initiatives offer loan assistance for urban small businesses

BY Saturday, July 07, 2018 04:26pm

A pair of initiatives across Southwest Michigan have a similar goal: supporting entrepreneurs starting small businesses in their respective cities and urban cores. 

One effort provides an online portal that small businesses in Kalamazoo can use to approach several banks at once for credit. Another seeks to build a $10 million revolving fund for small businesses in Battle Creek, particularly those in underserved neighborhoods, and back the funding with in-kind support.

“There’s nothing more impactful that can change the tone of a neighborhood like a viable business,” said Dwayne Powell, the neighborhood business and special project coordinator for the City of Kalamazoo.

“We, like every other community across the nation, understand the impediments to economic development, particularly entrepreneurs,” Powell said. “It’s our attempt to increase access to capital for entrepreneurs.”

The city is part of a coalition of nonprofit organizations and 14 lenders that launched the Kalamazoo Capital Consortium in May, an effort that’s designed to reduce barriers for small businesses seeking credit.

With the Greater Kalamazoo Business Resource Group — which works to support small business development — serving as the umbrella organization, the consortium operates an online portal for prospective entrepreneurs to upload a referral form with information on their businesses. A volunteer with the local chapter of SCORE, or Service Corps of Retired Executives, checks the information, “and if everything is complete,” sends it out to lenders for consideration, Powell said.

Nonprofit and for-profit lenders participating in the consortium then review the information and, if interested, work on a business loan with the entrepreneur, who’s coached through the process by a SCORE volunteer. Lenders involved in the consortium represent “all levels of funding,” from micro-loans of $10,000 to far larger credits offered by large regional banks, Powell said.

The idea behind the consortium is to make it easier and simpler for small business owners to pursue credit. Through the portal, entrepreneurs can reach out to several prospective lenders at once, rather than apply individually to various banks.

By appealing to several lenders at once, entrepreneurs are more apt to find one whose target market fits with their small businesses.

“It allows an entrepreneur to appeal to a bank that would be interested in that type of business,” Powell said. “What we’ve seen is that different banks have different levels and different appetites for lending, and they also focus — depending on the lender — on specific industries.

“Depending on the level of lending or the industry or experience or whatever, it allows the banks to choose rather than the entrepreneur, who may not know that background information in terms of what bank they should go to.”

Lenders involved in the Kalamazoo Capital Consortium include Huntington Bank, Chemical Bank, Mercantile Bank and Century Bank and Trust, plus Consumers Credit Union, Arbor Financial Credit Union and Advia Credit Union.

The idea for the consortium came from Sonja Dean, senior program officer at the Kalamazoo office of the nonprofit community development organization Local Initiative Support Corp., or LISC. Dean saw a similar effort on a visit to Philadelphia and brought the idea back home to Kalamazoo, Powell said.

“It made complete sense to us,” he said.

INVESTING IN PLACE

Meanwhile in Battle Creek, a new initiative backed by the W.K. Kellogg Foundation looks to offer loans directly to small businesses through a revolving fund.

The Battle Creek Small Business Loan Fund targets small businesses in Battle Creek, and the fund will match the loan with technical assistance supporting the borrower.

The Kellogg Foundation contributed $1 million to the fund and agreed to additional contributions at a two-to-one ratio, up to $10 million. Added support from Battle Creek Unlimited and The Miller Foundation pushed the loan fund to $6.4 million at the end of June.

The fund targets small business startups with a priority for those owned by minorities, women and veterans.

Andrew Brower, program-related investment officer at the Kellogg Foundation, cites a 2016 study from the U.S. Department of Commerce’s Minority Business Development Agency that found white owners of business startups had their loans approved at a rate three times higher than African American owners. The agency’s study also found that white business owners started with an average of $106,702 in capital, versus $35,205 for African Americanowned businesses.

“We are a foundation focused on children, but we recognize that children live in the context of communities and we want to have thriving equitable communities,” Brower said. “In order for children to be able to thrive, we know that their families need to have opportunities for quality jobs as well as entrepreneurial opportunities so that they can create value within the community and for their own families.”

By investing in a loan fund for small businesses, the Kellogg Foundation went beyond its traditional role of grantmaking. The foundation is using the investment as a key strategy “to catalyze the marketplace for people around here,” Brower said.

GETTING TO BANK READY

Marquette-based Northern Initiatives, a 25-year-old community development financial institution, manages the loan fund in Battle Creek. Through its history, Northern Initiatives has originated $60 million in loans to more than 1,000 small businesses and plans to open an office in downtown Battle Creek.

Loans often go to small businesses that may not yet qualify for bank credit because they lack a track record, adequate collateral or cash flow, said Chuck Hurst, vice president of financing for Northern Initiatives.

“We are generally doing businesses that are not quite yet bank ready,” Hurst said. “We’re helping them get to that point.”

Northern Initiatives’ “bread and butter” are loans of $35,000 to $45,000 to a startup, Hurst said. The organization has issued loans as large as $500,000, he said, and also can fill the gap between what existing clients can get from a bank and the amount they need to expand, Hurst said.

Northern Initiatives, which has a present loan portfolio of about $12.5 million and 279 clients, historically has served rural, underserved markets in Northern Michigan. The organization of late has been opening offices in larger, urban markets.

The partnership in Battle Creek follows the recent opening of offices in Muskegon County and Kent County, where Northern Initiatives just closed its first three loans.

“It’s just a natural progression for us,” Hurst said of the move into larger markets. “We decided to make the move into the urban areas and try to fill a gap that we saw in some of these communities.”

The Battle Creek Small Business Loan Fund received more than 30 inquiries from potential borrowers in the first month. Thirteen will move forward to the preliminary informationgathering stage, Hurst said.

In addition to the funding, Northern Initiatives provides borrowers free assistance on issues like developing a website or social media strategy as well as learning business software.

“It’s not just a loan we can bring to the table to help a company be successful,” Hurst said.

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