Friday, July 9, 2010

Micro-loans: Going the Extra Mile

Recently Governor Parnell proposed legislation to start a Microloan Revolving Fund citing that Alaska is one of a few states where mom-and-pop firms can’t tap a similar federal program.....and he is right. The Small Business Administration has had it’s own 18-year-old micro loan program but in a recent conversation with Nelida Irvine, a Lender Resource Specialist for SBA Alaska, she noted that there has been some interest in the micro loan program but they have yet to see anyone offer the program. In a comparison to other similar states Alaska falls well behind in micro lending.

Micro loans can provide a successful way to promote economic development. They are typically offered by Community Development Financial Institutions and are small loans targeted at start-ups that do not qualify for loans from commercial lending institutions.

There are several successful examples of micro lending helping start-ups and businesses to expand. One example is the Rural Micro Loan Program of the Panhandle Regional Economic Development Council. In an interview with the Chuck Rivas of the Panhandle Regional Economic Development Council, he explained the rural fund is targeted at the 26 rural counties in the Texas panhandle. The loans range from $ 2,000 to $40,000 with a low interest rate of prime plus or minus 2 (the WSJ rate is currently 3.25%). The loan program was funded through a Rural Development Enterprise Grant. He notes the challenge of the program is it can be difficult to make high-risk loans work without the appropriate amount of collateral and to make some projects cash flow. Though there are plenty of success stories. One is a company was able to get a micro loan to buy airlifts to expand their transmission repair to include fixing flat tires. They were able to successfully increase their business and are repaying the loan.

Another example is the Mercy Corp NW Small Business Loan program. In an interview with Scott Onder, Fund Development and Strategy Coordinator for Mercy Corp NW, the program has successfully launched several small businesses from food carts to a local brewery and bike commuter shop. The Loan program is focused on five communities of practice. These include Wood & Forestry, Health & Wellness, Food & Farming, Daycare & Schools, Travel & Tourism; loans that promote sustainability. There has been some talk of providing loans for energy efficiency improvements to homes but there is no precedent yet. The biggest challenge for the program is servicing the loans. He cites that an important element of a successful micro loan program is to have strict parameters or criteria for those applying to the program.

The need for micro loans in Alaska cannot be understated. The Parnell legislation did pass but according to a loan officer at Alaska Division of Investments it has yet to be funded. Another program on the horizon, in a conversation with Dean Stewart the Director of USDA Business Programs, is the USDA is also slowly rolling out a new micro loan program. It will be interesting to see if these new programs provide that needed gap financing.

Monday, July 5, 2010

Hurry and Apply!!

USDA is now accepting applications for fiscal year 2010 for their new Microentrepreneurs in Rural Communities Program. This program is targeted at "start-up" capital for new businesses. The total amount available in fiscal year 2010 is $45.1 million. Of this, $36.2 million will be available for loans, $7.6 million will be available for microlender technical assistance grants, and $1.3 million will be available for technical assistance-only grants. They are accepting applications for FY 2010 until July 16th. So hurry...check out the link under National Resources for more information.

Friday, June 25, 2010

Individual Development Accounts: A new way to raise start-up capital

One of the challenges in economic development is accessing early-stage startup capital or seed capital.  Funding gaps can make it very difficult to attract traditional sources of capital, such as banks.  It often requires inventive and fresh strategies to get a business off the ground. One of those ideas is Individual Development Accounts (IDA).  In an interview with Sarah Castagnola, Manager of Asset Lending for Mercy Corp NW, IDAs have become an effective tool in promoting small business development in the low-income communities of Portland, Oregon. All participants are vetted through an orientation, where they learn the basics of business plans and finances.  If chosen, a participant opens a bank account and slowly accumulates money until they have saved $1,000, in either 6, 12 or 18 months depending on the participant, Mercy Corp NW will then match with $3,000 bringing the total to $4,000.  The money can then be spent on hard assets only such as tools or equipment.  The program currently has 110 active participants with 50% expanding businesses and 50% starting up businesses.  The program is funded through the federal program "Assets for Independence" and an Oregon State Fund that is funded through the selling of tax credits to banks and individuals.  Some of the challenges of the program are the marketing to individuals and the due diligence of the funds.  Mercy Corp NW has focused more on the due diligence by cutting the checks to third party lenders and will not deposit the money directly into the account.  The program is also limited to individuals below the 200% federal poverty line because of the federal funding standards.  A success story of the program is a local CSA was able to buy tools, banners and equipment with the money raised and successfully launched their CSA program in the Portland Area.  


This weeks grant programs:
  • If your looking for a one stop shop for Federal grants go to www.grants.gov.  Here you can search grants by Category, Agency or a Basic Search.  You can also click on this weeks new opportunities to get a list of all grants that have just opened. 
  • Alaska Community Foundation just open their Competitive Grant Cycle. http://www.alaskacf.org/GrantOpportunities/TypesofGrants/tabid/177/Default.aspx
  • Another clearinghouse for federal grants is the Catalog of Federal Domestic Assistance.  You can search by keyword for specific project grants. https://www.cfda.gov/


This weeks workshops or webinars on business planning and granting writing: