| ||U.S. gives small companies more access to microloans|
Advances of up to $50,000 are helping firms to create jobs
Written by Star news services, Indystar.com 7:42 AM, Oct 25, 2010
Janet (left) and Kay Lee are borrowing $17,000 through the Small Business Administration’s microlender program to pay company debts at their dental lab and hire a part-time technician. / Kirk McKoy / Los Angeles Times
More accustomed to allocating money by the millions, the federal government is stepping up efforts to make loans as small as a few hundred dollars to some of the nation's tiniest companies. The goal is to create jobs, one little loan at a time.
"In this environment, every job is crucial," said Eric Zarnikow, who helps run the Small Business Administration's loan programs. For every loan, he says, 11/2 jobs are created or retained.
In Indiana, these so-called microloans, which may range from $500 to $50,000, will help an Anderson-area software developer hire two salespeople. A small Web-based retail business received a $1,000 loan that will help it with supplies and other expenses. Another software developer now has resources to help refine a program that adjusts vehicle seats.
"Instead of just surviving, the loan has helped one of the companies go after more business," said Adam Hoeksema, who runs the nonprofit microlender Flagship Enterprise, a business incubator based in Anderson that runs the microloan program and serves the surrounding 10-county area, including Marion County. Two other microlenders in Indiana are also receiving funding, which is actually an SBA loan to the microloan lender.
Flagship received $100,000 from the SBA, but it can receive up to $3.5 million to lend as demand rises, Hoeksema said.
The loans to small businesses are typically based on the small-business owner's personal credit history. Entrepreneurs use the money for working capital, purchase of machinery and equipment, inventory purchases and leasehold improvements.
In all loan categories, the SBA Indiana district office approved 1,322 loans for about $340 million in fiscal year 2010.
Over the past 18 months, Congress has tripled the amount available for microloans to $75 million nationwide. Last week, the SBA moved to funnel more of that money to the lenders that grant the loans and increased the maximum amount of the loans themselves. Borrowers can now get up to $50,000 at a time, up from $35,000 previously.
"The tiny loans really tend to help the really small, small businesses," said Zarnikow of the SBA. "In a lot of cases the small businesses may have no alternative, or the alternative may be pretty expensive."
In California, sisters Janet and Kay Lee are borrowing $17,000 to pay off debts at their San Fernando Valley dental laboratory and hire a part-time technician.
"We're using it for a new person and for the equipment he will use," said Janet Lee, whose company, Polar Esthetics, makes dental crowns and bridges.
The sisters will pay a 10 percent interest rate. The only other way they could have borrowed that money would have been to use a credit card -- at a 29 percent rate, according to their lender, Valley Economic Development Center in Van Nuys, in Southern California.
For small companies, a loan as small as $5,000 can mean the difference between making payroll or not, said Roberto Barragan, who heads the Valley Economic Development Center, one of the largest microloan lenders in the program
"Three years ago, when money was easy, if I didn't approve a loan for $25,000, they were mad," he said. "Now, if I approve them for $10,000, they're happy campers."
In good times, half the microloans he made were for startup companies, Barragan said. Now, most go to existing firms for whom cash or credit is tight.
Microloan applicants often do not have the credit or collateral that would be required by a traditional bank, said Stacey Sanchez, who makes the tiny loans in Orange County, San Diego and parts of the Inland Empire through the nonprofit lender CDC Small Business Finance.
"There's no one at a bank to understand that you may have been out of work -- that's not cost-effective for the banks," she said. "You either have the credit score or that's that."
The government-funded loans still require an application and a sound business plan, she said, but the lenders can take time to really examine a firm's prospects.
Recipients might not grow rich from their businesses, but they might earn a decent living, she said.
"I think it gives somebody an opportunity to be self-sufficient," Sanchez said.