Banking & Finance, Economic Development, and Government

GROW may not be the only loan arranger

City agency will look at possibly becoming SBA micro-lender.

October 11, 2013
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If the Grand Rapids Economic Development Corp. can make it work, there will be two.

The city’s EDC decided last week to create a three-member committee to explore whether it should become an intermediary for the U.S. Small Business Administration’s microloan program.

“I think it’s a good idea,” said Terry Nicholas, EDC chairman.

Nicholas will join fellow EDC board members Stan Wisinski and Renee Williams on the committee, which is expected to meet up to three times before they make a recommendation to the full board. If the EDC decides to go forward with the program, the agency would join Grand Rapids Opportunities for Women as the city’s second SBA microloan liaison.

“There is a large demand for microloan funding in the Grand Rapids area. There is additional need above and beyond what GROW can offer,” said Kara Wood, EDC executive director.

“I think it’s something we should look into, especially if GROW has had a good response,” said Brian Smits, EDC vice chairman.

“This would be good for retail and services,” said Wisinski, EDC treasurer.

The Business Journal contacted GROW CEO Bonnie Nawara for comment. “GROW would welcome another capital access resource to serve our small businesses. Not having had any conversation with the EDC, GROW cannot comment on their thoughts regarding the demand for microloan funding,” she replied.

The EDC has to meet a few requirements, however, before it could file an application to receive SBA funding for its loan program. The city agency would have to incorporate as a 501(c)4 with the IRS and annually file a Form 990. It also would have to file a yearly financial report with the state and be audited separately from the city each fiscal year.

The EDC also would need a year’s experience of making and managing microloans before it can apply. The standard can be met by making a single microloan, and Wood said the EDC could do that with revenue in its fund balance or by soliciting others for funding.

“Providing one microloan would satisfy this criterion. However, providing more loans in the year would strengthen a future application to the SBA,” said Wood.

The SBA defines a microloan as a fixed-rate loan of less than $50,000 for a maximum of six years.

A third requirement is the EDC would have to establish a history of providing technical assistance to its borrowers. The agency has done that with its revolving EPA loan program and bond services. The technical assistance doesn’t have to necessarily be provided on an in-house basis as the EDC could contract with another organization to provide that service.

“We want to contract for those services. We’re looking at all our options,” said Wood.

“There are organizations that have expressed interest in working with us,” said Jonathan Klooster, an economic development coordinator in the office. Klooster said these groups wouldn’t charge the EDC for its services. “You have to have somebody on staff who has technical experience, but you don’t have to provide the service on staff,” he added.

Microloans through the SBA program can be used to buy inventory, supplies, furniture, machinery or equipment, fixtures and for working capital. But the funds can’t be spent on debt or to purchase real estate. “It doesn’t have to be a new business,” said Klooster.

The loans made through GROW have ranged from $1,000 to $50,000, the program’s limit, with the average being $13,000. Applicants have to offer collateral to secure the note and have to be turned down by two lenders. Principal and interest payments are made monthly.

“We would have to have an agreement with GROW,” said Klooster.

If the EDC decides to go forward and eventually have the SBA approve its application, the federal agency would make a loan to the EDC. Wood said the EDC would have to deposit 15 percent of that amount in a loan-loss reserve fund and that account would serve as the organization’s collateral for the program.

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