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Home > Biz Blog > Marketplace > Lawmaker hopes to spark job creation with private loan fund for startups
Lawmaker hopes to spark job creation with private loan fund for startups
by Simon Shifrin
Published: January 28,2010
Time posted: 12:30 pm
Tags: Branden Durst, Idaho Housing and Finance Association, Idaho Legislature, jobs
A Boise lawmaker is calling for the state to set up a private fund that could make loans of up to $35,000 to startup companies and other growing businesses in Idaho, a move that he says could trigger some badly needed job growth.
Simon Shifrin
Rep. Branden Durst, D-Boise, has been drawing up a bill that would create an independent corporation called the Micro Enterprise Development Association that would be authorized to make loans to companies with fewer than 50 full-time employees.
The association, modeled on similar government-initiated groups in other states, would raise all its money by issuing bonds and notes. It would receive no money from the state general fund.
For each job created at the state annual wage, companies receiving the loans would get a $2,500 break on the unpaid balance. That incentive would be available for up to 10 jobs, or $25,000, though the positions would have to be sustained for an entire calendar year. The association would be repaid from the state’s sales tax account.
The loans would not be dischargeable, which means that they could not even be removed as part of bankruptcy proceedings (similar to student loans).
A seven-member board of commissioners, appointed by the governor, would oversee the association.
Durst, who is the Legislature’s youngest member at 30 years old, answered a few questions about the proposal earlier this week. Here’s a slightly edited version of our conversation:
Q: Can you just explain briefly what this organization would do and how it would be formed?
A: It would essentially be a sister organization to the Idaho Housing and Finance Association, which, as you are probably aware, provides home loans to families. This would be similar in structure, but different in mission. It would provide small business loans to small businesses … loans of $35,000 or less.
Q: How would it be funded?
A: There’s no cost to the general fund. It would be created as what’s known as an independent corporate body politic … just like IHFA. The organization would have the ability to bond, and underwriting their bonds would be a guarantee from the state of Idaho (through) the state sales tax account. I do limit that to 2 percent of the sales tax account, which is like $1.2 billion. It’s limited to just 2 percent of that (or about $24 million) in terms of what it’s allowed to lend or bond against. It, of course, would have the full state sales tax behind it. … That was the same way the IHFA was created. They’ve been able to be successful, and they no longer have that authority.
Q: So I guess this raises the question: why is there the need to create what appears to be another quasi-government agency? Do we need another government bureaucracy?
A: Well, I would take issue with that. It’s not governmental. It’s completely not government, just like IHFA is not considered a branch of government. It’s being supported by the government, but it’s not part of the government. … I do think that it’s important to recognize that job creation occurs most readily at the small business level. The state of Idaho has a strategic interest in investing in those kinds of things as much as it can. That’s number one. Number two, it’s important to realize that when you get an organization that has a specific objective (of job creation), that helps it be more effective in what it’s tasked to do.
Q: So is this specifically modeled on any other organizations across the country, or would this really be breaking new ground?
A: It’s a little bit of both. The state of Nebraska was really the first state to pursue micro enterprise development. They provide general fund support to micro enterprise development. Obviously, that’s not available here in Idaho, and even if it were, I don’t think that would make it very far. This is the first example of doing what we’re talking about, on the scale we’re talking about, and that’s important. Much of the state’s economy is still quite rural, and you’ve got people in those rural communities that have skills that can create jobs. … That’s the advantage of doing it this way. It does give the state a really useful tool in its economic development toolbox to create jobs everywhere in the state.
Q: Let’s talk about the politics of this. Do you have any co-sponsors yet?
A: I’ve got the commitment of (the House) minority leader, Rep. John Rusche. It’s in front of the chairman of the (House) Business Committee, Max Black, who is still taking a look at it. I’ve been pretty willing to share it with anybody. … We’re talking about something that’s really different, taking a different approach to Idaho economic development. I suspect, before it’s all said and done, there will be some Republican co-sponsors that will be on board. It’s not just a Republican issue, a Democratic issue. This idea of job creation is something that everybody needs to get behind. … We’re still soliciting input. I’m trying to make this as collaborative and open a process as possible. Everyone I’ve spoken with about the idea has been curiously interested. It’s been good to hear that. … It’s good when you get people thinking. Maybe even if that’s not the answer, you can create something that’s closer.
Q: So, what’s the underlying need here? You’re saying that there’s a gap in the private sector that’s not meeting the needs of small businesses.
A: I think that’s indisputable. The banks would tell you the same thing, and so would the credit unions. And the reason is they can’t leverage capital at that small of an amount. There’s really no profit for them. They do much better when they’re loaning $250,000 to $300,000. These small loans are difficult. It’s hard to get behind someone that doesn’t have that much collateral. You talk to an entrepreneur and that’s what makes it hard to start a business. The only way to fund a small business startup right now is through credit cards, and that’s a pretty daunting task, unless you’re independently wealthy. You’re not going to be successful when you’re doing that with an interest rate of 30 percent. I’d rather give people a chance to be successful.
Q: So just getting back to the politics of this: do you think this has any chance of passing this year?
A: I’d like to think so. I think everybody recognizes that job creation is goal number one. Really we need to have jobs be goal number one. Budgets come and go, but jobs stay. I’ve done quite a bit of the back end work. I’m open to as much feedback as I get. It’s not about who gets credit on this. It’s about trying to find a solution.
Q: Again, just to sum up: why do you feel this is an important bill?
A: We’ve had double-digit unemployment. That’s not a good sign. Anything we can do to get rid of that. That’s why we’re in the budget crunch we’re in. We don’t have enough revenue because we don’t have enough people employed. I can’t think of anything more salient than job creation. Just walk down the street, and I’m sure you can find someone that would love to have a job.
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January 28th, 2010 at 12:33 pm
if it’s like the IHFA, this idea is yet another program whose success ultimately depends on banks lending money…. that’s why the IHFA funds aren’t more widely applied–sooner or later a bank has to issue credit. And right now they are only issuing credit to business and projects that wouldn’t use this $35k non-dischargeable micro-loan plan.
I fear the Hon. Rep Durst doesn’t understand lending or finance.
January 28th, 2010 at 8:11 pm
I am glad to see that our elected officials are pursuing other avenues, or ideas to help in the economic recovery. Unlike the previuos commenter, I personally think that the \MicroLoan\ program is a great idea. These loans have been used all over the world for about 20 years. I personally would have applied for this type of loan, instead of struggling for a few years in my own business! I know people who have used \Hard Money\ loans to start a business, that is real desperation.
January 29th, 2010 at 4:17 am
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January 29th, 2010 at 7:31 am
Nate (#2). No, you wouldn’t use this type of loan because no bank will issue you the credit–whether this program exists or not. It’s not because there’s something wrong with you, it’s because banks aren’t issuing credit…even to credit-worthy businesses.
The Durst plan will not solve that problem. It will just be more effort wasted on a poorly conceived feel good plan.
January 29th, 2010 at 7:50 am
Thanks for the interest! Blake, I need to correct you. The whole point of the program is to get money to small businesses that otherwise wouldn’t get loans. I am assuming you’ve never seen a draft of the bill, so I can understand how you may be under that misconception. It states pretty clearly that the legislative intent of the legislation is to fill the void that you are talking about. If it weren’t, I’d just be creating a new competitor for banks and credit unions. That’s not my goal. Let me know if you have other comments or questions!
January 30th, 2010 at 6:15 am
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January 30th, 2010 at 4:40 pm
I think something is missing from the debate above. The corporate body politic floats bonds. Secondary debt markets buy the bonds. So banks per se aren’t loaning these businesses the money, correct? Banks may underwrite the bond, but they’ll then sell them off, right? But since these businesses are higher risk enterprises than the larger businesses with more collateral (if they weren’t then banks would be lining up to loan their money to them) the debt markets will expect a higher interest rate on the bonds, correct? So this will still be pricey financing, but clearly better than credit cards. Somebody who understands bonding authorities please clarify who is loaning who money and how much state sales tax revenue is at risk if we try it.
February 2nd, 2010 at 12:04 pm
Although not statewide, there is already a local nonprofit microenterprise agency (META, http://www.metaidaho.org) that provides microloans in addition to confidential consulting, monthly workshops, and business plan training to disadvantaged entrepreneurs in the greater Boise area. I started this program over seven years ago and would love to collaborate with Rep. Durst.
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