A Boise nonprofit hopes to expand its business lending services by joining the U.S. Small Business Administration Microloan Program, a federal program that helps nonprofits with lending experience make additional loans and offer business counseling. The Microloan Program supplies loans worth an average $13,000 to small businesses.
MicroEnterprise Training and Assistance, a program of Mountain States Group, is applying for the program to increase its lending capacity and reach.
SBA Boise Office District Director Rodney Grzadzieleski said he’s hopeful that META or another organization will start a microloan program start soon. In addition to making capital more available, the program also includes technical assistance for companies, covering a range of business processes.
“The technical assistance is critical, because a lot of these folks don’t know what a balance sheet is when they’re starting out, or an income statement,” he said. Grzadzieleski said he’s heard of two other organizations in Idaho that could apply to become microlenders, though they don’t have the lending experience that META has.
META Program Director Ron Berning said META has made 250 microloans, from $500 to $15,000, to startup and existing businesses in the past 12 years. META typically works with people such as refugees who don’t have established credit and can’t get a bank loan, Berning said. Affiliating with the SBA would increase META’s lending capabilities.
“If we are approved, this would give us much more visibility and exposure to a broader audience, bigger geographic area and borrowers who may need a higher level of lending assistance,” said Berning.
Banks and credit unions tend not to make very small loans because they are costly to make as larger loans, with lower return, according to Berning and SBA officials. Under the SBA program META could increase its maximum loan to $35,000 and expand its lending footprint to as far as McCall and Twin Falls.
“A lot of banks simply aren’t doing business loans under that amount,” Berning said.
While very small business loans may be rare, they do happen under the SBA’s 7(a) lending program. Attorney Jenny C. Grunke received an SBA loan this spring from Wells Fargo for $5,000, one of three loans at that relatively low amount guaranteed by the SBA. Grunke said the loan serves as a business line of credit to use if a case or client has immediate needs for the discovery process or hiring experts.
“Having that right there where I can access it as soon as I need it gives me confidence that I can tell a client that everything will be taken care of and I can do a job right,” she said.
Grunke started her one-person practice, Mahogany Park Law Office, in early 2013. The firm is a general practice, with a focus on liquor, family and business law. Grunke said her banker at Wells Fargo suggested and arranged the SBA loan to serve her needs, and that the loan came together quickly.
If META becomes an SBA microlender, clients who borrow more than $10,000 will have to prove they were denied a bank loan. Berning said that the organization has always advised would-be borrowers to seek money from banks and traditional lenders first.
“We only have limited resources, and we want to make sure those are used by people who truly have those needs,” he said. Working with banks also helps borrowers establish that relationship, so they can go back to their bank for a larger loan, when needed.
META started microlending with a grant from the Office of Refugee Resettlement, or ORR. The loans have covered a broad range of businesses, including service-sector businesses such as hair salons, restaurants, and taxi cabs.
All the loaned funds have come from grants from the ORR or other groups, including the Northwest Area Foundation, Idaho Women’s Charitable Foundation and several bank foundations. META doesn’t pay back the grant money; instead, it uses the loan collections to fund more loans. By contrast, in the SBA program, META would have to repay money it borrowed from the SBA.
SBA microloans have a 10 percent default rate, according to SBA data. Berning said META has only had a charge off rate of 0.5 percent of the money borrowed. SBA microloans typically carry an 8 percent to 13 percent interest rate and can last up to six years.
Berning said META reviews loans the way other lenders do, while providing other assistance, such as helping companies create business plans.
“With the business plan, that will show us how they plan to pay off the loan debt and what kind of cashflow they would be looking to generate from their business activities,” he said.
Berning said there’s no deadline for META’s microlending application, though he’s hopeful that META could start lending three months after it is approved by the SBA. The application approval process is made by the national SBA, not the Boise office.
SBA microlenders can be nonprofits, economic development entities or certified development corporations that have one year of internal experience issuing loans of less than $50,000. There are 160 microlenders nationally, with lenders in Portland, Seattle, Spokane, Yakima, Wash., and Missoula, Mont., but none in Utah.