By: Lewis Griswold
March 20, 2010
LINDSAY -- Thirty-three proud employees at the city-owned McDermont Field House -- a three-story recreation center that draws people from miles around -- were crushed when they received pink slips in a budget crunch late last year.
Rather than sending the workers away, city officials invited them to stay -- as entrepreneurs. And it offered them no-interest "microloans" to get started.
Nearly all of the laid-off workers jumped at the unusual opportunity to create their own jobs in the recreation center.
Joseph Sosa, 46, a laid-off manager, is seeking $35,000 to start his eponymous "Cup of Joe" mobile coffee stand. His business plan research showed he has to sell 150 cups of coffee, cappuccino, mocha or tea each day on average to succeed.
"I think it's very attainable," Sosa said. "I've always been a go-getter."
The 25 startup business ideas also include a pizzeria, chili dog eatery and sumo wrestling game, where wrestlers don fat suits. And there's "Shoot the Freak," a game in which players try to hit an employee wearing a mask and protective clothing and holding a shield -- the Freak -- with a paintball.
Experts seem intrigued by the Lindsay experiment. Microloans, used to help Third World families out of poverty, still are uncommon in the United States.
"This sounds like an interesting model," said Eric Weaver, chief executive officer of the San Jose-based nonprofit Opportunity Fund, which makes microloans that average $8,000. "You have a willing landlord for people to experiment with business ideas in a place that's attracting a lot of people."
"We're seeing more movement toward self-employment as a labor market trend," said Claudia Viek, chief executive officer of the California Association for Micro Enterprise Opportunity, an industry group for nonprofit lenders. "I really support what's going on in Lindsay. I think it's very innovative."
But entrepreneurship is not for everybody, and at least one similar effort has failed, Viek said. During a military base closure in the Bay Area in the mid-1990s, employees were offered loans to start businesses, but only one person signed up, she said.
Lindsay City Manager Scot Townsend said the city was working on ways to put more recreational attractions inside McDermont, but at the same time layoffs of employees were inevitable to balance the center's budget.
Townsend still was fretting about the layoffs while attending a recreational attractions trade show last fall in Las Vegas. But then he had a flash of insight in the middle of the night.
The city already was planning to set up a microloan program using a $300,000 federal grant. Officials had been planning to make the loans available to entrepreneurs who would bring in fresh attractions to the field house.
"I thought, 'Why don't I combine the two?' " Townsend said. "The pool [of loan applicants] ought to come from people being laid off. They understand the facility."
"We saw an opportunity," said Assistant City Manager Kindon Meik. "It made economic sense to reduce our payroll costs and at the same time provide opportunities to employees who were tried and tested."
The approach is creative enough that the Valley Small Business Development Corporation in Fresno, which manages microloan programs, wants to recommend it as an example of good economic development to a Sacramento policy group.
"It's one way of retaining jobs by helping people create jobs," said Stan Tom, vice president of marketing and business relationships at the corporation.
The McDermont Field House is a 172,000-square-foot recreation center, gym and entertainment venue. It has a wave-rider machine, skate park, two indoor soccer fields, basketball courts, climbing wall, tree house, party rooms, dance floor, video and arcade games, and a laser tag game. Lindsay has a population of just 11,700, but the 19-month-old center draws on average 1,300 customers daily from all over, including Fresno, said recreation director Brad Albert.
Laid-off employee Oak Jefferies, 24, hopes to start a retail store inside McDermont selling swim trunks and towels to people who forget to bring them and plans to open his store next to the wave rider. He also will have T-shirts and other products.
The idea for the shop was sparked by comments he used to hear from McDermont customers who bemoaned their lack of swimwear.
"I look at it as a way to earn back our jobs," Jefferies said. He is seeking a $35,000 loan.
The city hopes to approve one or more microloans any day now; the goal is to have the first business open by the end of April.
Charles Loftin, 35, a laid-off security guard at McDermont, is teaming up with fellow laid-off employee Gary Babcock, 42.
They're seeking $35,000 each to buy a $61,800 laser maze attraction; players navigate a maze of laser beams shooting in several directions inside an 8-by-20-foot room. The player who finishes the quickest without breaking a laser beam wins.
"I wouldn't say I'm scared. I'd say I'm apprehensive," Loftin said. But at the same time, he said, "I'm kind of excited."
Both see starting their own business as a way to make a living and be in charge of key decisions.
"The private sector can do it better," Babcock said.
Microloans, which are used worldwide, give entrepreneurs who can't get money elsewhere a chance to get their businesses going.
The microloan movement started in Bangladesh in 1976 when economist Muhammad Yunus loaned $27 to a group of women who couldn't get a bank loan for their bamboo-weaving business. The idea caught on worldwide -- more than 154 million people have received microloans outside the U.S. -- and Yunus was awarded the Nobel Peace Prize.
In the United States, the federal government and banks working with nonprofit groups supply money for microloans.
"You've got to have credit" to launch a business, said George Vozikis, a professor at Fresno State's Craig School of Business.
Under some federal programs, $35,000 is the maximum, and the businesses cannot employ more than five people, including the business owner.
Loan repayments go into a pool to be loaned out again. All revenues after expenses from the startup business must go to repay the microloan until the balance is zero, Meik said. After that, the business owner keeps the profits.
In the event of default, any equipment purchased serves as collateral.
But Lindsay officials are confident that the microloans will be repaid. The future proprietors must take a class in starting a business, submit a business plan and get approval from both the city and the state.
The default rate of microloans hovers around 5%, according to the California Association for Micro Enterprise Opportunity, although that has increased to 10% to 12% in the current recession.
Entrepreneurs need to be prepared for adverse business conditions -- possibly the same conditions that led to their unemployment.
After William Van Ryn, the city building inspector in Firebaugh, got a layoff notice, he applied for a $30,000 loan from the Small Business Administration and set himself up as an independent contractor. Now he's doing the same job, only under contract.
But there hasn't been a lot of new building in Firebaugh during the recession, and the same is true in other cities that might have hired him, Van Ryn said. He recently took a second job in the private sector to make ends meet.
"It's very, very difficult right now," Van Ryn said.