Microloans' Impact: Big
The Herald Bulletin (Anderson, IN; Microloans)
By: Baylee Pulliam
December 8, 2012
It takes money to make money.
And for some businesses, even a little can make a big difference.
That's where microlenders like the Flagship Enterprise Center, 2701 Enterprise Drive, come in.
In the 2012 fiscal year, 74 percent of all Indiana's microloans -- small loans typically for between $1,000 and $50,000 -- originated at Flagship, making it the top microlender in the state, according to the U.S. Small Business Association.
Since the program started in July 2010, Flagship has approved 30 loans to startup companies and early-stage small businesses in 10 central Indiana counties, totaling about $330,000.
One of those loans was to Tammy Rimer, who co-founded Anderson-based CN Design and Marketing in 2008 with her husband, Todd.
In 2010, they took out a microloan from Flagship, which they'd worked with while starting the company, to expand their operations, upgrade technology and hire new staff.
She said the loan gave them the "proper capital to avoid the tough-cash-flow months," a problem that contributes to a high failure rate among small businesses, according to the SBA.
Only seven of 10 new-employer businesses last at least two years, and just over half -- 51 percent -- make it to five.
Many "small businesses fail because they are not properly capitalized and only a few months of tight cash flow can really hurt a small business," Rimer said. "They could lose employees due to inability to make payroll or lose their space due to not being able to pay the rent."
And qualifying for a traditional bank loan, or just finding a bank that's lending, can sometimes factor into that.
That was the case for Rimer.
"The banks were not lending to startups and small businesses very easily," Rimer said. "Microloans are also nice because some banks won't lend a small amount of money, which is often times all a small business needs."
According to a release from Flagship, the program aims to bridge "the lending gap which exists for small businesses unable to secure financing from a traditional bank due to lack of credit, collateral, or length of time in business."
Only for-profit businesses and child care operations can take out a Flagship microloan, and they have to use the money for things like working capital, inventory, supplies, furniture, machinery and equipment. The money can't be used to buy real estate.
The fixed interest rate on a Flagship microloan is about the same as one from a bank, typically somewhere between 6.25 and 8.25 percent, depending on the level of risk, over a loan period of up to 72 months.
Flagship has boosted its lending capacity by about 400 percent in the past year and expects to keep going, said Adam Hoeksema, client services manager at FEC.
Almost 70 percent of the Flagship loans were made to business owners who were of a minority, were women, or military veterans.
"Not only are we making more loans than we did last year, (but) these small loans are having big impact," Hoeksema said.
As is true in Rimer's case, microloans can help create jobs.
Hoeksema said Flagship's "borrowers have reported that our microloans have helped them create and retain 46 jobs over the last two years."
And it can boost the income of borrowers, too. In 2008, educational and policy studies organization the Aspen Institute found the average household income of families in microenterprise programs was $36,000, a 20 percent gain over what they made before.
Microloans aren't perfect, of course. For example, Rimer said she didn't like the fact that "we had to borrow all of it up front and then pay interest on money that we did not use in our expenditures of growth."
Rimer says small-business owners should thoroughly understand the pros and cons of any loan type before signing their name on the dotted line.
But most lenders "will try to work with you if you have been with them for a while and show a strong record of responsible behavior and are not investing in anything too risky," she said.
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