A local business advocacy is seeking to fill an underserved yet critical financing void by providing loans typically considered too small for banks to bother with.
The Business Ownership Initiative is ramping up its micro-loan program with the help of $150,000 in grants it received from the Glick Fund and the Indiana Housing and Community Development Authority.
The aim of the program is to give startups and even small established ventures access to as little as $1,000 to $10,000 in capital, or just enough to design a website or purchase equipment.
Within the next few years, though, BOI hopes to have enough cash to raise its lending limit closer to the $100,000 minimum that banks generally don’t cross.
“Unless you have friends, family or an extensive line of credit, it’s just not in a bank’s interest to do a lot of lending in space under six figures,” said Julie Grice, BOI’s executive director.
Grice, an entrepreneur herself, operated a consulting firm and a dental lab with her husband that made crowns and bridges before arriving at BOI in February 2011.
The not-for-profit, which operates on a $400,000 annual budget, has undergone a few changes since its inception in 1997 as the Neighborhood Self-Employment Initiative.
The most notable is its merger on May 17 with Develop Indy, the economic development group for Marion County. The transition was an easy one, though, as BOI already had an office within Develop Indy’s space at Chase Tower downtown.
The Greater Indianapolis Chamber of Commerce and Indy Partnership also joined Develop Indy at the same time.
BOI provides one-on-one business counseling and free or low-cost workshops to fledgling entrepreneurs. But about 18 months ago, before Grice’s arrival, the initiative began to explore a micro-loan program and actually provided $4,000 loans last July to two companies.
Grice put the brakes on the program amid the move to Chase Tower, and to get better organized.
“The last thing I want to do as a former small-business owner is not be able to support people that we purport to be able to,” she said. “So we’re taking it slow.”
Stage Ninja LLC, a small manufacturer of professional audio equipment, with an office in the Stutz Building downtown, landed one of the $4,000 loans.
The six-person company launched in 2007 and quickly hit the recession, breaking even just last year. It used the BOI loan to purchase materials to grow its inventory of retractable cable systems for microphones and instruments.
“Four-thousand dollars is not a game-changer for many companies, but it was a great way to bridge the gap for us,” co-owner Brent Eskew said.
Eskew said Stage Ninja plans to repay the loan this month and reapply for another the same day.
If so, company owners will find a better-managed microloan program. BOI now has an underwriter on staff and is getting software to help it offer loans to more business owners. The city of Indianapolis is pitching in by funding the salary of a micro-loan services manager.
BOI is working with nine business owners to get their loan applications in order. Credit scores and tax returns are considered, of course, but the initiative really takes a hard look at their business plans to ensure they’re “tethered to reality,” Grice said.
Cash flow needs to be strong enough to enable owners to repay their loans within the typical 12 to 18 months.
Bruce Kidd, a senior vice president at Indianapolis-based Walker Information who has counseled entrepreneurs in the past, thinks BOI’s assistance will benefit its clientele.
“It’s high risk, but it’s economic gardening,” he said. “You’re trying to cultivate the soil, the landscape for these startups. You’ve got to provide some tender, loving care.
BOI also is working to establish a loan-loss reserve to offer protection from unpaid loans.
Interest on the loans of 7.5 percent to 8.5 percent would help make the program self-sustaining. But Grice hopes to receive funding from a couple of other sources to push the pool of available funds from $150,000 to seven figures.
“The question is,” she said, “do we need it?”
That remains to be seen. But what’s more clear is the need for small loans for service-type companies that don’t need a large pot of cash to purchase expensive equipment or machinery.
The only other option known to Grice and Kidd is Bangladesh-based Grameen Bank, which opened a branch in Indianapolis last summer. It provides microloans to the poor without requiring collateral.
Eskew at Stage Ninja can attest to the lack of interest in micro-lending.
“[BOI] was the first group that really looked at our business plan,” he said.•