The Indy Chamber's microlending division has boosted its loan pool and enlarged its footprint, thanks to a new designation by the U.S. Small Business Administration.
The division, known as the Business Ownership Initiative, announced Friday that the federal agency approved its application to become an SBA microlending intermediary. The new title comes with a modest capital injection and means it can start deploying hundreds of thousands of dollars to small businesses in the greater Indianapolis area on behalf of the SBA.
IBJ reported last year that the Indy Chamber was pursuing the designation.
“Ninety percent of businesses in our region have less than 50 workers, and they account for one of every five Indy jobs,” Indy Chamber CEO Micheal Huber said in prepared remarks. “Partnering with the SBA to strengthen microlending is a smart economic development strategy, supporting the homegrown ventures that generate employment and investment.”
Microloans are business loans, typically in the low-five-figure range, aimed at entrepreneurs who may have a tough time tapping banks or other sources for cash. They're often used to purchase inventory, upgrade equipment, buffer cashflow and more.
Before the SBA's blessing, BOI had already been managing a roughly $1.85 million microloan pool, but roughly 92 percent of it was restricted to Marion County because of restrictions placed by the entities that granted the capital, including the city of Indianapolis.
The new SBA status adds $250,000 to the loan pool, a figure that can grow as high as $5 million and be loaned outside of Marion County.
"What we're really excited about is being able to expand into the nine-county area and partner with other organizations and other chambers to deploy this to their constituency," said Julie Grice, who oversees BOI as the chamber’s vice president of entrepreneur services.
Grice mentioned OneZone [Carmel-Fishers Chamber], Launch Fishers and the Zionsville Chamber and others as potential partners.
BOI has been making microloans since at least 2010, and continued when it merged with the predecessors of the Indy Chamber in 2012. To date, it has made 44 loans to 35 businesses totaling about $991,000.
It has about $636,000 in loans outstanding, with interest rates ranging from about 6 percent to 11 percent. It's had only one write-off so far–about $3,3000–but defaults could rise. The average FICO credit score for its borrowers is about 530.
"It's not a money maker, which is why it's impossible for banks to do this type of lending," Grice said. She noted that borrowers are required to meet with BOI business coaches during repayment.
Stage Ninja, which mainly sells retractable cables and related event services, was BOI's first borrower about five years ago. Founder and president Brent Eskew said the company needed cash to replenish inventory, but had no room on credit cards and and got turned away from banks.
The company was able to get about $4,000, which it repaid soon after, and continued the borrowing relationship over the years. Now Stage Ninja is approaching a point where its outgrowing the clutch microlender, Eskew said.
"The microloans are like $10,000 to $100,000," Eskew said. Soon, Stage Ninja is going to need loans "in excess of $150,000."