Local Micro Loans Spur Small Businesses
By Amy Lane
Over the last three years, Dakota and Garret Porter have built an idea hatched while snowboarding into a patent-pending product that’s lit up attention, and sales.
Their Action Glow LED lighting kit for sporting equipment – available for 10 types of uses, ranging from surfboards to skis and bicycles to canoes – has propelled the teenage brothers into business competitions and meetings with angel investors.
But last year, after the young entrepreneurs launched an upgraded and revamped website, they faced a busy Christmas season. And it put their fledgling business in a tight spot.
“We were getting our Christmas rush and needed more inventory,” said Garret, 16, vice president of 45th Parallel Lighting and a junior at Traverse City Central High School. Brother Dakota, 19, is president of the business and in his second year at Northwestern Michigan College.
Lacking funds, the Porters turned to a small business loan program operated by the Traverse City Area Chamber of Commerce and got $2,500 that paid for equipment, supplies and inventory that enabled the brothers to ramp up assembly at their Acme workshop.
In the realm of business financing, the loan size wasn’t much. But to the Porters, like some other entrepreneurs funded through the Sub Micro Loan program, it was everything.
“Without that loan, we would have had to make people wait for their Christmas order … and that would have dropped down sales at the Christmas rush,” said Garret. “The timing could not have been more perfect.”
LITTLE LOANS, BIG SUCCESSES
Launched in 2013 by Fifth Third Bank and the Traverse City Area Chamber Foundation, the loan program targets startup or small businesses that need capital to grow or meet operating needs, but that fall below traditional commercial lending thresholds.
The program’s short-term loans of up to $7,500 have payback periods of six to 24 months, at interest rates between eight and 12 percent.
Demand has been steady, with the program receiving about three applications a month, said Laura Galbraith, the Chamber’s vice president of business and finance. As of mid-November, the program had made 12 loans totaling $80,000, with one pending, to entrepreneurs ranging in age from teens to 70s, for food, agriculture, service, retail, small manufacturing and other ventures.
Rey Exports, started by Salvador Montes, is one of the program’s latest recipients. Montes plans to purchase animal hides across northern Michigan, mostly through the region’s deer harvest, and sell them to tanneries in his native Mexico for the production of leather goods, shoes and other products.
Galbraith and Dave Shooltz, market president of Fifth Third Bank, said the program meets a need in the community and has generated an estimated 40 new jobs that might not otherwise have been created, and with no borrower delinquencies or defaults.
Fifth Third and the Chamber foundation each capitalized the revolving loan fund with $50,000.
“I think it has easily exceeded expectations,” Shooltz said. “When you look at the new jobs that are created with it, the payment history on it has been exceptional … to see the pride that these people have in these businesses, to see some of the stories…it’s very rewarding.”
It was a ladder to business growth for Debra Caperton. The former special education teacher and single mother started a business in 2010 with a desire to work out of her home yet still fill her passion to “help teach people to better their lives.” Her SOS Learning Lab provides special needs children and adults with consultation, behavioral strategies, academic support and skills, and development services.
Caperton built her business “one client at a time” but had an additional goal: Creating opportunity and jobs for other women. About a year ago she was ready to expand, but needed a location.
She applied to the Sub Micro Loan program and received $7,500, enough to equip and open a lab in leased space and provide a comfortable “environment that people can come into,” said Caperton, SOS president.
She said the move helped boost her business and there was another gain: As part of the loan process, Caperton worked with a counselor from the Michigan Small Business Development Center (SBDC) to develop an established business plan, an effort that she said “created a good focus for me.” Caperton plans to hire her first permanent employee early next year and said she wouldn’t be in her current position and primed for future growth without the loan.
“Now I have my ducks really in a row, to handle what might be coming my way,” she said.
Galbraith said borrowers have used loan funds for a variety of purposes, including to purchase equipment, build inventory and cover costs like franchise fees.
There’s a quick turnaround time for loan review and funding, which she said is important in light of what are often urgent needs.
A business fills out a brief application and provides information including tax returns, financial statements and a condensed version of a business plan, all of which go to an underwriter and then to a loan committee that can be rapidly called to assess the potential deal. Applicants are expected to meet with Chamber partner Michigan SBDC to review their financial plan, revenue projections, credit score, collateral and ability to repay the loan.
The entire process, from application to closing, can take as little as a week, Galbraith said.“We really try to make the process as fast as we can.”
To Jim Harper, president and founder of Specialized Personal Recovery Services, rapid assistance was critical.
His business, which helps people with developmental or mental disabilities achieve independent living and employment, began in October 2011 after Harper was laid off from Michigan State University Extension. As client referrals from mental health and human service agencies grew, so did the need to hire employees. And with that came cash flow problems.
“When it was just me, money flow wasn’t really an issue,” Harper said. But meeting weekly payroll was difficult when it took 30 to 90 days to get paid for services for which he’d billed Medicare and Medicaid.
“I burned through all of my retirement just to make payroll,” Harper said.
Then, reimbursements slowed even further and some of Harper’s agency contracts got cut. He needed some money in the bank – a cushion for about a week and a half’s worth of payroll – but didn’t have a credit score high enough for a loan from the bank where he did business.
Turning to the Sub Micro Loan program, he received $7,500 that came just in time.
“That check hit the bank on that very week when I would not have been able to make payroll and floated me until reimbursements came in,” Harper said. “It was a godsend.”
He’s since been able to add to the pot of money, accumulating savings to cover any hiccups in reimbursements or contracts that could again raise the specter of laying off any of his now 14 employees.
Harper said that without the loan, “I honestly do not think I would be here today in this business. Not only did it save me then, but it’s created a path for cash flow that I would not have had.”
Specifics on the loan program can be found here: www.tcchamber.org/small-business-micro-loans.
Amy Lane is a former reporter for Crain’s Detroit Business, where she covered energy and utilities, state government and business for nearly 25 years.