Microloans Create $2.5 Million Local Footprint: Northern Initiatives steps in when banks can’t

Opening three restaurants in six years is quick by anyone’s standards.

But with a little help from Northern Initiatives, Simon Joseph was able to do just that.

“They’re more than just a lender,” said Joseph, owner and managing partner of Roaming Harvest food truck, Harvest, and Gaijin. “They’ve been a really good partner for us, throughout our growth.”

Northern Initiatives isn’t a traditional bank. It’s what’s known as a Community Development Financial Institution or CDFI – an entity certified by the U.S. Department of Treasury that provides loans to small business owners, entrepreneurs and community organizations that might not qualify for financing from banks for a variety of reasons.

With a region spanning 51 counties in northern lower Michigan, the Upper Peninsula and northeastern Wisconsin, and now expanding down Michigan’s west side, Marquette-based Northern Initiatives has made more than 1,000 loans totaling over $58 million. Its local footprint, which has grown in recent years, includes 48 loans totaling more than $2.5 million to businesses in Benzie, Kalkaska, Leelanau and Grand Traverse counties.

About a third of loans territory-wide have been to start-up businesses. More than half of all loans have been for less than $50,000, which, though technically microloans, are nonetheless big to some they’ve assisted.
Joseph received a microloan that enabled him and his wife Rebecca Brown to restructure personal debt incurred to open the city’s first food truck in 2012.

“For a business like us, if you just have a food truck and it’s born on a dream and a lot of hard work, but not necessarily a lot of money … traditional lenders aren’t interested,” he said.

The Roaming Harvest loan “really did help us get financially stable in those first couple years,” Joseph said. A second loan provided capital to open brick-and-mortar restaurant Harvest in 2014, and a third helped open Gaijin in 2016.

A path that started with two employees – Joseph and his wife in their food truck – has led to employment for just over 50 people between the three restaurants at peak summer season, including about half that are full-time, year-round positions.

Joseph said that without Northern Initiatives’ assistance, which has included financing and business counseling in matters ranging from writing a business plan to navigating restructuring, and even just brainstorming, “I don’t think that we would have been able to do any of what we’ve done, at least not at the pace that we’ve done it.”

Northern Initiatives’ clients have included a wide variety of businesses, including retail establishments, breweries and vineyards, light manufacturers, salons and spas, other professional service providers, tourism entities, restaurants, and value-added food producers. The organization made its 1,000th loan in September to Kalkaska’s Drone Services LLC, a drone-based aerial data collection service.

A participant in U.S. Small Business Administration loan programs, Northern Initiatives has about $20 million in assets and lending capital that has come from federal, foundation, religious institution, bank and other sources, said President Dennis West.

On a loan, Northern Initiatives might be the sole lender or it might partner with others like community banks or organizations like Traverse City’s Venture North Funding & Development. Loans range from $1,000 to $1 million in size, with $57,000 the average loan size over the course of Northern Initiatives’ 23-year lending history, West said.

For Mark and Mandy Moseler, a $50,000 loan was key to opening Northern Latitudes Distillery in Lake Leelanau.

The former public school teachers first embarked on the venture with no background in distilling, but Mark gained knowledge through a course offered under a Michigan State University artisan distilling program, spending additional time at MSU learning about stills. Mark Moseler said banks didn’t want to finance the start-up, but a chance to present at a Traverse City forum for entrepreneurs led to a Northern Initiatives connection and loan.

Combined with personal funds and money from friends and family, the loan was “the final brick … of allowing us to go forward,” open in 2012 and sustain operations through initial business phases, he said.

Now, business has grown “beyond what we had anticipated” and the distillery, which started with six employees including the owners, now employs 24, half of which are full time and others that work as needed, he said.

“In our time of need, it was wonderful to be able to have that resource, for people like us, who had pretty much no place else to turn at that point,” Moseler said. “[Northern Initiatives was] willing to listen to us and have faith … and here we are, because of that.”

West said Northern Initiatives looks at some of the same criteria as would a bank – like credit score, collateral capacity, cash available to put in the business, and character – but is able to make loans that might be riskier or that a bank can’t or won’t do.

David Worthams, policy director at the Michigan Bankers Association, said banks face federal regulations and constraints that tie their hands as to the types of customers to which they can make loans.

CDFIs have more “wiggle room than a traditional financial institution would have, to make loans to new businesses, to make loans to businesses and industries that might not be able to get financing,” he said.

Northern Initiatives charges interest rates that vary by loan type and risk and that may be higher than a traditional bank. Its default rate is less than three percent and there are companies that Northern Initiatives has worked with for years, providing successive loans as well as tools and resources to boost business knowledge, West said.

“Running a business successfully is not an easy thing to do,” he said.

Loan customers can receive support and counseling from Northern Initiatives staff called business coaches, and can access an online learning portal created by Northern Initiatives. The portal contains a host of business resources including interactive planning tools and calculators, videos, how-to guides and other information to help business owners meet goals in the areas of money, marketing and management.

“What we’re really trying to do is to help the customer to be able to learn terms and definitions so that in our coaching sessions we are going right to strategies and tactics,” West said.

Northern Initiatives is marketing the portal, called Initiate, to other CDFIs around the country. Initiate was developed by Lake Effect Digital, a Traverse City digital marketing company that has also been a loan client.
Lake Effect, begun in 2013, first connected with Northern Initiatives as a contractor, developing a mobile travel and tourism app for an Upper Peninsula regional tourism initiative. As the young company’s business grew, it needed additional capital to hire staff but banks weren’t interested, said principal Jonathan Campbell.

“Given the infancy of our company and no significant history of cash flow and profits and losses and things like that, there was barely a conversation,” he said.

A $70,000 loan from Northern Initiatives helped support two additional employees and equipment needs in a creative agency whose biggest assets, Campbell said, are its people.

“There aren’t very many funding sources available … for, I would say, out-of-the-box, different businesses such as ours,” he said.

Campbell said Northern Initiatives staff have been helpful in numerous business areas and the contract work developing Initiate goes beyond financial benefit.

“It’s made our company better; employees have learned skill sets that they probably wouldn’t have,” he said. “It’s certainly beneficial to us, long term.”

Initiate launched in 2016; Lake Effect is continuing to work with Northern Initiatives on the portal’s function, design and content.

Lake Effect, which focuses on recreation tourism and nonprofits, employs eight including Campbell. He hopes to add two additional staff members next year.

“My hope is to stay here in Traverse City, keep growing and doing what we do,” Campbell said.

Amy Lane is a freelance journalist and former reporter for Crain’s Detroit Business, where she covered business, state government, energy and utilities for nearly 25 years.