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Heather Mosley | SBJ

City Loan Program Fills Small-biz Funding Gap (Sponsored Content)

SBJ Economic Growth Survey: Capital

Posted online

Small-business startups experience multiple hurdles, and according to the U.S. Bureau of Labor Statistics, one-third won’t survive after two years. A U.S. Bank study cites cash flow as the primary problem for 82% of failed businesses. For many, access to funding is the problem. More than a quarter of small businesses surveyed by the National Small Business Association say they can’t get adequate funding, and roughly one-third say that limits their ability to grow.

One source of available capital for small-business owners locally is the city of Springfield’s Commercial Loan Program, a community development finance program of the U.S. Department of Housing and Urban Development. Capitalized in 1984 by a federal Community Development Block Grant, the program to date has funded 254 loans, with 49 currently active, says city Economic Development Director Sarah Kerner. Five loans totaling approximately $275,000 were made in 2020, and she says seven loans representing $675,000 have been made so far in 2021. Because the program is self-sustaining, available funds revolve according to payments on current loans – roughly $790,000 in income a year, Kerner says, with occasional loan payoffs adding more to the fund. Approximately $1.48 million was available as of Jan. 31, 2021, and there’s currently $1 million left to loan.

Without a marketing budget, Kerner says the program flies a bit under the radar, although she speaks about it at business conferences and networking events. City officials also connect with entrepreneurs through Missouri State University’s Small Business Development Center and efactory incubator programs. Kerner says the city loans often fill a funding gap and help launch or grow small startups.

Business owner and developer Titus Williams, president of Prosperiti Partners LLC, says the program is good for the community and targets the underserved.

“Economic development is crucially important in these microloan funds,” he says, “Really, this is something that is beneficial for the greater good.”

Local businesses that have recently tapped into the program include Cafe Cusco and Blu Styles Barbershop on Commercial Street, as well as Xurros, a new food truck that makes churros. Downtown, loan recipients include new bridal shop Evermore, the relocated Blue Room Comedy Club and Secret Sandwich Shop. Going back a few years, loans helped finance the Heer’s building, acquire the Sky 11 building, and fund windows and doors for the Frisco building. Loans also have helped business owners – particularly on Commercial Street – purchase their buildings so they won’t be pushed out by rising rental rates.

But the federal HUD program is not for everyone, Kerner says, because of specific federal requirements. All loans must meet one or more of the national HUD objectives to improve lives for low- to moderate-income individuals, she explains. Primarily that’s through job creation as a result of the loan, most of which can apply anywhere within city limits; 20% of approved loans each year can meet slum and blight remediation requirements in selected areas of the city, including the Westside Neighborhood, downtown, and the C-Street and Walnut Street historic districts.

“Our program does have extra hoops,” Kerner says. “Somebody who is very credit-worthy and has a great relationship with their banker and has previous successful projects – they probably have no reason to come talk to us.”

Loans generally range $25,000-$100,000 in two categories. The Business Development Program primarily helps recipients buy or rehabilitate a building.

“The amount that we loan is tied to the number of jobs that are being created by the project,” Kerner says, noting workers are paid a prevailing wage.

Roughly calculated, that’s one job for every $35,000, or three jobs for $100,000 in loans. Interest rates for this category, currently at 2.13%-2.63%, are reset each year based on the prime rate.

For the Micro Enterprise Program, the interest rate is 5% for 12 years, with interest-only required the first two years. Also known as a Business Incentive Loan, it helps startups with five or fewer employees fund things like furniture and fixtures, inventory and working capital. The business must either serve or employ people in a low- to moderate-income area, or the loan recipient must be a low- to moderate-income earner.

Kerner says one benefit is that loan rates are fixed, compared with traditional bank loans’ amortized rates. Also, the program approves loans for small enterprises that traditional lenders may find too risky.

Williams credits the city program for helping those passionate about a business idea take a risk they might not otherwise. He applauds the city’s efforts and those by other small-business resources.

“If small businesses aren’t successful,” Williams says, “then our community as a whole suffers.”

Kerner agrees small businesses are vital to our community which is why this loan program is so important. “We’re a community lender, so there are other factors to consider except just making money,” she says. That loans are coming through the city’s Economic Vitality Development makes a difference. “We have a broad view of the economic well-being of the community, including people owning their own businesses,” she says. “I think it helps us look at a loan through a broader lens.”

This content is brought to you by Prosperiti Partners LLC.

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