Nearly 30 years from its inception, officials say the city of Springfield’s commercial loan program has picked up in activity as businesses look to make investments beyond the COVID-19 pandemic.
The program, which is funded through federal Community Development Block Grant money and revolving loan income, has experienced record lending distributed over the past two fiscal years, said Amanda Ohlensehlen, the city’s director of Economic Vitality. Fiscal 2022 had nearly $1.6 million in loans distributed, consisting of business incentive or microenterprise loans, as well as business development loans. Almost $1.3 million in loans have been approved this fiscal year, which concludes June 30.
Entrepreneurship has thrived recently as a record number of new businesses were filed in 2021, according to the U.S. Census Bureau. In 2021 alone, 5.4 million new business applications were filed, and 5.1 million were filed in 2022.
“We are receiving a lot of response from small businesses that are interested in taking advantage of these types of funding,” Ohlensehlen said, noting the funds available for loans fluctuate annually based on how much in loan payments are funneled by businesses back to the city. “There’s always the possibility that we can receive a large payoff and therefore we’ll have more funds to loan out.”
The city has received around $2.7 million from the CDBG in each of the past three fiscal years, Ohlensehlen said, adding an average of $1.1 million is specifically for Home Investment Partnerships funds, which is designated for housing projects benefiting low- and moderate-income households. The remainder is used for business purposes.
All loans must be used to further the U.S. Department of Housing and Urban Development’s priorities of either creating jobs for low-to-moderate income individuals or removing slum and blight. Generally, one full-time equivalent job must be created for each $35,000 loaned, said Cheri Hagler, who works as a loan officer in the city’s Economic Vitality department.
“There is no specific loan cap,” Hagler said of the business loans. “It depends on cash flow projections for the business and will they be able to afford the debt service on the amount borrowed.”
A loan committee comprising senior city staff assigned by the director of Planning and Development reviews and evaluates all loan applications, according to the city website. Past recipients include downtown businesses Bosky’s Vegan Grill and Blue Room Comedy Club LLC.
“These types of programs also help the city be really responsive to the needs of our small businesses and entrepreneurs, especially in times where there is some sort of economic shock,” Ohlensehlen said, citing the pandemic as an example. “We can provide access to the types of resources or funds that are going to help a business overcome whatever challenge they are experiencing.”
Of the 12 loans approved through the city’s commercial loan program for fiscal 2022, 42 full-time equivalent jobs are expected to be created along with an additional $5.8 million in estimated additional investment, she said. Four loans were approved for fiscal 2023 and 18 full-time equivalent jobs are projected in addition to an estimated $2.6 million in new investment.
Nearly four years after first renting her shop space, business owner Mollie Martin was ready for a new location on Commercial Street. Her venture she describes as a cross between a beauty bar and tattoo shop started as Queen City Beauty Spa LLC. It became Skin Wax Ink when she moved in April 2022 to 200 1/2 E. Commercial St. While Martin declined to disclose relocation and renovation costs, including the amount she paid Mary Collette to purchase the building, she said her business development loan with the city is $450,000. Payments on the 20-year loan started in January 2022 at a 2.63% fixed rate.
Business development loans from the city currently are fixed at 3% but Hagler said the rate could change July 1 based on the prime rate.
“I didn’t think it was going to happen, but I didn’t want to not try,” Martin said of her loan. “I did try, and it got me to a place where now my money is being invested in something that I own as opposed to rent.”
Martin said it took around six months from the loan application to closing on the building. Through word-of-mouth, she learned of the commercial loan programs and connected with the city, which helped her step by step in the process.
“Just like buying a personal home, there’s always that chance that it doesn’t go through,” she said.
“City staff was so wonderful and so supportive in just saying, ‘It’s going to work; you’ve got this. We’re going to make this happen.’”
As part of the loan requirements, Martin is committed to creating 13 full-time equivalent jobs over the course of the 20-year term. She currently employs a staff of eight, which equates to four full-time equivalent jobs.
An esthetician for 17 years, as well as a permanent cosmetic and tattoo artist, Martin said she offers apprenticeships at her shop.
“The building gives me the ability and space to create more stations, and now I have the ability to take on more people to apprentice them,” she said. “The majority of them are going to be developed into building up their clientele. So, eventually, they will be full-time staff.”
While Skin Wax Ink fills 2,500 square feet in the building’s second story, the ground level is leased by Soozeezbeez Honey Beetique, owned by Susi Caregnato. Also interested in becoming a building owner, Caregnato said she’s still “in the very early stages” of applying for a loan with the city.
Just down the road at 206 E. Commercial St., Blue Heron, a bakery, cafe and espresso bar, also utilized a city loan to open in November 2022. Co-owner James Boosey said he and his wife, Jennie, were approved last year for a $100,000 business development loan, which they used to buy commercial kitchen equipment and expand on the coffee roastery in the space formerly occupied by The Artisan’s Oven LLC.
“The loan application process is very well managed. You work directly with a loan officer who works hard to understand the individual needs of the business,” he said via email, noting Hagler aided them with their loan. “It is very personalized and all the better because of it.”
Boosey said their loan term is 10 years, and payments are interest-only for the first two years.
“The terms of the loan are very favorable for a growing business,” he said. “This obviously has the advantage of strengthening cash flow during the first couple of years.”
Ohlensehlen said offering a commercial loan program has long been a priority for the city and is important when considering economic growth.
“How do we stimulate private investment that’s going to lead to the creation of jobs and is going to help improve our community overall? We certainly want to support the entrepreneurial spirit that is present here in Springfield,” she said. “Having flexible financing tools and resources available to small businesses, it really helps them have an opportunity to realize success.”
Springfield Business Journal’s 2023 Trusted Advisers event honors 20 businesspeople.