New program fills gaps for business owners needing small loans they typically couldn’t access through traditional lenders
Story by Lee Marie Reinsch
All De Pere chef Ben Michiels wanted was to borrow six thousand bucks for an old trailer to help him bring breakfast to the masses – or at least bring it to the local farmers market crowd.
Banks turned him down. Credit unions turned him down. Despite the fact that his enterprise has been up and running for two years, lenders all but told him not to let the door smack him on his way out of their offices.
“A few years ago, (lenders) would have called this a used car,” said Michiels, owner of Eggs N’ Bacon Wagon, talking about the trailer, a vintage 1966 Airstream Caravel, which is actually a portable certified commercial kitchen.
Eggs N’ Bacon Wagon is a division of Michiels’ personal chef service, Original Experiences, which offers in-home chef services. To serve up culinary dishes at farmers markets, Michiels needed a commercial facility to store his ingredients and utensils and also to work from.
But even the Veterans Administration wouldn’t help him with a loan, despite Michiels having served in the military.
One lender did cut him some slack, however. The Brown County Micro Loan Program takes on some of the loans most banks feel are too shrimpy to bother with – either the ratio of paperwork to payoff is too high, or the borrowers have no assets to secure the loans, or the weekday of the application ended in a Y, or any of the interminable number of reasons to say ‘No way, Jose.’
“Small loans are difficult because they’re generally (for) start-up (businesses) or they’re very small,” said Marianne Dickson, director of the micro loan program, which was launched this past spring by the Green Bay Area Chamber of Commerce’s economic development wing, Advance, with collaboration from a dozen area financial institutions.
“(Financial institutions) need to do as much due diligence on a $20,000 loan as they do on a $1 million, or at least, say, a $500,000 loan,” Dickson said.
Launched in May, the Brown County Micro Loan Program offers loans of between $5,000 and $100,000 to “new, start-up and emerging businesses” in Brown County. Loan repayment terms are a maximum of seven years, and interest rates vary but aren’t horrible.
The program aims to help entrepreneurs like Michiels, who are unable to obtain loans from more traditional lenders, to give their businesses that needed jolt of adrenaline. Loan money can be used to buy equipment, vehicles, supplies or inventory or for payroll, down payments on leased space, or for any of a number of approved expenses.
Dreams to reality
Therapist Risa Janowski borrowed $8,800 at 8 percent for five years to set up her own private practice, Promises Counseling Center in Green Bay. She had been working for someone else but dreamed about opening her own private practice. After 12 years of working for other people, she took that step, with the help of the Brown County Micro Loan Program.
The money enabled her to buy office furniture, filing cabinets, a new computer plus business software, a printer and some other office items. She hasn’t spent it all yet, but she says she’s pretty sure it will be sufficient for her needs.
“The process of writing a business plan really helped me to see how I could run my business for much less money and be more effective for my clientele,” Janowski said. “I am able to be more productive, and that means better quality mental health care for my clientele.”
In accordance with program parameters, Janowski makes her purchases first, submits receipts to the program, and gets reimbursed once the expenses are approved. The loan money isn’t given to borrowers in the form of a lump-sum check but is released to borrowers drop by drop, as needed and with proper documentation.
Small loans so hard to get
While you probably would rather loan your neighbor $10 than $1,000, most financial institutions don’t look at lending that way. It’s just as easy for them to loan $500,000 as it is to loan $5,000, said Kent Nelson, president of QuickStart, Inc. in Menasha and Green Bay. His firm works as a liaison between business owners and financial institutions to help them apply for loans and refinance existing debt.
“One thing is that, with people looking for these smaller amounts, often their credit isn’t very good, or maybe they need the money for things that aren’t considered good collateral, and maybe they don’t have any other collateral,” Nelson said.
Nelson said QuickStart itself has seen a huge decline in business from start-up companies recently, a trend recognized by a variety of agencies and other consultants who typically work with new start-up entrepreneurs.
“You don’t see a lot of startups these days, and one reason is that banks aren’t lending to them,” Nelson said. “Then you have the whole issue with the housing market and, whereas people were typically able to take out a home equity line of credit and borrow five, ten or $15,000 to do something like this, they are not able to do that now because they don’t have the equity in their homes.”
Even when they do have the equity in their homes, those entrepreneurs still may not qualify for a home equity loan, Nelson said.
“When banks look at financing, they want cash flow Number 1, and that is why you need projections on a business plan,” Nelson said. “The second thing is collateral, and that’s where people tend to fall short, especially in a start-up business.”
Borrowers asking for lots of money are generally more sophisticated borrowers, according to Nelson.
“They have credit, they have collateral, experience and all of the other nuances that go into commercial lending,” Nelson said. “It’s not like a car loan, where if you have a credit score and a job – Boom! – you qualify for the loan.”
Nelson said even if a loan applicant has all of their ducks in a row as a start-up entrepreneur – good credit, an air-tight business plan, and solid collateral – they still need sufficient experience in their industry. Entrepreneurs heading into an altogether different industry than they’ve ever been in often raises a red flag for lenders.
“They aren’t going to give you a $500,000 loan to open a restaurant if you’ve never worked in one or ran one,” Nelson said. “A lot of the time, these smaller loans are people getting into something for the first time. They don’t have the experience – they don’t have the Five Cs of Credit that the banks are looking for.”
Those Five Cs of Credit, by the way, include character, capacity to pay, capital, conditions (of the economy and the borrower’s business) and collateral.
Making it easier on the small guy
In applying to the microloan program, prospective borrowers have to write and submit their business plans and lay bare their financial dirty laundry. They’re subject to background checks and credit checks and have multitudinous forms to fill out. The paperwork isn’t insurmountable, but it’s definitely a process, Michiels said.
Borrowers also have to meet with a committee from the Brown County Micro Loan Program to talk about their business and why they feel their loan request is worth the risk.
Advance administers the microloan program, with pooled monies loaned by a handful of area banks, according to Dickson.
“When I make a loan, each bank advances us their pro-rata share of the loan to fund it,” she said.
The Brown County Micro Loan Program isn’t part of the U.S. Small Business Administration, but after its first full year of lending, it will apply to be an SBA intermediary, Dickson said.
“This would allow our organization to borrow money directly through the SBA for this program,” Dickson said.
Thanks to the Brown County Micro Loan Program, Michiels has a suitable facility from which to peddle his veggie burritos and sausage sandwiches. Michaels is borrowing $6,000 for three years with an interest rate of 8 percent. That enabled him to pay the balance of the Airstream Caravel trailer.
“The trailer gives us unlimited options,” Michiels said. “It’s a functional, marketable transport vehicle.”
The trailer is modified so that propane for cooking comes out the side.
“We just hook right up,” he said.
Lee Reinsch writes and edits from Green Bay.