Roughly one million applications for small business loans are turned down by U.S. commercial banks every year, according to the Association for Enterprise Opportunity. Several economic development groups in Northern Arizona have come together to provide lending opportunities to those underserved small businesses that don’t have access to traditional loans.
“We can help you make your business dream a reality,” said Eric Marcus of Sustainable Economic Development Initiative (SEDI). One of the organization’s major initiatives this year is “Dollars for Dreams,” a community-supported micro-lending program. One of the partners, the Northern Arizona Capital Fund, has already awarded four loans of up to $50,000 to local companies. The new micro loan program will provide smaller amounts of up to $5,000 in financing and help Flagstaff home-based, start-up and existing businesses to establish and learn about credit.
“We’re making character-based loans rather than collateral-based loans,” explained the Marcus. The SEDI goal is to provide 25 micro loans this year that would include five loans for business launches. Other capital fund partners include the Economic Collaborative of Northern Arizona (ECONA), the City of Flagstaff and the Northern Arizona Center for Entrepreneurship and Technology (NACET).
“The idea is not new, but it is an area for providing access to capital in the realm of small business development that is currently unmet in our community and region. The idea came from a SEDI innovation summit held last year at NAU,” explained SEDI Treasurer Art Babbott.
“During those discussions, several small business owners expressed frustration that access to small amounts of working capital was not available. Dollars for Dreams was based on those discussions,” said Babbott, who also serves as Coconino County Supervisor of District One.
“We found that $500 to $5,000 is very meaningful for the small entrepreneurs that are home-based businesses looking to grow or expand; startup painting, contracting or engineering businesses; or small food processors making salsas, jams or jellies,” explained Babbott. “The City, Chamber, ECONA and NACET typically address the needs of the entrepreneur or small businessperson who requires larger amounts such as $15,000 to $50,000.”
One small business that was awarded a loan from the Northern Arizona Capital Fund is Local Alternative Inc. creator of the Netzky Burger. “It’s known as the Netzky Burger in Flagstaff, but in the rest of the state, it’s the Tepa Burger,” said Jonathan Netzky. “Our product was invented to go on the menu of Diablo Burger [in downtown Flagstaff].” Now you can find the meat-less superfood all over the state.
“The money that the loan fund is giving me allows me to put $2,500 into lemons during our slowest time of the year,” he said pointing to a freezer full of frozen lemon juice recently extracted from 45 cases of organically grown lemons from Peoria. The lemon juice is an ingredient in the Tepa Burger. “It’s breathing room,” he said with a smile.
Netzky explained that the Northern Arizona Capital Fund loan is a line of credit facilitated by Sun West Bank, and is not a micro loan. The major difference between it and a commercial loan is “NACET and ECONA are collateralizing the loan, so that brings down the interest rate. The loan given me is a secured loan, but not secured by me. The biggest difference for me is the low interest rate. Sun West will be more willing to extend me a line of credit in the future because now I’ve built credentials with them, and they know me.”
The application process started for Netzky by first becoming a NACET client and proving a valid business plan. “We went through the full process with the bank as if the bank were underwriting the loan. There were multiple pieces of applications as I recall,” said the local food guru.
Eric Marcus promises that the application process for the micro loans will not be so cumbersome. “We’re making character-based loans rather than collateral-based loans. We want to know if you’ve thought things through: do you have a business plan, do you have related experience? Do you know your business? Who is your competition? You have to do your homework.”
The SEDI micro loan program is similar to the KIVA micro-lending philosophy of helping people who historically have had a difficult time getting loans.
“We applied to the Flagstaff Community Foundation for a grant and received it last fall. We are looking to add to what we’ve got with additional donations. There are two ways that donors could help: one way is that they make a tax deductible donation, and the money will be loaned out. The second is to loan money to SEDI for two years, and the donor shares the risk with us. And we will give them a tax deduction letter that states the value of the money,” said Marcus. “So we’re looking for donors who want to give us grants, and those who will be willing to loan us the money and share the risk.”
“We want to make sure that the needs of this sector are met,” emphasized Babbott. “The micro loans are not exclusively for new and startup businesses, but they can be helpful for a small business where the small amount is problematic in the commercial lending environment.”
“We believe that growing our own business here in Northern Arizona is the best way to go; as opposed to trying to attract companies from the outside,” summed Marcus.
Besides making micro-loans, the SEDI Business Resource Center fosters and supports entrepreneurs, small and home-based businesses and promotes green businesses. FBN
Sustainable Economic Development Initiative of Northern Arizona (SEDI)
PO Box 22100 | Flagstaff, AZ 86002 | 928-856-7000
By Stacey Wittig
Flagstaff Business News