Bigger Microloan Program May Build Up Small Businesses
Clients Leverage Small Business Development Centers to Review All Options for Capital
PHILADELPHIA—A little bit can go a long way in small businesses, especially when it comes to capital. With many banks still hesitant to ante up for entrepreneurial ventures, widening access to microloans may prove a godsend for small business owners.
Glass artist and designer Bernard Katz has relied on microloans a number of times. He first obtained a $10,000 loan from the US Small Business Administration (SBA) to open Bernard Katz Glass in the Manayunk section of Philadelphia in 1996. Ten years later, Katz brought wife Katie in as part-owner. The company enjoyed sales above $250,000 through traditional market strategies in 2008.
That didn’t last. Katz’s creations are high-end, typically landing in museums, art galleries and collector hands—all hit hard by the economic downturn. Sales dropped off considerably. Alarmed, the couple revisited the Temple University Small Business Development Center (SBDC) for assistance.
The SBDC worked with the company to redefine its market approach, suggesting the couple broaden their market to interior decorators and high-end furniture stores as well as offer more mid-range products. The SBDC consultant then urged the clients to step up its retail focus and develop a better online presence. With commercial lenders casting a wary eye on the market, the owners also worked with the SBDC to identify options for working capital to act on the new strategies.
For the Katzes, a $10,000 grant from the Merchant Fund of Philadelphia emerged as the most favorable option. The SBDC assisted the couple with the application process, responding to the inquiries from the fund administration and speaking to administrators on behalf of the clients.
Helping clients access capital remains an important focus for the SBDCs, and the centers maintain strong relations with local banks and financing resource partners to ensure it happens. In 2008, these efforts paid off—literally: the SBDCs helped clients acquire $217 million to support business development activities over the past year.
SBDC financing numbers are down slightly for 2009 with $63.5 million in start-up and expansion capital approved so far. The centers have made special efforts to educate lenders about small business needs and advise clients of realistic lending alternatives in a stricter lending climate, hosting lender roundtables and working with the Pennsylvania Credit Union Association.
“Microlenders and local grant programs are a good option for small businesses right now,” said Eustace Kangaju, director of the Temple University SBDC, one of 18 centers across Pennsylvania. “Since these entities are locally-focused, they are often willing to work with business owners to meet their needs.”
That may be why SBA recently announced it would shift funds provided under the Recovery Act to its microloan program, noting that these funds are critical for entrepreneurs who have difficulty obtaining traditional loans. Microlenders use the funding to provide loans up to $35,000 to entrepreneurs, which can be used for working capital and acquisition of materials, supplies, furniture, fixtures and equipment.
Credit cards remain the fallback in tight credit markets, but are not a wise choice for financing business activities, Kangaju noted. A recent study by the Kauffman Foundation concludes that credit card debt contributes to business failure.
“Bottom line is that small businesses need money to operate,” said Christian Conroy, State Director of the Pennsylvania SBDC network. “Microloans will help put more businesses on track to stay open, grow, and create jobs. Having jobs helps prevent foreclosures and generates more commerce in local communities, all of which drives the economic recovery.”
