Microloans in Community & Small Business Development
June 04, 2013 at 9:16 AM
- Editor's Note: Short Enterprises president and founder W. Michael Short served as deputy director of the Near Westside Initiative while completing a graduate fellowship at Syracuse University. Short spearheaded the creation of the NWSI micro-loan program in collaboration with a number of community partners.
Near Westside Initiative Micro-loan Program
Microloan programs are among the many resources utilized to foster small business and entrepreneurial development in challenged urban communities. Identifying which resources will be most effective will ultimately depend on the specific needs of the given community.
- For a primer on micro-loans from our friends at the U.S. Small Business Administration, click here.
In the poorest neighborhood of Syracuse, New York – the Near Westside – our founder worked with a local nonprofit development organization (NWSI) to explore, implement, and fund an innovative revolving microloan program as a component of a much larger community revitalization effort.
For more information on the Near Westside Initiative, click here.
Reflecting on the successful launch of this program in particular, we identify 5 key questions central to discussions relating to the implementation of a microloan program in community development and neighborhood revitalization.
- For more information on the luanch of the program, click here.
(1) Is the program being created in response to an articulated and demonstrated community need?
Moving beyond the “If you build it, they will come,” strategy.
The Near Westside Initiative commissioned a study in the Spring of 2009 to assess the needs of the local business community. The study, authored by W. Michael Short, found that 35 percent of the neighborhood’s 140 businesses were interested in expanding but lacked access to the necessary resources to do so. The type of business loans they required were much smaller than those traditionally made by banks.
To fill this need, banks typically encourage small businesses to use high interest credit cards, which is a very expensive financing method over time. The lack of reasonable financing options inhibited many neighborhood businesses from expanding. This fact was especially true for start-up entrepreneurs with insufficient credit.
Understanding the importance of an asset-based development strategy to build wealth within the neighborhood, NWSI’s Small Business Development Committee launched an array of comprehensive initiatives in June 2010 aimed at boosting growth and encouraging new business development. The initiatives include a business and entrepreneurial development program, a business peer mentoring program, the formation of a business association, and a revolving microloan program.
Each of these items arose from recommendations from the SALT District Business Survey, which allowed programming to be developed and customized to fit the particular needs of the target community.
(2) Who will manage the program and where will the funding come from?
Utilize – AND LEVERAGE – grants. Multiply the impact.
In 2010, the Central New York Community Foundation awarded $25,000 of seed funding to launch the program. The NWSI is using that funding to create a loan loss reserve with a local credit union with a proven track record of managing smaller and riskier loans that traditional banks will not back.
- For more about the Central New York Community Foundation, click here.
Developed by then-NWSI deputy director W. Michael Short in partnership with the Community Foundation and Cooperative Federal Credit Union, the program model is innovative and the first revolving microloan program of its kind in the area. The loan program will provide vital credit financing to spur economic development in the neighborhood, which is experiencing considerable investment and growth.
- For more information about Cooperative Federal Credit Union, click here.
Syracuse’s Cooperative Federal Credit Union has agreed to loan a multiple of that guarantee, which will effectively quadruple all funds committed to the program. With this backing, the NWSI has the ability to grant loans from a $100,000 loan pool to Near Westside businesses and entrepreneurs as a result of the partnership agreement with the credit union.
“The Community Foundation is pleased to support efforts that can promote community development in areas where disinvestment has been the pattern,” says John Eberle, vice president for grants and community initiatives at the Community Foundation. “We truly hope the microloan program sparks even further innovation, enterprise and investment in our community’s Near Westside.”
- For more information on the luanch of the program, click here.
(3) Who will be eligable for the program and what can the money be used for?
Be flexible. Offer support resources.
The NWSI’s microloan program is designed to be the final step in the initiative’s comprehensive small business and entrepreneurial development program, operated by the NWSI’s Small Business Development Committee in partnership with Syracuse University’s South Side Innovation Center, the NYS Small Business Development Center at Onondaga Community College and Syracuse SCORE. The committee actively recruits neighborhood residents and businesses to enroll in the program.
The NWSI Entrepreneurial and Small Business Development Program is directed toward a broad clientele of aspiring, new and existing entrepreneurs, low-income individuals and individuals with disabilities, to help them establish profitable and sustainable businesses. The goal of the program is to help promote stability and growth, as well as increase productivity and profitability by helping individuals make informed decisions relating to their businesses.
The program provides a complete teaching, training and financing program for each client with individualized, one-on-one consulting, classes and courses. These services include business plan development, organization structures, exporting, cost analysis, marketing, financial planning, financial strategies, business expansion and research.
(4) What kind of approval process will the program utilize?
Streamline the process to increase effectiveness of program.
When the business plan is complete and the company entity has been created, the applicant may apply for a micro-credit loan. Application and approval is a two-stage process. In the first stage, the applicant completes the application, and submits it to the NWSI. The director checks it for completeness, then convenes a review committee consisting of himself, a representative from Cooperative Federal bank, and the relevant program counselor or counselors who have worked with the applicant.
If the committee approves the application, it is sent on to the second stage of the approval process, the Cooperative Federal Credit Union, for final review and approval. The bank approval is necessary because the bank has a fiduciary obligation to its depositors, and the loan funds are at least in part bank funds.
(5) How will you measure the success of the program?
The success of the loan fund will be measured in terms of the number of businesses that expand, the number of jobs created, and the number of start-up ventures funded thanks to access to our low interest micro loan program. Approximately ten micro loans will be made during the first cycle of the fund before it replenishes itself and additional loans are made. The average loan will be ten thousand dollars ($10,000). We’re estimating that the first cycle of funding will result in a minimum of five new small businesses and ten new jobs created in the Near Westside neighborhood within three years.
Shawndell Burden tried several times to apply for a business loan to expand her hair salon, located at the 500 Spa, but she was always declined. One banker even said that her business idea was crazy and that she was sure to fail.
Never losing sight of her dream, Shawndell kept trying. Now, she is one of the first funding recipients of the Near Westside Initiative's Microloan Program, created for existing businesses and aspiring entrepreneurs located in the Near Westside neighborhood of Syracuse. A Community Foundation grant served as a loan-guarantee to help make the program possible.
In its efforts to revitalize one of the poorest neighborhoods in the United States, the Near Westside Initiative recognizes the importance of a strong local business community. Small businesses create job opportunities for residents and foster organic wealth creation, but the types of business loans that most banks offer are too large for their needs. In response, the Near Westside Initiative created a new microloan program in collaboration with Syracuse Cooperative Federal Credit Union that allows neighborhood businesses to apply for smaller loans that are a better fit for their business plans. In addition, each recipient works one-on-one with a local business consultant who can help guide them after the loan is awarded.
Shawndell credits the unique program with helping her fine tune her business plan to make it more desirable for a loan. Now she is on track to expand her salon business by hiring five new employees and renovating to make room for her expanded client base. Her story proves that a positive outlook, strong determination and smart ideas can take you to new heights.