Micro-Loan Program is Giving Small Businesses a Big Boost

By Lynn Horsley.
The Kansas City Star

Laura Norris has worked for Kansas City nonprofits for years but always dreamed of running her own Italian deli.

In 2013, she raised money from friends and family to finally open her business, but she kept getting turned down by banks for the last piece of financing to make it work.

Then she learned about Kansas City’s micro-loan program to help small businesses, and she got the $35,000 she needed for refrigerators and other equipment. Her deli and wine bar, Cucina della Ragazza, recently opened to good reviews in Westport, at 301 Westport Road.

“It was crucial. Absolutely,” Norris said of the micro-loan. “I don’t think there’s anybody else out there for this size business.”

Norris isn’t alone. Other small-business owners say Kansas City’s micro-loans — averaging $12,000 and capped at about $50,000 — were precisely the help they needed to make their ventures work. And advocates say the program, which launched in January 2012, has become one of the most robust of its kind.

“It’s possibly the fastest-growing micro-lending municipal program in the nation,” said Galen Gondolfi, chief communications officer for St. Louis-based Justine Petersen, which administers Kansas City’s program and is the nation’s second-largest Small Business Administration micro-lender.

Gondolfi said there are cities Kansas City’s size that do just a handful of micro-loans per year. In contrast, by early December, the program had loaned out almost $900,000 to 81 businesses within the city limits of Kansas City.

Lisa Zimmerman, the Justine Petersen small-business counselor based in Kansas City since March, says she, too, is struck by how busy she has been.

“I was told to expect six loans a month,” she said. “I average 10 loan referrals a week.”

The program extends beyond Kansas City’s boundaries to include Jackson, Clay, Cass and Buchanan counties in Missouri and Johnson, Wyandotte and Miami counties in Kansas.

As of the end of September, more than $1 million had been loaned out regionally, with nearly three dozen loans in Johnson County. On the Missouri side, many of the loans were east of Troost Avenue or in low-income Kansas City census tracts, and a few were to veteran-owned businesses.

“That’s one of the reasons we set this up, to provide assistance to businesses in certain ZIP codes that aren’t getting traditional loans,” said Kansas City Councilman Scott Taylor, who was chairman of the council’s small-business committee in 2011.
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Taylor said the demand over the past two years confirms what council members heard repeatedly from frustrated entrepreneurs and mom-and-pop shops in 2011.

“They were having trouble getting the smallest of loans from banks at the time because banks had tightened up their lending requirements,” Taylor said.

A different micro-lender had operated in the city but had closed several years prior to 2011, leaving a big gap in business finance options. And this was just at the time that city government was trying to promote small-business growth and entrepreneurship.

So city officials reached out to the Small Business Administration, the Federal Reserve Bank, the OneKC for Women Alliance and other small-business advocates to try to find a reputable micro-lender. That’s how they identified Justine Petersen, which already had a long track record in St. Louis and other Missouri and Illinois cities.

Gondolfi said one reason the program has worked so well is that those other agencies, including Kansas City’s BizCare office and the Women’s Employment Network, have provided a steady stream of referrals to the program. Eighty percent of recipients are women. Many businesses are home-based, but they run the gamut from construction and auto repair to catering, retail, hair care and technology.

Kansas City government committed to contributing $110,000 to a loan-loss reserve needed to get the lending underway. Numerous area banks, including Lead Bank, also contributed $5,000 to $10,000 to the reserve. Gondolfi said the reserve helped leverage about $1.7 million in Small Business Administration funds.

The loss rate for these loans so far has been less than 1 percent, Zimmerman said.

Gondolfi said many businesses can get started with loans for something as small as a delivery truck or lawn mower. The loans also help clients improve their credit scores once they pay them off, which can help those businesses get to a point where they can get bank loans.

The program involves more than just the money, said Sherry Turner, president of the women’s employment network and founder of OneKC for Women Alliance, a major partner in the endeavor.

“We do a lot of business plans, assessments and strengthening cash projections,” she said.

Master plumber Leonard Washington says he used two micro-loans to sustain and expand his plumbing business, America on the Go Plumbing, which operates out of the Blue Hills Business Center at 5008 Prospect Ave.

One loan for $15,000 in July 2012 helped him make payroll on a job that required him to pay prevailing wage. He paid that back within 60 days. The second loan, for $50,000 in August 2013, helped him buy an excavator to take on bigger sewer jobs. He’ll pay that loan back over five years.

“They’re a good resource,” he said of Justine Petersen. “They want projections, financial statements and all the things a bank would ask for. It’s good training.”

Although most of the loans are for businesses with just a few employees, like Washington’s, some go to bigger, long-established companies.

Creative Candles, which has 14 full-time employees and manufactures hand-dipped candles for sale nationally, struggles a bit every year with cash flow and building inventory before the holidays.

Owner Ken Weiner said he got a $50,000 micro-loan a few months ago, to be paid back in March, and it really helped him pay his bills on time.

“It’s enabled us to get through a cash-flow trough without having to impair our vendors or our business,” Weiner said.
Not all businesses that get micro-loans survive and grow in Kansas City. One construction entrepreneur used a Kansas City micro-loan to get out from under the burden of payday loans. She paid off her micro-loan in October 2012 but then relocated to New Orleans.

Still, 92 percent of Justine Petersen micro businesses survive past one year.

Despite the pace of Kansas City’s program, Taylor would like lending to pick up even faster. He wants the city to surpass its current cap and build an even bigger lending pot.

“I’d like to be out of money and have to go find other sources. I’d like that $1.7 million to be out on the street,” he said. “If anybody has a dream, this helps create that opportunity for them that they might not otherwise have.”

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