Local small business owners will soon have another opportunity to get much-needed capital for renovations, personnel or just cash flow with a new revolving loan fund.
The Pima Prosperity Fund, a project of the Pima County Small Business Commission, is meant to fill a gap in existing small business lending programs and still-tight credit restrictions. Organizers expect the typical loan amount to range from $50,000 to $150,000, but will go as low as $5,000. Disbursement should begin in the first quarter of 2014.
“I think it’s really going to be a shot in the arm for small businesspeople in Pima County,” said Small Business Commission Chairman Ken Goodman.
The fund’s architects want the loans to be as easy to obtain and repay as possible — a minimum of paperwork and interest rates below prime, taking the subordinate position, and considering balloon payments and interest-only periods.
There’s a catch, though: recipients must promise to add, or retain, a certain amount of jobs that pay at least prevailing wages.
“The Pima Prosperity Fund is interested in creating jobs, not making money,” said Tom Ward, the Small Business Commission’s vice chairman.
The idea is that most new jobs created in the county, and in Arizona, are by small businesses, Ward said. So while it’s glamorous and certainly encouraged for a major corporation to expand a local presence with hundreds of jobs, he said, a few jobs here and there at mom-and-pop auto repair shops or restaurants add up.
The Pima County Board of Supervisors approved the fund earlier this month after the commission spent more than two years refining the concept, and now organizers need to secure nonprofit status, recruit a five-member corporation/loan board from the local financial community, and build the initial loan pool.
Ward said the Pima Prosperity Fund Corporation will solicit the initial money from local private financial institutions (he said he has a bank and a credit union already showing solid interest, but he cannot name them yet because they haven’t gone to their own boards).
Ward said the fund will have a minimum of $2.5 million, though he’d like to have $5 million available to lend.
While the maximum loan would be determined by the size of the fund, he said he wants to help as many businesses as possible. Recipients must have fewer than 100 employees.
Participating in the loan pool will not only be good community relations for the banks, it also spreads the risk.
“There’s safety in the pool,” Ward said. “It really is a better investment and it’s one of the reasons why this program works successfully in other communities.”
Ward said he expects applicants to be ready as soon as the fund goes live.
“The commission has had businesses —that’s how we got into this — tell us that their most vexing problem even though the Great Recession is over, supposedly... is getting capital,” he said.
Goodman said small businesses that have been struggling to get loans from banks now have another outlet. From what he’s heard from bankers, overregulation by the federal government has made it harder for them to lend money. Goodman said he believes that’s likely true, but that doesn’t help small businesses get loans that a few years ago they’d have qualified for but now do not.
“The recovery here in Pima County doesn’t seem to be as strong and as sustained as it could be, and I think one of the reasons is the fact that small businesspeople have had a terrible problem getting any credit from banking institutions,” he said.
The fund had its genesis in a public commission, but it will be a private, nonprofit corporation, using no public resources. The county will face no liability if a loan defaults.
The Pima Prosperity Fund Corporation will work with the Microbusiness Advancement Center, which will help applicants with their paperwork, and the Business Development Finance Corporation, which will handle screening, processing and administration.
The BFDC provides financing to Maricopa and Pima county business to grow and create jobs, with SBA 504 loans — real estate loans for small businesses — as its core product. So the Pima Prosperity Fund is consistent with his organization’s mission, said Gary Molenda, BDFC President.
“In many ways the Arizona economy’s still in a recovery mode. Sometimes there’s a little chicken and egg between ‘do they have the results yet’ to justify the conventional lenders’ view of their financial prospects,” he said.
“There’s some healthy, sound businesses that could use some help,” Molenda added. “And I think that’s really the key —economic development is about creating jobs and yet you need a healthy business that’s going to be sustained and then create and maintain those jobs, so you’re really looking for the strong loans that are going be repaid and are going to keep those jobs in the long run.”
Ward, who was chairman of the Small Business Commission during the Pima Prosperity Fund’s earliest days, said the commission studied similar lending programs in Ohio, Virginia and Illinois and approached other area organizations that lend to small businesses, or facilitate their acquisition of capital. He said nobody else had a specific vision quite like the Pima Prosperity Fund’s.
“So we think we’ve found a niche that we can be really helpful in,” Ward said.
Contact reporter Hillary Davis at email@example.com or (520) 295-4254.