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Note to small biz: Loans are available

There’s good news for Mom and Pop corner stores, auto repair shops and your neighborhood taqueria. More loan options are available for small businesses than most realize. 

At a recent Commercial Roundtable Lunch convened by LISC Chicago, lenders described the terms of loans as large as $2.5 million and as small as $500 available to eligible small business owners.

Accion's Amy Clinton, left, and New Market Support Company's Kelsey Hamory explained the types of loans that their organizations have for small businesses.

Gordon Walek

Loan problems

But neighborhood commercial district managers who attended the luncheon observed that it’s not just a lack of knowledge about loans that’s slowing business expansion. Financial disorganization on the part of small business owners prevents them from securing those loans, for example, and owners who refuse to part with vacant properties in a down market also put a damper on expansion.

“Sometimes I think they want to keep the property vacant,” noted Christyn Henson of Quad Communities Development Corporation. Other times they can’t afford to rehab property to attract a suitable tenant, she said.

When banks can't help

To help small business owners who don’t necessarily quality for bank loans, Accion Chicago will loan up to $50,000 for existing businesses and up to $20,000 for start-ups. Credit-builder loans between $500 and $2,500 are also available.

"A lot of our clients come to us not only because they are starting a new business, but because they have severe credit issues,” explained Accion’s Amy Clinton. (See loan terms here.)

Quad Community Development Corp.'s Christyn Henson was on hand to hear about the loan products.

Gordon Walek

To qualify, Accion's borrowers need to show sufficient cash flow from their businesses or other sources, which can even be their social security checks. Homes and vehicles are accepted as collateral.

LISC’s New Markets Support Company offers low-interest loans on the higher end of the spectrum – $250,000 to $2.5 million – for owner-occupied real estate acquisition and capital improvements. LISC requires personal guarantees, so an applicant must show three years of tax returns and sufficient cash flow. The $10 million fund was established in 2012 in partnership with Morgan Stanley and CDC Capital Markets. (See details here.)

“So far we’ve closed loans to a dental clinic, a corrugated box man who purchased a warehouse, a space for a real estate builder and a coffee shop,” said Kelsey Hamory, an NMSC underwriter. “None of those have been in Chicago. We would love to find businesses in Chicago.”

Who qualifies

To qualify for the loan, businesses need to be located in a census tract with a poverty rate of at least 20 percent or that meets certain requirements for median income. “If you think your neighborhood is a relatively low-income community, then it probably qualifies,” said Hamory.

Based on federal rules, LISC New Markets can’t loan to tanning salons, liquor stores or other “sin” businesses, she added. Restaurants can sell liquor, but can’t package it to sell.

“So no bars, no tattoo parlors,” said Roger Sosa, business recruitment manager at Back of the Yards Neighborhood Council.  “I want to figure out who not to send to you.”

Those kinds of "sin" businesses, however, are welcome to apply for loans from Accion, said Clinton. The ventures it doesn’t lend to, though include non-profits, real-estate flipping, marketers with pyramid schemes, and prototype developers. Inventors can qualify for a loan, though, once they have purchase orders. Adult entertainment venues, lenders and exporters are also not eligible.

Participants at the meeting discussed how local needs for capital and expertise differ, depending on the community.

Gordon Walek

The amounts

The size of loans that small businesses in NCP neighborhoods were looking for varied. Abraham Lacy, executive director of the Far South Community Development Corporation, said that most businesses in his area are looking for loans above $50,000 to fix up their shops or buy equipment. Henson of Quad Communities said that her businesses are looking for loans under $50,000. “A lot have credit issues so a traditional bank is not an option. Credit cards are tapped out so they have to look at different products.”

Perry Gunn, executive director of North River Commission, said that Albany Park businesses had similar issues. “Lots of businesses want loans under $50,000, but they don’t keep good books. It’s poor record keeping.”

Tina James, director of commercial and technology services for Greater Southwest Development Corp., said she worked with a small metal manufacturer who had the annual sales to get a loan from a traditional bank but didn’t have tax returns from all its family members who are part owners in the business.

“So I sat down with the [banker] and said, what do you really need? He would not give them the loan unless we helped them get [the paperwork] together.”

Ghian Foreman, director of Greater Southwest in Chicago Lawn, said there’s one successful, well-established business in the neighborhood that would need to create its financials from scratch. “But we don’t have the resources to do it.”

Tina James, of the Greater Southwest Community Development Corporation, said many small businesses need lines of credit rather than straight loans.

Gordon Walek

Business resources

Clinton suggested a number of resources for businesses in that situation. “The Women’s Business Development Center is excellent.” Other institutions that can help include other Small Business Development Centers, such as the Chicagoland Chamber of Commerce, she said.

Many small businesses need lines of credit rather than loans, James observed. “A lot of our folks don’t understand why they should consider a line of credit [to] infuse cash into the whole system and help them grow. We need to do more education about that.”

Foreman said that community banks are a good resource for businesses in his neighborhood seeking lines of credit. Some of his top referrals are Marquette Bank and Urban Partnership—formerly ShoreBank.

Clinton added that Accion could suggest several other banks offering lines of credit to small businesses, including First Eagle Bank. And Accion can offer a “pseudo” line of credit, she said. “We can sometimes refinance within six months.”

Vacant Problems

Property owners unwilling to rent or sell are another impediment to commercial growth. “A lot of them don’t care if they rent the space, because it’s a tax write off for them,” said Sosa. “How do you get them to move? What’s the incentive? It’s the bottom of the market.”

Foreman thought that owners holding vacant properties should be held accountable by the city government. He noted that after the Newtown shooting, the mayor told banks to cut off lines of credit to gun manufacturers who wouldn’t support gun control measures. He suggested that the city needs a policy that penalizes banks holding mortgages on an excessive number of vacant properties. “That’s the only way I see there’s going to be any quick action.”

“The economic incentives don’t exist right now,” Sosa agreed. “We need that legislative hammer.”

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A version of this story first appeared on the LISC Chicago website.

Support for commercial district programming at LISC Chicago is generously provided by the Polk Bros. Foundation and the Goldman Sachs 10,000 Small Businesses Initiative at the City Colleges of Chicago.

Posted in Chicago, Commercial and Economic Development

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