A little more than a year ago, Michael Igo thought he would have to close his struggling West Plains knife and cutlery business. Then, he sought help from Spokane Neighborhood Action Programs microenterprise development program. Since then, he has received two loans and technical assistance to keep his store afloat.


Without the help, Igo says, I would have had to close up my business and paint houses for a living.


The program run by SNAP, a private, nonprofit community action agency with offices at 2116 E. First, offers very small loans, called microloans, to low- to moderate-income business owners and is one of several such programs here.


Other Spokane-area organizations with microloan programs include the Spokane Neighborhood Economic Development Alliance (SNEDA) and the African-American, Hispanic, Asian, and Native American Business and Professional Organization (AHANA). SNEDA is a nonprofit economic-development organization and AHANA is a Spokane group that supports minority businesspeople.


Banks offer microloans of up to $350,000 through the U.S. Small Business Administration (SBA) express loan process, says Rick Thorpe, a certified business adviser with the Spokane-based Washington Small Business Development Centers (SBDC). The SBDC is a collaboration between public universities, community colleges, economic development organizations, and the SBA that provides free counseling to small businesses.


The SBDCs services include providing technical assistance to potential borrowers and helping connect them with microloan programs. Banks are hesitant to make small loans to very small businesses, especially startups, which makes microloans offered through community-development organizations valuable, Thorpe says. Those programs are more flexible and willing to consider lending money to owners of such businesses, including those whose credit history makes a loan a higher risk, he says.


Thorpe says demand for microloans currently is the highest hes seen in the past decade. Representatives from SNAP, AHANA, and SNEDA also say theyre seeing strong demand and are sharing referrals with one another to match clients with the most appropriate program.


SNAPs program, which started in 1997 and has issued a total of 100 loans since then, offers loans ranging from $500 to $50,000, with an average loan size of $7,000 and a maximum term of five years, says Dave Heyamoto, its business development manager. SNAP requires some type of collateral for its loans, and charges an annual interest rate of 3 percentage points above prime. Loan fees vary depending on city or county residency, due to different agreements with the city of Spokane and Spokane County, he says.


SNAP will loan money only to people whose household income is below 80 percent of the regions median income, which for a single-person household is $30,600 and for a four-person household is $43,700, he says. It focuses strictly on funding startups, business expansions, and business enhancements.


Typically, SNAP requires that applicants have a good credit history, but also looks at a businesss potential when considering whether to approve a loan application. It will help applicants get their finances in order before they apply for a loan, such as by helping them establish better credit or set up a checking or savings account, Heyamoto says.


SNAP encourages borrowers to participate in a six-week class that includes technical assistance in such tasks as creating a business plan, developing a marketing strategy, and working on bookkeeping skills. Its next session, which starts next month, already is full.


Bookkeeping is a major issue for a lot of small businesses, Heyamoto says. People dont like to do that and dont want to do that, so we provide referrals to someone who can do that for them.


Once SNAP has made a loan, it continues to offer technical assistance during monthly follow-up conversations with borrowers, he says.


Igo signed up for SNAPs class in the fall of 2005. He had moved his store, called West Plains Knife Works, to Medical Lake from Spokane in January of that year, but was having trouble building a customer base. Within six weeks, he had completed the class and the necessary paperwork for a loan and received a loan of $2,800 to help pay for advertising, to buy supplies, and to cover trade-show fees.


Im a one-man operation, and I was looking for a smaller loan, and they have a lot of resources to point you in the right direction, Igo says.


Last October, Igo received another $2,000 loan from SNAP. He hasnt paid the two loans back fully yet, but says hes been making all of his payments on time.


Demand


Thorpe, of the SBDC, says he already has turned in six microloan applications to SNAP and SNEDA on behalf of his clients this year and is working on several more.


There is definitely an increased need for these types of programs, Thorpe says.


Demand is increasing for small bridge loans among seasonal employers, particularly in construction, who want to maintain their staff levels during the slow winter months, he says. A bridge loan is a short-term loan intended to provide or extend financing until a long-term loan can be obtained.


Construction activity has been stronger this winter than in past winters, so employers are seeking smaller loans instead of larger ones from a bank or credit union, Thorpe says. Meanwhile, owners of startups are looking for more small loans than usual now because the value of their own homes has risen, and theyre able to use the added equity in their homes to start businesses, rather than seeking financing from a bank or credit union, he says.


The U.S. Small Business Administration streamlined its microfund loan application process last year to make it less confusing and overwhelming, Thorpe says. That change also has contributed to the increased applications for microloans here, he says.


Thorpe says his typical microloan client is someone who wants to buy a small business and needs cash to help do that and also to raise working capital.


If a person has a good idea and an excellent business plan and can show that cash flow will work out to support payments, theyll probably get a loan, Thorpe says. Microloan programs take some more risk than some conventional financial institutions, but these businesses add a lot to our community.


AHANAs program, which started in 2005, hasnt extended any loans yet, but will close on three loans soon, says Thomas Speight, a loan officer at AHANA, located at 104 W. Fifth. The program offers loans up to $15,000, for a maximum term of five years, he says. AHANA charges an annual interest rate of 2.25 percentage points above prime and a one-time fee that amounts to 3 percent of the total loan amount. As with SNAPs program, borrowers can use the microloan to raise working capital, expand a business, or start a business, Speight says.


AHANA requires that clients have a viable business plan, show that they can repay a loan, have good cash flow, display good character, and have some type of collateral, he says. AHANA says it plans to provide technical assistance to an applicant before approving a loan, while the borrower is repaying the loan, and even after the loan has been repaid, he says.


SNEDA, which formed in 1999 and is located at 715 E. Sprague, offers revolving loan funds to small businesses and startups that are unable to obtain loans from banks and credit unions. With a revolving fund, borrowers make loan payments directly to the fund, which uses the money to make new loans.


The smallest loan SNEDA has made was $3,000, and with the help of other lenders it has made loans of up to $412,000, says Eric Loewe, SNEDAs executive director. So far this year, SNEDA is working with other lenders to close three loans worth a combined total of $692,000, Loewe says. In all, he says, SNEDA has helped inject $1.3 million into Spokanes economy through loans.


Just with the referrals coming in were seeing more demand for microloans this year, Loewe says. These are diamonds in the rough, people that might be a tremendous source of self-employment or jobs.


The interest rates SNEDA charges on loans range from just below prime to 4 percentage points above prime, and SNEDA also charges fees for its services, he says. The organizations funding sources include the federal government, city of Spokane, local banks and other businesses, and earnings from its loans.


AHANA is funding its program with money from the city of Spokane and its own money, Speight says.


Funding sources for SNAPs program include grants from the city and Spokane County, and private funding from the Northwest Business Development Association, Numerica Credit Union, Washington Mutual Bank, U.S. Bank, and United Way of Spokane County, Heyamoto says. SNAP also offers a microenterprise program for refugees, which is partly funded by the federal Office of Refugee Resettlement.


Contact Emily Brandler at (509) 344-1265 or via e-mail at [email protected].