Ron Orol | Fall 2000 Headlines

Small Business Loans Will Aid Area Entrepreneurs

By Ron Orol

WASHINGTON -- It's not easy to start a small business but thanks to a new program, small-time entrepreneurs in Plymouth and Norfolk County with a dream of starting a corner coffee shop or a small web design firm will be getting some help.

A little known federal program providing microloans - small business loans ranging from $500 to $25,000 - is now available in the (South Shore area). And for small entrepreneurs hoping to start a business, this is good news.

"Banks aren't interested in giving small loans today," said Maria Gooch-Smith, director of the Taunton-based South Eastern Economic Development Corp. (SEED), a non-profit organization that has recently begun offering microloans to small businesses in Plymouth and Norfolk County.

The microloans come from a federally backed Small Business Administration (SBA) program that is expected to be renewed by congress next week and, according to government officials, should funnel about $29.5 million to small business owners around the country. And for Gooch-Smith, this new funding will make many businesses possible. "In many cases microloan borrowers have no credit rating or a poor credit rating and banks won't give them a loan and sometimes we will." She added that SEED Corp. provides loans based on "character" and "a strong business plan," she said.

And SEED, one of six Massachusetts-based non-profit organizations that administrates SBA microloans, has just under $100,000 available for Southern Massachusetts businesses. The non-profit organization has been providing SBA backed microloans throughout other parts of southern Massachusetts since Sept. 1999. According to Gooch-Smith SEED will be applying to the SBA for an additional $750,000 in loan money for next year. Since Sept. 1999, the non-profit organization has provided 15 SBA microloans - totaling $284,500 in loans -- for businesses in South Eastern Massachusetts - in Bristol, Barnstable, Dukes and Nantucket counties.

And according to Richard Shortt, director of lending for The Western Massachusetts Enterprise Fund, another Massachusetts microloan intermediary organization, many small businesses find that the only place they can get loans are with the microloan program. "After someone has shown poor credit, a bank waits seven years before offering a loan," said Shortt. "We're lookinig for an indication of a change in behavior and we're willing to give a shorter period, maybe six months to a year, before offering a loan if we see a good business plan."

So entrepreneurs that cannot get loans from the bank, often go to intermediaries like SEED for loans. Last year, SEED received its own loan of $360,000 from the SBA to be allotted out as microloans to small businesses. SEED also received a federal grant of $100,000 as part of the microloan program for technical assistance -- grants to intermediary organizations such as SEED that helps administer the loans and provide accounting, legal and marketing advice to burgeoning entrepreneurs.

According to government officials, the federal program should provide close to $20 million nationally for technical assistance this year. "This technical assistance is critical for getting the applicants ready for the loan," said Shortt. "We help put together their business plan, work on management issues, help them with market research and we monitor the loans and their business afterwards."

And Massachusetts companies have taken advantage of the microloans. The Small Business Administration reported that this year 41 microloans, for a total of $710,000, were allotted to startups and small business owners in Massachusetts.

For example, Abby Brissett was able to help start up her moving company, Better Movers, based in Brockton, Mass, with a $25,000 loan from SEED. "Since it was a start up company we were unable to get a traditional business loan from the bank," said Brissett. She added that the microloan funds went into buying a used moving truck, insurance and other moving equipment.

But in many parts of Massachusetts, microloans are still not available because no administrative agencies exist to distribute the funds and provide technical assistance. Peter DeVeau, director of the Economic Development and Industrial Corporation of Lynn, another microloan administrator, said he has enough loan money to satisfy the special niche of entrepreneurs seeking microloans in Lynn-but he is not permitted to provide microloans outside of Lynn. "I receive over 20 phone calls a month from people outside of Lynn looking for a microloan," said DeVeau, adding that there would probably not be enough funding from the federal program for all the loan requests. "In areas like Peabody, where there aren't agencies like ours these needs aren't met."

And with the trend of larger individual microloans, there is pressure on federal regulators to increase the maximum loan from the current $25,000. As part of the SBA Reauthorization bill - which is currently being considered by Congress -- this maximum most likely will go up to $35,000 for the up-coming year. "You really can't do a lot today with $25,000," said Gooch-Smith. "For service businesses, for example, by the time you buy equipment, computers, desks you find that most of the money is all used up and there is a need for working capital which isn't there."

U.S. Senator John Kerry, D-Mass., a major supporter of microloans, said he understands how important these loans are to small and upcoming businesses. "Microlending has been an important tool to use in empowering small business owners as they try to launch businesses and make it through those critical first years," said Kerry. "This is the kind of government effort I've always supported - lifting up entrepreneurs, especially women and minorities, to make the most of their ideas for a business or a new product -- knowing that they, in turn, will create jobs, reinvest money in our local economies, and continue the virtuous cycle that makes our economy hum."