By John Schmeltzer

Tribune staff reporter

Published June 27, 2005

Microlending programs to start-up businesses, which suffered a setback
in the Chicago area over the past two years, are making a comeback.

Sources for the loans virtually dried up 18 months ago when Accion
Chicago, a non-profit group focused on supplying funds to small
businesses with little or no credit history, itself encountered
financial problems.

“It is not an easy thing to do. We’re making very risky loans,” said
Jonathan Brereton, president of Accion Chicago. The Chicago group is an
associate of Accion International, a global small-business lender that
brought its expertise to the U.S. 20 years ago.

The business is so difficult that since 2000, three other Chicago-area
microlenders have shuttered or stopped making loans.
Accion Chicago was saved “because the banks in town felt strongly we
should continue to exist, and all contributed whatever they could with
training and services,” Brereton said.

Two other microlenders, Lake County Partners and the Duman
Microenterprise Center and Loan Fund at Jewish Vocational Services,
have maintained their operations.

The loans are important to start-ups. Accion Chicago has provided more
than $11 million in loans to more than 800 businesses since it opened
in 1994. This year, the agency is hoping to make about 100 loans
totaling about $1 million. Frequently, borrowers are individuals who
have no employees but are seeking assistance to open a business or
expand their operation.

Since 1991, when Accion brought its international program to the U.S.,
about $90 million has been lent to more than 10,000 businesses.

“The growth has been concentrated in minorities and women populations,”
said Livy Parsons, vice president of lending and model development for
Accion USA. “The ones who have the most difficult time accessing the
typical business financing.”

The Aspen Institute, a research organization in Washington, D.C.,
estimates that as many as 10 million small businesses could qualify for
microloans. Yet only 150,000 to 170,000 people are working with lenders
or programs such as those operated by Accion or Lake County Partners.
In 2002, the institute estimated there was about $93.6 million in
microloans outstanding in the U.S. The average loan was about $7,000.

At least two banks are stepping in to take up some of the lending slack
locally, said Geoff Smith, project director for the Chicago-based
Woodstock Institute, a non-profit that analyzes bank lending practices.

Innovative Bank, based in Oakland, has begun offering unsecured loans
as small as $5,000, while Cleveland-based National City Bank is now
offering unsecured loans as small as $10,000.

Unlike Accion, however, both Innovative and National City require
borrowers have good credit histories, something that many start-ups
lack.

“They aren’t a substitute for Accion,” Smith said. “Most Accion
borrowers would not qualify for these loans.”

Still, Smith said this is a significant change for banks. In the past,
most banks pushed borrowers into personal loans, finance company loans
or credit cards, which often carry interest rates of 20 percent or
higher, he said.

Some of the problems faced by Accion and other non-profit microlenders
are due to attempts to cut funding by the U.S. Small Business
Administration. Congress restored some of the funds last year, and it
appears that the same may happen this year.

While Congress restored the lending program, technical assistance
funding was cut, said Heddy Ratner, co-president of the Women’s
Business Development Center, which operates an advisory program for new
small-business owners. That money was used to underwrite the advisory
services most new small-business owners need when getting started.

“We have lost over $400,000 in SBA money and we are the biggest Women’s
Business Development Center in the country,” she said.

While the women’s center has found other money to pay for the
assistance program, loss of the technical assistance funding could
jeopardize the success of microloans.

“Microlending is no good without extensive technical assistance,” Ratner said.

 
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