Menu of Loan Programs an Advantage for Regions

A variety of federal, state and local loan funds, managed by regional development organizations, serve the development finance needs of many small businesses in rural areas. The funds differ in terms of types of projects that can be funded (e.g., construction projects are ineligible for some programs), where funds can be used (e.g., only projects in particular counties can receive funds), and who can receive financing (e.g., low-to-moderate income people). Having a range of loan fund programs gives organizations a greater flexibility in serving the various needs and populations in their service areas. According to the 2000 NADO Research Foundation survey of regional development organizations, 27 percent of respondents administered Small Business Administration (SBA) programs.

The Tri-County Economic Development Commission (EDC) is an EDA funded district serving three counties with a population of 287,000 in northern California. Its seven loan funds include an EDA revolving loan fund (RLF), a Community Development Block Grant (CDBG) RLF, a US Department of Agriculture (USDA) Intermediary Relending Program (IRP) fund, US Forest Service Old Growth fund, and funds financed by localities in the region. According to Melissa Hermant, Tri-County’s Senior Loan Officer, having several loan funds “is an advantage when you run out of money in one fund and have other loan programs available to provide financing for a loan. Also, some of our loan funds have geographical restrictions and can only be used in certain counties or towns.”

Since 1988, Tri-County has made loans totaling $7.6 million, leveraging $44 million in private funds and creating over 1,100 jobs. The majority of the loan deals packaged by Tri-County involve multiple funds. For instance, in 1996 a deal was put together for construction of and equipment for a new locally managed movie theatre. Tri-County provided $250,000, which included $210,000 from a CDBG fund and $40,000 from the EDA RLF. Tri-County’s gap financing role leveraged $1.9 million in bank funds, and the CDBG fund’s good terms were critical in reducing the burden on the project’s initial cash flow. The theatre has created 10.5 jobs and contributed to local economic development.

Tapping Private Funds Regional development organizations are also tapping private funds to strengthen their lending ability. EDA district Southeast Idaho Council of Governments (SICOG) in Pocatello in 1998 received $195,000 from the Eastern Idaho Regional Development Alliance to recapitalize SICOG’s IRP fund. According to Karen Corrigan, SICOG’s Loan Officer, this new fund can only be used in two of SICOG’s seven counties and cannot be used for property purchases. The entire loan fund is nearly $750,000 so property purchase loans can be made with the USDA monies that make up the bulk of the loan fund.

Managing several loan funds not only allows organizations to serve a wider array of business finance needs, but also meets the continuing finance needs of businesses as they evolve. Kim Watson, Executive Director of the Southeastern Illinois Regional Planning and Development Commission (RPDC), an EDA funded district in Harrisburg, has had several businesses come back for additional loans over the years, because they see the value of the RPDC’s loan programs.

Southeastern Illinois manages seven loan funds that include an EDA RLF and several CDBG RLFs. They will soon be launching a microloan fund capitalized with a USDA Rural Business Enterprise Grant and state funds. Almost 800 jobs have been created and retained through 68 loans to businesses in the district’s five-county service area, which has a population of 51,000.

Watson tells of a truss company that has been financed four times by the RPDC. The company provides both manufactured roof and floor trusses to a majority of local lumber yards and home centers in a tri-state area. Since 1989, a total of $166,800 in loans has been made by Southeastern Illinois from several of its funds for expansion and equipment purchases. These funds leveraged $328,929 and created 30 jobs.

By William Amt, NADO Research Foundation Program Manager

For more information contact Melissa Hermant of Tri-County EDC at (530) 893-8732, by email at missy@tricountyedc.org or at www.tricountyedc.org; Kim Watson of Southeastern Illinois RPDC at (618) 252-7463, by email at sirpdc@midamer.net, or at www.sirpdc.org; Karen Corrigan of SICOG at (208) 233-4032 or www.sicog.org.

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