CEI reserve fund gets boost
Photo/Jackie Farwell
Anne Hebert, co-owner of CareTree Healthcare Staffing in South Portland, credits a microloan from Coastal Enterprises Inc. for helping launch her company. A grant from Bank of America for CEI's loan loss reserve fund is expected to expand the microloan program.
When Anne Hebert wanted to open a staffing service to supply health aides to health care institutions and private residential clients, she and her partner, Sean York, approached several banks.
Veterans of agencies that care for the elderly, both Hebert and York had a vision to start their own company, offering highly trained personnel to nursing homes, assisted living facilities, rehabilitation centers and other places that care for the aging. “We had a vision to help take care of the elderly, but the traditional lenders didn’t get it,” says Hebert, director of staffing services for CareTree Healthcare Staffing in South Portland. Although she and York had some capital from personal savings, they needed another $25,000 to launch the company and meet payroll for three employees.
They found financing in 2008 through Coastal Enterprises Inc. and the U.S. Small Business Administration’s microloan program, a specially designated fund for small businesses needing loans between $1,000 and $50,000.
Now, thanks to a recent $125,000 grant from Bank of America, business owners like Hebert and York will benefit from upwards of $800,000 in new microloans.
“This is the first time a private bank has stepped forward with a donation, a grant of this kind,” says Grace Cleaves, director of marketing and communications for CEI. “It’s very significant for us.”
The grant is part of a $10 million pledge BoA made last spring to replenish loan loss reserves of nonprofit lenders for small business programs. Hobbled by a lack of reserve funds, lenders like CEI have not been able to meet the demand for microloans nationally, leaving millions untouched in the SBA microloan program. Based in Wiscasset, CEI is a community development financial institution, part of a network of financial institutions that serve low-income or high-risk populations that has gained prominence within the banking industry as a conduit for the disbursement of stimulus-related funds.
The grant is earmarked for CEI’s loan loss reserve fund for the SBA microloan program, which requires a 15% reserve. “With an average $20,000 microloan, this means we can help 40 Mainers get the financing they need to start their business,” says Betsey Timm Greenstein, president of Bank of America-Maine. So far, this is the only such grant made in Maine, but T.J. Crawford, a regional spokesman for the bank, says more than half of BoA’s pledge has yet to be disbursed and other grants could be made in the future to Maine CDFIs.
Last year, Goldman Sachs announced it would invest $300 million in CDFIs as part of a $500 million small business initiative. Earlier this month, the mega investment bank announced the launch of the Opportunity Fund Network to manage the CDFI program and strengthen the institutions’ abilities to lend. Twenty-five high performing CDFIs nationally will be selected to participate in the program.
BoA and CEI have a longstanding relationship, says Greenstein, but it has typically been in the context of direct lending or investing. Nationally, BoA is the biggest investor in CDFIs, says Greenstein, with a portfolio of more than $1 billion in loans and investments to CDFIs.
A specialized role
CDFIs’ willingness to finance riskier loans serves an especially important role in jumpstarting new business and helping Maine’s economic recovery, says Chris Pinkham, president of the Maine Bankers Association.“Leveraging capital is the name of the game today,” he says.
New businesses, which often have a high failure rate, are frequently financed with personal credit cards or home equity loans, says Pinkham. But those same small enterprises can access technical assistance and more capital through CEI’s microloan program, enhancing their chances of success. “What BoA’s done is help CEI expand the number of loans and their capacity to make those loans,” says Pinkham.
Herb Thomas, area manager for the SBA in Bangor, says in fiscal year 2010, the SBA disbursed $796,000 through its microloan program in Maine. This year, the cap on individual loans was raised from $35,000 to $50,000.
“I get calls from the public all the time about these microloans,” he says. “People tell me, ‘I’ve been to the bank already and the bank can’t help me.’ I refer them to the microlenders. There is a demand, but I understand, it’s a tough credit call. Many of [the businesses] are too new, or don’t have the collateral. That’s why referrals to CDFIs like CEI and others are important.”
BoA’s donation means CEI doesn’t have to shift money from other accounts to finance the SBA microloan program, says Cleaves, helping it fill an important niche for small business financing. The microloans are typically used for startup costs, equipment, inventory and working capital.
“When the micro business applies for a loan, they bring us their story, who they are, what they’ve done, what assets they have and aspirations, and the plan for the business,” she says. “In a microloan deal, you are often dealing with a less sophisticated borrower, they’re not going to get financing from a bank, so our goal is getting them ready to be bankable.”
Although not the primary motivation behind the grant, BoA’s Greenstein says the bank could benefit from those loans when successful startups are ready to grow and turn to BoA for business services. “When small business thrives, the state of Maine thrives,” she says. “We have a long ways to go to make the climate better here and then bring it to the thriving stage.”
For Hebert, thriving is just how she’d describe CareTree Healthcare Staffing. The company, less than two years old, employs 68 and has quadrupled its client list from its first year in business. It now has a relationship with a conventional bank, which just doubled the company’s credit line. “We want to grow, but not outgrow ourselves, so we’re taking this slow,” she says. “We couldn’t have done it without CEI.”
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