December 12, 2005
Small packages | Maine leads the region in granting microloans of up to $35,000 to small businesses
By David Raths
The inspiration for Chesley Flotten's new knitting shop and café in downtown Brunswick came from a dark period in her life ˆ time spent knitting while undergoing treatment for cancer three years ago.
Her battle with cancer also forced Flotten, now 31, to rethink her career goals. "It really got me thinking about what I do all day," said the former nonprofit fundraiser. She decided she wanted to create a space where people could take time from their hectic schedules and enjoy the company of other knitters.
Like struggling with cancer, the decision to open a knitting shop took her in an unexpected direction ˆ bootstrapping a business. The key to making her Knitting Experience Café a reality ˆ it opened in September ˆ turned out to be counseling from Wiscasset-based community development agency Coastal Enterprises Inc. and $12,000 from the U.S. Small Business Administration's microloan program. Flotten said CEI made her look at her idea from all angles. "They even forced me to consider a Plan B, if the business doesn't work out," she said.
CEI is one of six Maine nonprofit lenders participating in the SBA's microloan program, which is geared toward small businesses that might be ineligible for traditional bank loans. The SBA makes funds available to the nonprofit groups, which then make loans of up to $35,000 to small businesses and startups. Often, the loan is part of a package of assistance that includes business plan counseling. In the last few years, the number of Maine nonprofit lenders participating in the program has increased from four to six, and the dollar amount of microloans granted increased from $694,000 in 2003 to $888,000 in 2005, according to the SBA.
According to the SBA, Maine has traditionally made greater use of the 13-year-old microloan program than have neighboring states. For instance, between October 2004 and September 2005, agencies in the state made 62 microloans, while Massachusetts reported 31, Vermont, 14, and New Hampshire only four.
"Twenty-five percent of the workers in Maine are either self-employed or work in businesses with five or fewer people, so there is a great need for small amounts of capital here," said Mary McAleney, the state's district director of the SBA. "The program is growing here both because of the need, and because we have a good number of intermediaries that do a very good job."
Ellen Golden, senior vice president for development at CEI, said Maine is lucky to have so many people like Chesley Flotten with a capacity to innovate on a small scale. "We see quite a marvelous range of businesses ˆ processing sea salt, organic personal care products, someone casting dental crowns, clothing designers, someone who grows and harvests mushrooms for sale and export."
Lending on character
CEI was among the first intermediaries when the nationwide program began in 1992, and has issued a total of $4.9 million in microloans. Those loans also leveraged another $3 million in bank funding for a total of $7.9 million in 320 deals. Golden noted that 55% of those businesses were women-owned and 12.2% were minority-owned. The loans were also predominantly made to rural businesses.
After Flotten researched her knitting shop business idea on the Internet last April, she initially contacted CEI, which in turn sent her to an office of the Maine Small Business Development Centers. Once she had a business plan together, she also went to several banks seeking startup financing but didn't have much luck. "They told me nobody knits anymore except grandmothers," she recalled, adding that since her store opened, the age range of her customers has been between 20 and 60. For the most part, she said, "the banks got it wrong."
She did arrange some financing ˆ she won't disclose the details ˆ from Portland-based Maine Bank & Trust, but went back to CEI for more counseling and a $12,000 SBA microloan to complete her startup funding. Flotten recalls being frustrated with CEI's loan officers at first. "They were really pushing me to think about how I would deal with the seasonality and they wanted me to keep working on monthly cash-flow projections," she said. "Sometimes I felt like I was just making up numbers." But with the store open since September, she appreciates the loan officers' efforts. "Now, I realize that it was good, because I am so much further ahead than I would have been," she said, adding that business has so far exceeded her own initial conservative estimates. "Knitters are a passionate bunch."
Experts say many people who approach the intermediary agencies have already been to a bank, but have been rejected for loans because they have marginal credit scores. The nonprofit lenders use credit scoring, too, but they have more flexibility to look at why a credit score is weak and what the individual is doing about it, such as paying down outside obligations. "Often we refer people to credit counseling because when we pull their credit report and they see their score, they didn't know where they stood," Golden said. "For us, it's about character. We get a feeling about whether the person is trustworthy and will repay their loan. Now some will fail, but they will still work to make good on their obligations."
Like Flotten, most of these would-be entrepreneurs do not have a business plan, and are referred to startup workshops where they can assess whether their idea really has merit or not. "Some people come with unrealistic expectations," Golden said. "For instance, their business idea requires $100,000, yet they don't have any equity or collateral to bring to the project. No lender is going to be able to help them." But often they're able to scale it back to a workable idea after going through the numbers more carefully, she said. "We consider it a success if someone goes through the planning process and decides this is not what they want to do."
The rural connection
Androscoggin, Oxford and Franklin counties have lost a lot of manufacturing jobs in recent years, and unemployment hovers around six percent in the region. The Androscoggin Valley Council of Governments, based in Auburn, has tried to improve the economic picture with technical assistance, loans and one-on-one counseling for startups. "You see a lot of people honing their skills and wanting to become self-employed," said Jane Mickeriz, a loan officer for the nonprofit agency, which became a microloan partner in 2001.
AVCOG, which has three loan officers, uses the microloan program to help businesses such as convenience stores, snowboard retailers, craft shops and fitness studios that need money for working capital. "We send them to the bank first, but they are usually considered very risky," Mickeriz said.
Although the microloans do tend to have a higher default rate than the industry average, Mickeriz said AVCOG has been lucky to see only one default of $9,000 since it joined the microloan program. Since that time, it has made 34 loans totaling $751,000.
Mickeriz says she often works with people who have trouble paying off their loans to figure out how they can repay, even fine-tuning their sales and marketing efforts. "Of course, sometimes you have to tell people that their business isn't going to make it and advise them how to get out," she said. "That isn't fun, but it's also important to do."
In June 2002, when Rick Mealey needed to borrow $10,000 to buy new tables and chairs for his Boiler Room Restaurant in Wilton, he turned to AVCOG. Unlike banks, Mealey said, AVCOG "doesn't just look at your past. They actually want to know why you're going to do a certain thing in the next year. They're here to promote business and employment," which in rural Franklin County is a hard thing to do, he said.
Mealey founded the Boiler Room in July 2000. It has grown to 18 employees; in the summer, that number climbs to 25. After the 2002 loan for tables and chairs, he went back to AVCOG in November 2004 for $24,000 to buy new equipment and a computer system. He said the restaurant is doing two-and-a-half times the business he projected he'd be doing when he first opened.
Mealey said sessions with AVCOG lenders polished his business plan; now, he said, he would feel confident taking his plan to any lender. The Wilton restaurateur is now planning to seek a larger loan of approximately $125,000 to open a second restaurant in Rumford in 2006. Although that's too large an amount for a microloan, he will turn to AVCOG to see if there are other types of SBA loans available.
Kellie Forton, owner of Murdock Country Creations in Turner, states flatly that she would not be in business without a microloan from AVCOG. She said that when she moved home to Maine in 2000, traditional lenders did not see her business of making hand-painted Christmas tree ornaments as viable. Yet the self-employed crafter started getting more orders for her products through college bookstores. In 2003, when she decided to expand her product line and add employees, she turned to AVCOG for a microloan of $30,000 to finance overhead. "It enabled us to concentrate on running our business instead of spending all our time trying to figure out how to finance it," Forton said.
She now sees the microloan as allowing her to make the transition from self-employment to running a larger business that faces issues such as meeting a payroll and workers' compensation costs. (AVCOG also helped her apply for a grant program that paid $5,000 toward development of her company's website, www.murdockcountrycreations.com.)
Murdock Country Creations, which currently has 10 employees, now operates out of a 12,000-square-foot production and retail space. It makes about 40,000 ornaments a year and has added scrapbook papers and kits to its line of products. Forton, 43, has since built lending relationships with banks, and credits AVCOG with helping to make that happen. "They work to bridge you to the point where you can work with traditional banks," Forton said. "AVCOG had as much enthusiasm about my business and creating jobs here as I did."
Her battle with cancer also forced Flotten, now 31, to rethink her career goals. "It really got me thinking about what I do all day," said the former nonprofit fundraiser. She decided she wanted to create a space where people could take time from their hectic schedules and enjoy the company of other knitters.
Like struggling with cancer, the decision to open a knitting shop took her in an unexpected direction ˆ bootstrapping a business. The key to making her Knitting Experience Café a reality ˆ it opened in September ˆ turned out to be counseling from Wiscasset-based community development agency Coastal Enterprises Inc. and $12,000 from the U.S. Small Business Administration's microloan program. Flotten said CEI made her look at her idea from all angles. "They even forced me to consider a Plan B, if the business doesn't work out," she said.
CEI is one of six Maine nonprofit lenders participating in the SBA's microloan program, which is geared toward small businesses that might be ineligible for traditional bank loans. The SBA makes funds available to the nonprofit groups, which then make loans of up to $35,000 to small businesses and startups. Often, the loan is part of a package of assistance that includes business plan counseling. In the last few years, the number of Maine nonprofit lenders participating in the program has increased from four to six, and the dollar amount of microloans granted increased from $694,000 in 2003 to $888,000 in 2005, according to the SBA.
According to the SBA, Maine has traditionally made greater use of the 13-year-old microloan program than have neighboring states. For instance, between October 2004 and September 2005, agencies in the state made 62 microloans, while Massachusetts reported 31, Vermont, 14, and New Hampshire only four.
"Twenty-five percent of the workers in Maine are either self-employed or work in businesses with five or fewer people, so there is a great need for small amounts of capital here," said Mary McAleney, the state's district director of the SBA. "The program is growing here both because of the need, and because we have a good number of intermediaries that do a very good job."
Ellen Golden, senior vice president for development at CEI, said Maine is lucky to have so many people like Chesley Flotten with a capacity to innovate on a small scale. "We see quite a marvelous range of businesses ˆ processing sea salt, organic personal care products, someone casting dental crowns, clothing designers, someone who grows and harvests mushrooms for sale and export."
Lending on character
CEI was among the first intermediaries when the nationwide program began in 1992, and has issued a total of $4.9 million in microloans. Those loans also leveraged another $3 million in bank funding for a total of $7.9 million in 320 deals. Golden noted that 55% of those businesses were women-owned and 12.2% were minority-owned. The loans were also predominantly made to rural businesses.
After Flotten researched her knitting shop business idea on the Internet last April, she initially contacted CEI, which in turn sent her to an office of the Maine Small Business Development Centers. Once she had a business plan together, she also went to several banks seeking startup financing but didn't have much luck. "They told me nobody knits anymore except grandmothers," she recalled, adding that since her store opened, the age range of her customers has been between 20 and 60. For the most part, she said, "the banks got it wrong."
She did arrange some financing ˆ she won't disclose the details ˆ from Portland-based Maine Bank & Trust, but went back to CEI for more counseling and a $12,000 SBA microloan to complete her startup funding. Flotten recalls being frustrated with CEI's loan officers at first. "They were really pushing me to think about how I would deal with the seasonality and they wanted me to keep working on monthly cash-flow projections," she said. "Sometimes I felt like I was just making up numbers." But with the store open since September, she appreciates the loan officers' efforts. "Now, I realize that it was good, because I am so much further ahead than I would have been," she said, adding that business has so far exceeded her own initial conservative estimates. "Knitters are a passionate bunch."
Experts say many people who approach the intermediary agencies have already been to a bank, but have been rejected for loans because they have marginal credit scores. The nonprofit lenders use credit scoring, too, but they have more flexibility to look at why a credit score is weak and what the individual is doing about it, such as paying down outside obligations. "Often we refer people to credit counseling because when we pull their credit report and they see their score, they didn't know where they stood," Golden said. "For us, it's about character. We get a feeling about whether the person is trustworthy and will repay their loan. Now some will fail, but they will still work to make good on their obligations."
Like Flotten, most of these would-be entrepreneurs do not have a business plan, and are referred to startup workshops where they can assess whether their idea really has merit or not. "Some people come with unrealistic expectations," Golden said. "For instance, their business idea requires $100,000, yet they don't have any equity or collateral to bring to the project. No lender is going to be able to help them." But often they're able to scale it back to a workable idea after going through the numbers more carefully, she said. "We consider it a success if someone goes through the planning process and decides this is not what they want to do."
The rural connection
Androscoggin, Oxford and Franklin counties have lost a lot of manufacturing jobs in recent years, and unemployment hovers around six percent in the region. The Androscoggin Valley Council of Governments, based in Auburn, has tried to improve the economic picture with technical assistance, loans and one-on-one counseling for startups. "You see a lot of people honing their skills and wanting to become self-employed," said Jane Mickeriz, a loan officer for the nonprofit agency, which became a microloan partner in 2001.
AVCOG, which has three loan officers, uses the microloan program to help businesses such as convenience stores, snowboard retailers, craft shops and fitness studios that need money for working capital. "We send them to the bank first, but they are usually considered very risky," Mickeriz said.
Although the microloans do tend to have a higher default rate than the industry average, Mickeriz said AVCOG has been lucky to see only one default of $9,000 since it joined the microloan program. Since that time, it has made 34 loans totaling $751,000.
Mickeriz says she often works with people who have trouble paying off their loans to figure out how they can repay, even fine-tuning their sales and marketing efforts. "Of course, sometimes you have to tell people that their business isn't going to make it and advise them how to get out," she said. "That isn't fun, but it's also important to do."
In June 2002, when Rick Mealey needed to borrow $10,000 to buy new tables and chairs for his Boiler Room Restaurant in Wilton, he turned to AVCOG. Unlike banks, Mealey said, AVCOG "doesn't just look at your past. They actually want to know why you're going to do a certain thing in the next year. They're here to promote business and employment," which in rural Franklin County is a hard thing to do, he said.
Mealey founded the Boiler Room in July 2000. It has grown to 18 employees; in the summer, that number climbs to 25. After the 2002 loan for tables and chairs, he went back to AVCOG in November 2004 for $24,000 to buy new equipment and a computer system. He said the restaurant is doing two-and-a-half times the business he projected he'd be doing when he first opened.
Mealey said sessions with AVCOG lenders polished his business plan; now, he said, he would feel confident taking his plan to any lender. The Wilton restaurateur is now planning to seek a larger loan of approximately $125,000 to open a second restaurant in Rumford in 2006. Although that's too large an amount for a microloan, he will turn to AVCOG to see if there are other types of SBA loans available.
Kellie Forton, owner of Murdock Country Creations in Turner, states flatly that she would not be in business without a microloan from AVCOG. She said that when she moved home to Maine in 2000, traditional lenders did not see her business of making hand-painted Christmas tree ornaments as viable. Yet the self-employed crafter started getting more orders for her products through college bookstores. In 2003, when she decided to expand her product line and add employees, she turned to AVCOG for a microloan of $30,000 to finance overhead. "It enabled us to concentrate on running our business instead of spending all our time trying to figure out how to finance it," Forton said.
She now sees the microloan as allowing her to make the transition from self-employment to running a larger business that faces issues such as meeting a payroll and workers' compensation costs. (AVCOG also helped her apply for a grant program that paid $5,000 toward development of her company's website, www.murdockcountrycreations.com.)
Murdock Country Creations, which currently has 10 employees, now operates out of a 12,000-square-foot production and retail space. It makes about 40,000 ornaments a year and has added scrapbook papers and kits to its line of products. Forton, 43, has since built lending relationships with banks, and credits AVCOG with helping to make that happen. "They work to bridge you to the point where you can work with traditional banks," Forton said. "AVCOG had as much enthusiasm about my business and creating jobs here as I did."
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