Later this spring, Kansas City will get a second microloan program, which will lend money to small businesses that can’t secure financing from traditional banks and credit unions.
It’s all thanks to the national WE Lend Initiative, which has approved a $100,000 pilot-program grant for the Women’s Business Center in Kansas City.
With donations from local banks, that grant will help the WBC build a microloan fund worth about $1.5 million by sometime next year. And within a few years, the fund could qualify for federal programs that could allow it to grow even larger.
Once the new microloan fund gets up and running, local entrepreneurs will be able to qualify for loans worth $5,000 to $25,000, said Sherry Turner, the head of One KC for Women, an alliance that includes the Women’s Business Center.
The loans’ interest rates will likely be 7 to 12 percent; terms will be about three years. While the microloan program will look at a borrower’s credit history, business plan and financials, the risk factors will be evaluated differently. There’s less of a focus on collateral; ability to repay will be the No. 1 consideration.
Organizers have set a goal of making 20 loans to women-led businesses during the program’s pilot year. (One of WE Lend’s goals is encouraging women entrepreneurs.) In year two, Turner said, the program will probably be opened up to the general public. The goal is to do another 48 loans for that year.
“It’s very limited initially, because you have to grow slowly,” Turner said.
Kansas City, along with Fayetteville, N.C., was one of only two communities to win grants from the WE Lend Initiative for new microloan funds.
The WE Lend Initiative is a joint effort involving Women Impacting Public Policy, Sam’s Club and the National Community Reinvestment Coalition. Accion Chicago, a 21-year-old microlender, has been coaching the Women’s Business Center on the process of starting its own fund.
The WE Lend fund will complement Kansas City’s other microloan program, which is operated by the Justine Petersen organization. It has a close working relationship with the Women’s Business Center.
Since it began assisting Kansas City entrepreneurs a few years ago, Justine Petersen has made a tremendous impact, Turner said. Today, Justine Petersen helps underwrite approximately $3 million in microloans around Kansas City. That money has helped hundreds of young companies.
“We’re very fortunate to have them in Kansas City and underwriting these loans,” Turner said.
Even so, there’s still a large demand from small businesses that need a relatively small amount of money—$8,000 is the industry average—but, for whatever reason, aren’t capable of earning a loan from a traditional lender.
By successfully repaying a microloan or two, small businesses build their credit history and prove their trustworthiness to bankers.
“Our intention is to allow them to have some borrowing experience and help them with their credit,” Turner said. “That would allow them, hopefully, to become bankable through an institutional lending practice.”