County Business Micro Loans Go Begging

The received wisdom is that banks aren't lending to small businesses. Nevertheless, McHenry County is prepared to, but after three months its new program for "micro loans" has yet to make one.

In July the County Board Finance and Audit Committee agreed to set aside $200,000 of the county's Revolving Loan fund for small loans of from $5,000 to $25,000 to local businesses. It's the only program of its kind left in the region.

After 10 years the public/private Kane County-based Fox Valley Micro Loan Fund quietly closed at some point this summer; its website is "down for maintenance" and its phone is disconnected. "My understanding is they're pretty much defunct," said Kriss Knowles, Director of Elgin College's Small Business Development Center.  He said the fund earlier this year hired a new director with an eye toward raising more capital and speculated that the effort had failed.

A similar program in Lake County under the Lake County Partners development organization was suspended two years ago.  "The people who took advantage of the loans didn't pay it back," said Russell Medley, Marketing and Research Director. "There was the attitude that it was a grant."

The county's micro loan program intends to avoid that fate. The McHenry County Economic Development Commission is simultaneously its salesman and first gatekeeper. "We just had 150 (businessmen) in for an event last week," said Vice President Jean Schober. "We have four or five inquiries a month," she said.  "We try to weed out the ones who aren't ready yet."

Ready means having not merely an idea but a realistic plan to achieve it, according to Deputy County Administrator John Labaj, the micro loans' Cerebrus.  "A lot of people have the idea it's free money," said Labaj.  "We expect to be paid back."

Indeed, the program requires not only collateral for each loan but also a personal loan guarantee. "That discourages a lot of people," said Labaj.

What Labaj really wants to see, though, is a business plan with plausible estimates of income, expenses and cash flow.  "We do the same thing that we'd do for a bank loan," said Labaj.

Final judgement rests with the Finance and Audit Committee.  So far only two applications have made it there for review.  One would have laser-etched, um, whatever needed laser etching.  The other would have been an organic dog food business.  Both were rejected.

Despite the failure of some local micro loan programs one other proves they can work.  Nonprofit Accion Chicago, serves a 13-county region around Chicago including, occasionally, McHenry County.  Vice President of Lending and Marketing Jill Stephens said the group makes between 120 and 140 loans per year averaging $8,000 to small business owners.  "Our losses are under 10 percent," she said. "Five to ten percent, depending on whether it's a good year (economically) or a bad year."

The application for a McHenry County's Micro Loan is here:
http://www.mcedc.com/images/stories/micro_loan_fund_app_final.pdf  Officials said if an applicant can't fill in most of the blanks on the form he's probably not ready for a county micro loan yet.