Loan program would give Lodi businesses a boost
Local start-ups and small businesses struggling to stay open may soon get some much-needed financial relief through a city-sponsored loan program.
The Lodi City Council is set to approve a resolution in March that would implement the Hometown Microloan Program, which provides eligible businesses with as much as $50,000 in funding.
Astrida Trupovnieks, the city’s business development manager, presented an overview of the program to the council during Tuesday’s shirtsleeve session.
The goal of the program is to offer direct loans for Lodi startups and small businesses with a maximum of 10 employees, who are creditworthy but unable to meet traditional underwriting loan requirements.
“While Lodi has many fine, long-standing lending institutions that have served businesses for many years, Lodi is without a nonprofit lending agency that offers small loans at affordable and favorable terms to the credit-worthy,” Trupovnieks said. “But for one reason or another (those businesses) have not been quite bankable.”
City staff has been researching the feasibility of a microloan program since July, and developed five goals and objectives, which includes providing as much as $50,000 to entrepreneurs and small businesses that are not being completely served by traditional lenders, as well as lowering interest rates and fees.
“Banks assess risk, and risk is associated with startups and small businesses,” Trupovnieks said. “They don’t pencil with traditional lending institutions. So those would be the targeted businesses for this program.”
Trupovnieks said while all under-served businesses in Lodi would be eligible, half the funding for the program would be targeted toward minorities and veterans, as well as low-income and woman-owned businesses.
Eligible businesses must be located withing the Lodi city limits, and a U.S. citizen or legal resident must be a majority owner, she said.
“Banks assess risk, and risk is associated with startups and small businesses. They don’t pencil with traditional lending institutions. So those would be the targeted businesses for this program.”
Astrida Trupovnieks
Business Development Manager
Loan amounts will range from $5,000 to $50,000, she said, adding that loans smaller than $5,000 will be considered if they can be repaid in 12 months.
The interest rate for all loans will be 4%, which is equal to the current federal funds discount rate, Trupovnieks said, adding that the federal funds rate is usually about three percentage points below prime.
The current prime lending rate is 7%, she said. City manager Steve Schwabauer said staff struggled with determining the interest rate because similar mircoloan programs in other parts of the country were charging “fairly high” rates.
“Our sense was that if we’re really trying to do good by small businesses who are trying to start up and struggle, this program is not going to work at all at 10% rates,” he said. “If you want to accomplish something with this program, the only way you’re going to do that is to have interest rates that are beneficial to small businesses.”
The loan process — from applying to receiving funds -—could take as many as 90 days to complete, Trupovnieks said.
Funds could be used for equipment, exterior or interior improvements, safety or environmental improvements. engineering and design, or working capital and inventory, she said.
Lodi Chamber of Commerce president and CEO JP Doucette said his organization was excited to see the program implemented, and believed it would help spur entrepreneurship in the city.
“I know everybody wants a loan program with low fees and low interest rates,” he said. “But if there’s a way to keep fees as low as possible... that would be a huge thing to drive more people to the program.”
Trupovnieks said the sole source of funding for the program would be from the city’s general fund, at least for the first year.
She said she has been talking to local lenders to gauge their interest in providing funds, but discussions are preliminary.
“I think once the program is up and running, and they can see the success of it, or the challenges of it, then they will go back and think about investing or providing funds to our program,” she said. “It won’t be right away.”
The city should have a partnership agreement in place with the San Joaquin Revolving Loan Fund by the end of February, and the council is slated to approve a resolution implementing the program in March.
A loan committee, which will oversee funding and select borrowers, will be created in April, and an online application portal will be operational by May, staff said.
“It really is great to see this come to fruition,” councilman Cameron Bregman said. “I hope that we should push, not just hope... that a nonprofit takes this over. I hope this acts as a jump start, not something that the city is going to administer for the next few years, but possible just the first year.”