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posted: 8/27/2012 7:24 AM

Add microloans to small business financing options

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Debi Thomas found startup money watching a TV program about The Boston Beer Co. Turns out the Massachusetts brewer, best known for its Samuel Adams craft beers, connects with various Accion microloan programs throughout the country.

Fast forward to Accion Chicago and the final financial piece that allowed Thomas and her husband, Rick Scott, to open Naperville's Wicked Good Café in March.

"We had no collateral, nothing to substantiate that we could build this business and succeed," Thomas says. Banks weren't interested, but "Accion was."

Bob Knox is president and CEO of Epsilon Lambda Electronics Corp., a 40-year old West Chicago business that focuses on millimeter wave systems -- radar and communications, Knox explains. The company's bank said "No" when Knox, who wanted to ease the dips on the recession roller coaster ride, asked for an increase in Epsilon Lambda's existing line of credit.

"We explored a more liberal line of credit with other banks, but with no success," Knox says. One of those bankers, however, suggested Accion Chicago -- and Epsilon Lambda got its money.

"The big banks don't need my business," Knox says. "They'll give me money if there's no risk. Accion is a different type of organization."

There are no angel investors at Accion Chicago. No crowdfunding. But the microlender clearly is a financing option for qualifying Chicago-area small businesses -- very much including those in the suburbs. There are just a couple of possible hitches:

• Loan amounts are small. Loans max out at $20,000 for startups, $50,000 for established businesses.

• Rates are high, 11-18 percent. Still, says Mary Fran Riley, Accion Chicago vice president development and communications, "The average rate is 13 percent, above bank rates but below credit cards."

Businesses may qualify for one of two special programs that can reduce the rate.

• Loan terms are up to 72 months. Most Accion Chicago loans are paid off in about 18 months, Riley says. There is no prepayment penalty.

• You need skin in the game, at least 10 percent of the amount of the loan request.

• Real estate developers need not bother to apply. No exporters, either. Service, retail, wholesale and manufacturing businesses are eligible.

Although the organization's primary market is low- to moderate income entrepreneurs in low- to moderate income neighborhoods, "We're seeing borrowers with credit scores in the 700s," Riley says.

That's what a recession will do. Even so, the organization makes just one loan for every 10 applications. Many of those loans are in the suburbs.

Last year Accion Chicago made 70 loans to small businesses in Cook County outside Chicago. The average loan amount was $6,743.

There were 14 loans at an average of $11,260 in DuPage; 14 in Kane, where the average amount was $4,787; and 13 in Lake (Illinois), average $7,257.

Many of the Illinois Small Business Development Centers in the suburbs serve as remote lending offices for Accion Chicago, which means paperwork and processing can be done locally.

• Jim Kendall welcomes comments at © 2012 121 Marketing Resources Inc.

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