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Micro Loans Growing in Northeast Ohio

Thursday, May 25, 2006 at 2:13 PM

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You may have read stories about organizations offering small business loans to poor people in Africa or South America. These so-called micro-loans are often targeted at women and have had great success pulling communities out of poverty one family at a time. But such lending is also going on in northeast Ohio - largely without notice. Cleveland State University gathered some of the lenders and recipients together for a conference this week. ideastream's Mark Urycki reports.

The Charles Stewart Mott Foundation has long funded programs to alleviate poverty, but Sue Peters of the foundation says they are looking more and more toward that international model of micro-loans to help lift women and minorities out of poverty here at home - by helping them start their own businesses.

Sue Peters: There has to be a continuum of economic development strategies, and micro-enterprises are the starting point for some of these starting businesses. So I think in order to have a strong economy, you have to have both ends of the spectrum in economic development.

There’s an economic development and then there’s economic development. While the Honda Motor Company is weighing offers which likely include huge tax abatements to build a giant assembly plant in Ohio or Indiana, a tiny family owned company in Cleveland is also getting a little government help - in the form of a micro-loan. Rutledge Insurance started out in an office building in Cleveland Heights. But co-owner Deborah Rutledge realized they needed a storefront location closer to their target market in Cleveland.

Deborah Rutledge: We couldn’t go to regular lending institutions because we only needed about 20,000 to do some build-out - we needed a couple of computers. So regularly lending institutions weren’t going to look at us - a) because of what we wanted and b) because they looked at our credit history and said hah! There’s no give in there.

Rutledge Insurance got its loan from WECO and is now opening a second office. 35 years ago, WECO stood for Woodland East Community Organization - but it’s now more than a neighborhood group. Five years ago it began making small loans to start-up businesses all over Cuyahoga County. Director Bob Schordrock says they get their business loan funds from three sources.

Bob Schordrock: The Small Business Administration, The Ohio Department of Development, and four local banks: Key Bank, National City, Fifth Third, and Huntington.

Why don’t those bank just do the lending themselves?

Bob Schordrock: We loan from $500 to $35,000 which, to a bank, is a relatively small loan. And the intense hand-holding that goes with the loan - a bank could not make money doing this. So the conventional lenders refer them to us - someone with a good idea but doesn’t meet the bank’s requirements - they refer them to us. Our mission is to get them in business for three years and give them back to the banks. So their next round of funding is a conventional loan.

So what’s in it for the County, the SBA, the government?

Bob Schordrock: Well, for example, the businesses we’ve funded are now four and a half million dollars in sales a year so there is sales tax, property tax. $2 million in salaries a year - payroll tax. So there’s a return on this investment.

The city of Cleveland tried micro-loans a decade ago but without offering business training to the borrowers, and ended up with a 33% default rate. WECO’s default rate is just 7%, which Schordrock considers very good for high-risk loans. The state of Wisconsin sees enough value in such programs that it earmarks over $100,000 each year to support the Wisconsin Women’s Business Initiative Corporation. Its president, Wendy Baumann, said her group, like Cleveland’s WECO, provides training and classes for borrowers. She says that’s something that banks won’t do.

Wendy Baumann: Financial institutions are renting money. It’s their business. Nothing wrong with that. Micro-lenders, micro-enterprise development organizations are renting money but not singularly doing that. They are trying to help expand and impact lives on an economic basis for that business owner, job create, and really look at making that business strong and viable and ideally also getting that money paid back.

How do you convince the state of Wisconsin that they should support you?

Wendy Baumann: Overall, they see it as a good investment. We have to position our work as part of the overall economic development strategy. So while they’re focusing on technology businesses, while they’re focusing on high growth high job creators, they cannot forget about a variety of job creating businesses - but just not all under one corporate hat.

While several people at the Cleveland conference felt support for micro-loans programs needs to grow, Baumann says the Bush administration has cut the budget of the Small Business Administration and tried to eliminate its micro-loan program altogether. She added that support for it is strong in Congress. While neither the Wisconsin program or WECO in Cleveland is self sustaining their leaders say they are moving toward that as they continue to grow each year. Mark Urycki, 90.3. 

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