Banking & Finance

MVEDC ‘Primes the Pump’ to Finance Business

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YOUNGSTOWN, Ohio — More than any other entity in northeastern Ohio, the Mahoning Valley Economic Development Corp. is all things to small-business owners.

It is a source of financing and business advice. It owns and runs two industrial parks – one in North Jackson, the other in Warren – as well as a short-line railroad, its executive director, Mike Conway, points out.

It has strong ties to the commercial banks that serve the Mahoning and Shenango valleys and works closely with the U.S. Small Business Administration and the state programs set up to support small businesses.

MVEDC often furnishes the last piece or two an owner places in the jigsaw puzzle of financing his company so he can nurture, sustain or expand his business.

“We have a priming-the-pump concept,” Conway says. That is, MVEDC is often the last component needed before a bank issues or expands a line of credit or approves a fixed-term loan.

The economic development agency is as interested in low-tech businesses as high-tech as reflected by the 54 loans totaling $4 million it made last year. The low-tech concerns often underpin the quality of life for employees who work at high-tech enterprises.

Among the 54 loans MVEDC extended last year were four to day-care centers, one to a golf course, a couple to landscapers and six to restaurants and food services, a fitness center, a dance studio and medical and dental practices.

MVEDC also provided or was the conduit for manufacturers in need of financing.

There’s a perception that MVEDC is primarily about helping manufacturers. It indeed supports manufacturers – they include aluminum extruders, metal fabricators and tool-and-die shops – but, Conway stresses, “We work across the board.”

Helping MVEDC support and track the loans it extends is Loan Management Software, a program 100 certified economic development agencies use, Conway says. It allows MVEDC to maintain a remarkable 97% repayment rate.

From its revolving loan fund, MVEDC can assume part or all of the risk in the credit it extends. “Sometimes we take on the entire risk ourselves,” Conway says.

The premise is that as borrowers repay, MVEDC will lend the repayments and interest paid to other companies.

In all, MVEDC has more than $34 million due from some 300 loans outstanding. Rates of interest range from 2.75% to 7% with the bulk running somewhere between 4% and 6%.

Besides making direct loans from its revolving loan fund, MVEDC works closely with banks to involve the U.S. Small Business Administration. The SBA’s 504 and 7(a) loan programs are the most used, Conway says.

Under 7(a), the SBA will guarantee up to 85% of a bank loan of $150,000 or less and waive all fees. Loans of between $150,000 and $3.75 million qualify for a guarantee of 75%.

If the lender agrees to extend, say $5 million, the SBA could guarantee only 75% of the first $3.75 million.

Because of the expense of administration, banks won’t lend small sums that could be paid for with the business owner’s credit card. That didn’t stop Conway from granting a $500 loan last year to a business owner. “That [application] took just as much time [to review] as any other,” he says.

Asked if MVEDC works with micro-lenders – those who extend $5,000 or less, Conway cited the $500 loan and said, “We are a micro-lender ourselves.”

It was the amount the applicant needed to start his business, the executive director says, and MVEDC didn’t let the administrative expense stand in the way.

The 504 loans, for real estate and equipment, are capped at $5 million, for small manufacturers $4 million. Maturities can be as long as 10 or 20 years, the SBA says, and it charges a 3% fee in addition to the interest.

To receive SBA support, the applicant must agree to create or retain one job for every $65,000 lent unless he is a manufacturer. In that case, it’s $100,000 per job retained or created.

Under the SBA 504 program, MVEDC has arranged for 66 loans for real estate and equipment that total nearly $22.8 million, none of it delinquent or past due.

MVEDC works to ensure that women and minorities can obtain the credit they need, Conway says. His agency works with the Youngstown Area Development Corp., just south on Belmont Avenue, to help minority enterprises.

Besides working with banks, micro-lenders and other economic development agencies, MVEDC is “looking at working with private-equity firms, Conway says, and “becoming more involved in emerging technology companies.”

It works with at least two companies engaged in additive manufacturing, he adds.

Published by The Business Journal, Youngstown, Ohio.