Microlending company helping new businesses with capital, credit

In one way or another, Terry Ludwig had been delivering packages to people for 28 years. Then a policy change last fall at the national delivery company where he worked as a subcontractor was about to leave him and many of his co-workers without a job.

Owning his own business was never in Ludwig's plans, but this situation, he said, gave him little choice.

"It was either walk away, or find a way to recontract. My plans were to retire in a couple of years, but that changed pretty quick," Ludwig said.

With help in part from a microlending company Accion, with a local office located in the Southeast Missouri State University's Center for Innovation and Entrepreneurship, Ludwig was able to start his own business, Triple L Contracting. He now contracts with the same company he did previously under its new requirements.

Before, Ludwig was a single work area contractor, but last fall the company eliminated single-area contractors and required its contractors to cover a minimum of three work areas.

Ludwig's company Triple L Contracting now has a fleet of 10 trucks and runs nine routes from Cape Girardeau to just south of Crystal City, Mo. He's created a job for not only himself but 13 other people who work with him.

"It was rewarding to know that I was able to help everybody out and provide a job for them," Ludwig said.

He used the microloan from Accion, though Ludwig said he preferred not to disclose the amount, to make a down payment on some of his delivery vehicles. He obtained other financing from national banks and was able to lease the other vehicles he needed to make his business work.

He said he was unsuccessful in getting a loan to start his company through his local bank, Capaha Bank.

"It was too much for them to handle for the position that I was in. I didn't have any operating capital, my credit scores were a hindrance," Ludwig said. "The experience and management capabilities to run the business were there, but the financial side is what I needed help with."

Capaha referred him to Accion, which, since it opened in Cape Girardeau last fall, has approved 10 microloans to help entrepreneurs like Ludwig start their own businesses.

"Our clients share a common problem. They are marginalized from mainstream financial services," said Veronica Flores-Paniaguana, spokeswoman for Accion. "Accion is the only microlender that lends to individuals with credit scores as low as 500. The average credit score of Accion clients is 580. Banks generally will not lend to an individual with a credit score below 680."

About half of Texas-based Accion's clients are startup businesses. To date, the company has made more than 12,500 loans.

The company is a not-for-profit corporation relying on grants and donations to cover about half of its operating budget, Flores-Paniaguana said.

"The gap in self-sufficiency is not due to charge-offs, but rather because of the nature of microfinance. Small loans cost more to make. A $1,000 or $5,000 loan simply does not create enough interest revenue to pay for the administration, underwriting, closing, collections and other costs that are associated with generating and maintaining it," Flores-Paniaguana said.

Only 6.5 percent of Accion's customers default on their loans, she said.

Accion expanded its operations into Missouri last year through a partnership between the federal economic development agency Delta Regional Authority and the Center for Innovation and Entrepreneurship at Southeast, she said. Accion now offers lending services in five states of the eight states in Delta Regional Authority's service area.

"The conditions in the U.S. economy over the last several years have resulted in microlending taking on a much more important and visible role," said Kevin Greaser, Community Bank President at Alliance Bank in Cape Girardeau. "These lenders are filling a void as banks have tightened credit and are serving a crucial role in helping entrepreneurs, especially low- to moderate-income people and minorities, gain access to capital."

Typically, a microlender offers rates that are higher than conventional banks because they are assuming an increased risk by lending to these individuals, Greaser explained.

"But when the loan can be moved to a commercial bank, those micro dollars can go out to another startup or small business that isn't ready for traditional financing. This cycle and system has successfully created opportunities for many small businesses to succeed and, as a result, provide employment opportunities to others," he said.

Greaser said Alliance has referred people to Accion and has been pleased with the service they've received.

Danny Essner, executive vice president and senior lender at Capaha Bank, said he doesn't have a large number of requests from people looking to start their own business, but when someone does come in they often have an idea, but no money.

"A lot of folks are naive about what is involved and how difficult it is to borrow money," Essner said. He often refers people to the Center for Innovation and Entrepreneurship at Southeast.

"They can hold them by the hand and help determine if they have something viable or not," Essner said.

Bankers are seeing people with lower credit scores more frequently today than in the past, Greaser said, making it more difficult for them to lend money to otherwise deserving borrowers.

Microlenders are also willing to loan smaller amounts that conventional banks wouldn't consider and can range from as little as $500. Accion makes loans up to $250,000.

mmiller@semissourian.com

388-3646

Pertinent address:

920 Broadway, Cape Girardeau, MO