The Ketchum Community Development Corp. will use a $50,000 grant that it was awarded last week for micro-loans to community businesses in need of startup money.
Rural Development, an agency within the U.S. Department of Agriculture, awarded the grant with the understanding that the CDC will match it dollar for dollar. So far, donations given by the CDC's board of directors and other individuals total about $33,200, according to Executive Director Neil Morrow.
Once the $50,000 donation mark is reached, the CDC will have $100,000 at its disposal. Morrow said it will loan out $99,999.
"The money is not designed to sit," he said.
In fact, it's supposed to be continually coming in and going out under a new revolving loan fund.
"Once those loans get paid back, it will continue to build," Morrow said. "And we'll give more loans to businesses."
He said the CDC discovered in April, when it applied for the grant, that many local businesses were interested in the fund.
"We already have a list of businesses and their draw amounts," he said. "We have essentially proved the need."
Loans will be handed out in chunks of $5,000 to $25,000—amounts needed by new businesses but usually too small for banks to grant.
"A lot of people might put something like this on their credit cards," he said.
Morrow said these loans would fill that banking gap and foster the growth of new businesses as well as assisting existing businesses.
He said loans will be short term—paid back in periods of between one and four years, depending on amount—and at competitive interest rates. He said rates haven't been decided but will most likely fall somewhere between 6 and 8 percent.
But there are a few constraints. Businesses can't use the money for bricks and mortar or to pay off other debt, but rather for equipment, fixtures or working capital.
And, Morrow said, getting a loan isn't as simple as having a "feel-good idea" and asking. Businesses must prove the money will provide additional jobs, offer a needed commodity or service, or generate additional tax base—as are the purposes of this CDC effort. And businesses must show they can repay the loan. Otherwise, the fund won't revolve but fall flat.
"We're not handing out grants," Morrow said. "Sometimes, it takes a few explanations for people to get the idea."
Even though credit scores will be considered, the "promise of businesses" is given higher priority, Morrow said.
Morrow said the CDC isn't receiving a $50,000 check from Rural Development, but will be transferred the money on a loan-by-loan basis. For a business to be approved, it must first pass the CDC's loan committee, consisting of volunteers with backgrounds in banking, lending and legal fields. The USDA Rural Development agency must then give the go-ahead. Only then will Rural Development transfer the grant money used for the loan.
If a business applies for a second loan, it won't need Rural Development's approval a second time.
Morrow said businesses can apply this week, and he predicts loans to be out by mid-November. But the CDC still has to raise about $17,000 more to meet the $50,000 mark.
Morrow said anyone donating $1,000 is actually giving $2,000, since Rural Development matches donations dollar for dollar. And, he pointed out, that person is actually giving only $650 after tax deductions.
"You're giving us $650 and getting $1,350 added to it," he said.
Anyone interested in either donating or applying for a loan can call the CDC at 271-2117.
Trevon Milliard: tmilliard@mtexpress.com
