The state plans to provide up to $2 million to a Marquette-based small business lender to increase activity across the state.
The funding for the nonprofit Northern Initiatives comes as many small businesses are shut down or have severely curtailed operations because of the COVID-19 pandemic. Funding for Northern Initiatives to loan working capital to small businesses has since become increasingly important, said Chris Cook, director of capital access for the Michigan Economic Development Corp.
“What we have seen and observed in the market since the COVID-19 pandemic and the necessary executive orders, which have affected obviously the economic climate in Michigan, is that action such as this one will be even more critical moving forward in order to support small businesses which have been affected by the pandemic,” Cook said during a Tuesday morning meeting of the Michigan Strategic Fund that was held by conference call.
The money would go for Northern Initiatives to provide loans of $5,000 to $250,000 to small businesses, primarily in rural and underserved areas of the state. Loans are designed for “Main Street-type businesses and service providers,” Cook said.
Borrowers must provide collateral and can use a loan for working capital, acquisition of machinery and equipment, real estate acquisition or improvements, and inventory. The Michigan Strategic Fund board approved the funding for Northern Initiatives. The funding is subject to the MEDC working out a final contract with Northern Initiatives.
“The Northern Initiatives program is yet another step we are taking to ensure that businesses impacted by COVID-19 — especially those in geographically disadvantaged areas — receive the support and relief they need to come out on the other side of this crisis successfully,” MEDC CEO Mark Burton said in a statement.
The MEDC is presently working with other federally designated Certified Development Financial Institutions around the state on similar small business lending programs, and hopes “to bring similar requests forward within the coming months to address the needs of small businesses throughout the state,” Cook said.
Northern Initiatives began in 1992 at Northern Michigan University and now works in 77 counties across the state, outside of Southeast Michigan. Cumulatively, the organization has made 1,250 loans totaling more than $72 million, with an average loan size of about $60,000.
Of the $8.3 million Northern Initiatives loaned in 2019, nearly half went to startups and 23 percent went to women-owned small businesses. Another 16 percent went to minority-owned businesses, and 12 percent went to companies owned by veterans, said President Dennis West.
A quarter of the loans have gone to manufacturers and an equal amount were for restaurants, West added. Borrowers range from individuals who are self-employed to companies with 150 employees, he said.
Northern Initiatives presently has 262 active loans in its lending portfolio and has been surveying those companies “to see what resources they’re applying for” during the pandemic “so that we can provide them with bridge loans and support them with federal and state resources.”
The organization also has provided payment deferrals for more than half of its borrowers for three to six months, West said.
“As we monitor that, we’re also monitoring their thinking about the restart and I think that’s particularly why this money will be so important. For some, if they are unable to find the federal or state resources because they don’t have a participating bank that is capable, Northern Initiatives could do some paycheck protection programs loans. We have the ability. It’s just a question of liquidity,” he said.
More than one-third of Northern Initiatives’ borrowers have indicated they are worried about getting back into operation after the pandemic, whether they can get back their customers, if they will find the suppliers they’ve had in the past, or if their supply chain remains intact. More than one-third worry about the “cash impacts that are associated with the restart,” West said.
“Will they have working capital to move forward? Will they have the ability to finance contracts, purchase orders and such?” he said. “That’s a part of why this money is so important to us at this time.”
In 2008, Northern Initiatives extended outside of the Upper Peninsula. Seeing market voids for alternative lenders in the last few years, the organization expanded in Grand Rapids, Muskegon and Battle Creek. Those three markets combined now account for 40 percent of Northern Initiatives’ loan volumes.
“Moving into urban markets, we’ve seen larger loans and we’ve also seen that urban markets are taking up a greater percentage of our annual portfolio activity,” West said.