RED program a local source for interest-free business loans

Published on Thu, Oct 23, 2008 by Jack Kintner

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RED program a local source for interest-free business loans

By Jack Kintner

While uncertainty seems to rule international finance, Blaine’s Rural Economic Development (RED) fund still is providing a ready source of interest-free money to help local businesses.

“We do not expect the current economic climate to have much effect on this program,” said Blaine finance director Meredith Riley.

Thirty small business owners in Blaine have borrowed almost $452,500 at zero interest since the program’s inception in 2000.

The payback period is for five years, and the city is authorized to loan out as much as $50,000 per year, Riley said.

“We’ve had very good return and payback from borrowers,” Riley continued. Over the years there has been only one default for about $23,000, she said, which means that 95 per cent of the money has been paid back.

After getting her business established with a RED loan in 2005, Christy Lonquist sold her shop, Northern Meadows wine and gift shop at 684A Peace Portal Drive, to Bridgette Sanford, who moved to Blaine permanently with her husband this year from Monroe, after vacationing for many years in the area.

“Christy told us about the RED loan program and we’ve used it,” Sanford said, “and it was great. It gave me additional capital to operate with at first and to do things like signage, now that the building’s been painted.”

Lonquist learned about the program through her consultation with Western Washington University’s Small Business Development Center (SBDC).

“We had enough to get everything open and off the ground, it was just a matter of having enough cash in the bank to operate off of and some of it was just sitting there in case,” she said. “So we went to the city for a RED loan and to Sterling Bank to sign the documents and it was done in just a couple of days after it was approved. The whole process took about three or four weeks.”

Riley said most loans are for improvements, but they have also helped with equipment or inventory purchases.

The size of the loans vary from $3,000 up to $30,000 and some businesses have more than one loan with the city.

Blaine City Council established the loan program after enabling legislation was passed at the state level in 1999 that matches city funds of up to $25,000 with state excise tax credits to communities with their own electric utility systems, Riley said.

Since then, the city has forged a cooperative relationship with Sterling Savings Bank which processes the loan applications and processing for a 1 percent origination fee.

Beth Murphy is Sterling’s loan officer who is assigned that task, and interested business owners start the process with her by getting an application packet at the bank.

“We process the paperwork but the loan decisions are made by the city,” Murphy said. The city’s six-member loan review committee consists of representatives from the city, Sterling Savings Bank and the business community.

“It basically works out that the state gives us $25,000 credit and then we come up with another $25,000 out of our electric utility fund and we make that money available for loans to small businesses in Blaine,” said Blaine city manager Gary Tomsic.

Although he could not disclose the names of individual business owners downtown, Tomsic did say the majority of businesses on Peace Portal Drive that have opened within the past eight years have received at least one zero-interest, five-year RED loan.

“We’ve only had the one default on a loan so it really has been put to good use in the community, however, it’s not an automatic thing,” he said. “There have been a number of requests turned down for various reasons. The committee just doesn’t rubber-stamp an application, they really do look at and interview the person and look at what is being requested and they look at the things that are typically looked at in a loan generally, and in a small business loan, particularly.”

Tomsic said the loan program is part of a wider effort by the city to become more proactive in aiding small business owners in part to maintain a stable and vibrant downtown economy, through job creation and business retention, increases in health and safety, and water and energy use efficiency through infrastructure and building improvements.

Tomsic also suggests business owners or potential business owners contact the Small Business Development Center (SBDC) at Western Washington University for tips on everything from developing a business plan to identifying industry trends and demographics.

“The SBDC is really a great place to have professionals take a look at what you’re proposing to do and to give you suggestions so we’d like to sort of link up the people we see in the loan program because it increases their chance of becoming successful,” he said. “The success rate for small businesses isn’t that high because most people are undercapitalized. When a small business fails in the community it’s not good for anybody.”

Lonquist said that despite the paperwork, it was a fairly easy process and that the SBDC was instrumental in the success of her business, helping her with a variety of issues from setting up a business plan to planning follow-up visits on a monthly basis.

“The Small Business Development Center has been a godsend,” she said. “They helped me look at projections and estimate what my income versus debt would be and whether I could even make it in Blaine based on the demographics and the type of products I planned to sell.

“They also helped me set up a business plan as to what I expected to get out of my business and it’s all voluntary.”

Certified business advisor C.J. Seitz works with clients in Blaine out of the SBDC’s downtown Bellingham office. Seitz comes to Blaine twice a month to meet with clients, normally either at their business or at Sterling Savings Bank.

For more information about the city of Blaine’s RED loan program, visit www.ci.blaine.wa.us or call 332-8311.

The website of the Small Business Development Center at WWU is www.cbe.wwu.edu/sbdc. Seitz can be reached at 733-4014.