For differing reasons, revolving loan funds stalled
Between an apparent lack of awareness and the inability to continue financing due to default, two local revolving business loan-funding options have stalled.
If the Haines Borough Assembly approves a $95,000 budget request, the fledgling Haines Economic Development Corporation might try to manage a fund of its own, but it comes with a fair amount of risk.
The Chilkoot Indian Association has offered revolving loans since 2009 but a recent string of bad debts has depleted its funds and paralyzed the program. Tribal administrator Harriet Brouillette said the association received around $100,000 in federal grants to start and manage the fund. Many of those loans were successful. They financed borrowers at an 8 percent interest rate, with the goal of growing the fund and boosting the Haines economy.
A handful of local business owners and fishermen borrowed the cash they needed to open up shop, expand their inventory or purchase nets and improve fishing boats. They’ve paid or are paying the money back.
Alaska Rod’s Rhonda Hinson and her husband Rod received one of the first loans made available. After opening a small gift and art shop in Fort Seward, they borrowed a little less than $10,000 from the tribe to purchase extra stock to get through the tourist season.
“It worked great for us because we had just started,” Rhonda Hinson said. “We both had other jobs and we were investing everything that we made back into the store, buying displays and stuff to make the products. It allowed us to ramp up much faster.”
In less than two years, the Hinsons made good on their payments.
But in the past three years, the tribe has distributed loans totaling around $80,000 to four individuals who aren’t paying the money back.
“That put a screeching halt on our revolving loan program,” Brouillette said. “It relies on people making payments on their loans. Until they do, we’re stuck and no else can benefit.”
Brouillette said if the tribe can get the loan fund going again, they’ll likely vet potential borrowers more thoroughly.
“I think any time you loan money to a new business or startup business, you’re kind of taking a chance,” Brouillette said. “One thing we didn’t do is we didn’t require them to have any sort of collateral and we should have to save ourselves and to make the program work so that other people could benefit from it.”
The Haines Borough currently has about $130,000 in loan funds managed by the Juneau Economic Development Council although up to $300,000 in funding is authorized. Since the late 1990s when the fund was created, only two Haines residents have borrowed from the fund. Both were paid back and the council split the earned interest with the Haines Borough, said loan manager Margaret O’Neil.
Haines Borough chief fiscal officer Jila Stuart said she thinks O’Neil and the Juneau development council have done a good job of managing and administering the loans.
“It seems like it would be a great fit to have HEDC promote it and JEDC administer it, at least for the time being, with HEDC still in its infancy,” Stuart said.
O’Neil said her group has bankers on its loan-approving committee and while they do look for qualified good management and business plans, they aren’t as conservative as bankers when it comes to collateral, for example.
“It’s hard for businesses to get start-up financing unless they already have a big piece of real estate or something to offer up collateral,” O’Neil said. “We are willing to take more risk.”
O’Neil said the council has had historically about a 7 percent loss rate.
“We haven’t had any losses in a long time,” O’Neil said. “We compare favorably to economic lending in general.”
Local bank manager Kyle Gray is a board member of the Haines Economic Development Corporation. Gray has expressed interest in getting those dollars managed by the Juneau council into local control.
Gray said the HEDC could better spread awareness of the loan program, and provide funding to those who couldn’t otherwise receive a loan from a bank.
“(First National’s) policy, for example, is if you want a commercial loan, you have to show the ability to repay for at least two years before we’ll give you a loan, whereas that type of requirement isn’t always seen in the loan programs through development corporations.”
Gray said banks also look for business history when determining eligibility for a loan and that a development corporation might not apply the same qualifications.
“But at the same time that is where a lot of the risk comes from,” Gray said. “If someone has a new idea and it’s never been tested in the world, then you never really know.”
The Haines Borough Assembly will discuss the Haines Economic Development Corporation’s $95,000 request at its April 26 meeting.