Thursday , November 16, 2017 - 5:00 AM
Ogden’s administration is seeking city council approval to participate in the Business Loans of Utah program — a development spearheaded by city CED Director Tom Christopulos after he says he grew frustrated in helping small businesses navigate what he calls the “funding desert.”
Small business loan programs already exist, Christopulos said, but scale is a problem.
For example, the Utah Microenterprise Loan Fund offers small business loans of up to $25,000. Ogden’s current small business loan program is capped at $90,000. The BLU seeks to up the ante.
“We were trying to develop larger-scale loans — loans that are $150,000 to $200,000, maybe eventually even going up to a half a million,” Christopulos said in a Tuesday city council work session. “From the start-up until the company gets up and going, there’s a very difficult situation in trying to get funds. It’s part of what we call the funding desert.”
Christopulos said businesses seeking larger loans from traditional bank financing are required to have either steady profitability or major collateral — something many smaller operations simply don’t have.
Seeing the need for larger scale loans, Christopulos approached Michael Plaizier with the Utah Small Business Growth Initiative and the BLU was born.
As part of the program “Class A” lenders, or commercial banks, will provide the primary source of loan funds. Plaizier said Zions Bank has agreed to participate in the program and will make an initial contribution of $7 million to jump-start the operation.
“Class B” lenders, which will be made up of participating Utah cities and counties, will contribute their own funds to the pool and the USGBI is putting in a $600,000 loan loss reserve.
The BLU will provide loan funds of up to $7 for every dollar a city or county contributes. Ogden city is considering an initial contribution of $50,000, which will allow the BLU to lend up to $350,000 to city-based small businesses.
Money contributed by municipalities is only used for their individual loan projects.
“Our risk and our fund size is our own,” Christopulos said. “Each individual [municipality] makes those decisions.”
The loans will carry current published LIBOR interest rates, plus an additional 3.5 percent.
Plaizier cities and counties will be responsible for covering the first 14 percent of loan defaults, with the BLU covering losses beyond that. The class A lenders would be on the hook if the BLU’s yearly $600,000 loan loss reserve is tapped.
“We have the same interest at heart as the city,” Plaizier said. “We want to make sure these are good loans that perform well.”
So far Provo, Orem, Spanish Fork, Weber County and Box Elder County have agreed to participate in the program or are working on final approvals.
The program also hopes to recruit more financial institutions, Plaizier said.
You can reach reporter Mitch Shaw at firstname.lastname@example.org. Follow him on Twitter at @mitchshaw23 or like him on Facebook at Facebook.com/MitchShaw.StandardExaminer.
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