South Arkansas Community College in El Dorado recently began exploring ideas for expanding its reach to minority businesses and entrepreneurs in the area.
Efforts are focused on providing the technical expertise and financial support that entrepreneurs need to survive and thrive, especially in the early stages of business development. School officials turned to Huntsville’s Forge Community Loan Fund to help develop a successful program.
“Southark’s mission is to help people create businesses, launch businesses and explore entrepreneurial opportunities,” said Bentley Wallace, president of the college.
“The opportunity to work with a group like Forge could make a difference in South Arkansas to launch viable businesses that contribute to the regional economy,” Wallace said. “Support provided by Forge is not currently available in south central Arkansas.”
Over the past five years, Forge has become a key partner for organizations like Southark who wish to support and develop start-up businesses. The organization, formed in 1988 to primarily support the agricultural sector in Northwest Arkansas, is Arkansas’ oldest revolving community loan fund.
The Southark Initiative is the latest example of Forge’s efforts to create a state-wide entrepreneurial ecosystem dedicated to training minority entrepreneurs and providing financial support to small businesses often overlooked by traditional lenders.
“One of our main goals is to prepare people for borrowing and to support their business success,” said Philip Adams, executive director of Forge. “These are businesses that can’t get loans through traditional financing. They are just too small for banks to care.
“We connect underbanked and underserved borrowers with investors, and we connect urban and rural communities across the state,” he said. “We want to create a culture of impact investing in Arkansas where the focus is not on how much an investment is but how it generates it.”
This approach seems to be paying off and investors are reacting favorably.
Forge’s loan portfolio has experienced robust growth – fueled primarily by contributions from nonprofit foundations and federal agencies – and has sparked investment in small businesses and minority and women-owned entrepreneurs in all of Arkansas.
The organization has grown its portfolio by 53% over the past five years and now has approximately $ 5.5 million in loans to 294 borrowers, 60% of which are dedicated to minority and women-owned businesses. Adams said. In 2016, Forge had made approximately $ 3.6 million in loans to 210 companies, 40% of which were minority and women-owned businesses.
As a revolving credit fund, all of the money Forge lends to businesses is borrowed from other sources: private investors, nonprofits, and government organizations like the US Small Business Administration. Forge grants loans from borrowings, adds minimal interest to generate a return, and repays its funding sources.
The Small Business Administration has a long-standing relationship with Forge, which the federal agency has approved as a microlender with the ability to issue loans up to $ 50,000. During this fiscal year, the Small Business Administration provided the Huntsville organization with a budget of over $ 1 million. The Small Business Administration allows Forge to use its own more lenient underwriting standards to approve small business loans.
“We give them the flexibility to make loans based on their target market,” said Edward Haddock, operations manager for Small Business Administration in Arkansas. “The opportunity Forge provides is not only for the start-up community, but it is also helping the unbanked and under-banked people start accessing credit to fulfill their entrepreneurial dreams. “
Small Business Administration has granted Forge $ 6.6 million since 2014, leading to 261 loans in Arkansas through the end of August this year, according to agency statistics.
Along with loan support, the Small Business Administration provides grants for technical assistance to borrowers to help them develop business plans and the mentorship they need to create a successful operation.
“The key to this program is to help these businesses get to the point where they can move from this product to a bank loan,” Haddock said. “We understand that you can’t just give a borrower money and send it on their way. They have to understand how to use the funding and how to manage it.”
As a non-traditional, community-focused lender, Forge has more lenient underwriting standards that appeal to borrowers who are wary of banks or lack the collateral banks require. Forge examines credit scores, debt payment history, and prefers contributions as collateral although the standards are less stringent than those required by traditional lenders.
“We don’t have an underwriting standards box that we try to fit borrowers into,” said Mark Nelson, director of loans at Forge. “We look at each loan individually with the goal of helping to make a contribution to a business, even if it is less than what they asked for. We want our borrowers to see us as partners.”
BUILD A BUSINESS
Herb Culver built his greenhouse in Newton County with loans from the organization about 20 years ago when he borrowed $ 2,350. Culver, a carpenter, wanted to start the greenhouse, but had no credit score, no technical business expertise, and no idea how to create a business plan. Forge provided all of this.
“It was absolutely essential for me to have Forge,” Culver said. “At the time, I was not entitled to a bank loan and had no idea how to deal with banks and finances.
“Forge gave me all the business tools and support I needed,” he said. “They coached me throughout the process and asked me all the key questions to help me think about the right things to grow my business.”
Over the years, Culver has returned for more support. “Every few years I would go back and get another loan to help with supplies and buy in bulk,” he said. “I built my business this way.”
Now retired from this operation, Culver began serving on Forge’s board of directors about three years ago and became a private investor in the loan fund. “I’m really proud to invest in the organization that gave me my debut,” Culver said. “I like knowing that there are other people taking advantage of the break I had.”
The Arkansas Community Foundation and the Winthrop Rockefeller Foundation also contribute to Forge’s lending efforts through a combination of grants and investments. The community foundation contributed $ 500,000 to Forge while Winrock contributed $ 320,000 to loan and technical support efforts.
In addition, at the start of the pandemic, the two nonprofits contributed a total of $ 175,000 to support a rapid response loan program to keep businesses afloat. Forge made 26 loans, each in a range of approximately $ 4,000 to $ 5,000, to existing borrowers. To ensure that businesses receive funding quickly, the organization is committed to having a rapid approval process in place.
“It was a desperate time for the companies, and we were able to get them funding quickly so they could keep moving forward,” Adams said. “We have reduced the process to a decision time of one day and a request of two pages.”
The Arkansas Community Foundation also contributed $ 25,000 a few months ago to support Forge and the Imani Fund, a pilot program that offers microloans ranging from $ 5,000 to $ 25,000 to underserved entrepreneurs. Forge provides loans and coordinates efforts with Arkansas entrepreneur Benito Lubazibwa, founder of ReMix Ideas.
Forge has also invested in a business academy to train future entrepreneurs that Lubazibwa operates. Forge has allocated $ 280,000 to set up six cohort training sessions involving 72 small businesses, mostly minority-owned businesses.
The community foundation and Forge share the same perspective on impact investing, according to the foundation’s program director, Sarah Kinser.
“Forge is a unique entity in Arkansas,” Kinser said. “They help people build their businesses and their families’ financial stability in a different way. Forge creates an opportunity for the Arkansans to come together and invest in each other and invest in their neighbors.”
EXPANSION OF FUNDING
The loan fund also helped help the woman-owned business Cureate start its first operations outside the Mid-Atlantic region, according to founder Kim Bryden. Cureate selects 10 food entrepreneurs from Northwest Arkansas to participate in a training program to refine their product offerings and prepare a marketing strategy.
Forge has provided nearly $ 100,000 to kick off the effort, which begins next month and includes a second cohort next spring. Food entrepreneurs who complete the program can turn to Forge for financial support. Cureate has a strong history in the Mid-Atlantic region, having supported 11 cohorts, each involving 10 to 25 companies.
“We like to partner with organizations like Forge because it’s patient capital,” Bryden said. “Forge provides the full support needed to capitalize these businesses and make them succeed.”
Southern Arkansas is a prime example of how Forge has expanded its lending efforts across Arkansas. In September 2016, Forge granted a loan in the region. Since last week, the organization has granted 18 loans totaling $ 643,000 to small businesses in southern Arkansas.
This effort was led by Greg Modica, a small business owner in El Dorado and a director of the Forge board. “My role has been to strengthen and really bring attention to what Forge can do as an alternative lending institution to support small businesses in this area,” said Modica.
“The gap between white and black entrepreneurs in the country is very wide when it comes to supporting small businesses,” he added. “In El Dorado, this gap is even bigger.
Modica coordinated efforts to create a business incubator or form of business support organization in Southark. “There hasn’t been a single place here to go for businesses to get all the support they need,” he said.
Southark chairman Wallace is passionate about the concept and believes it can work, although the final structure has yet to be worked out.
“We’re not far enough along in our discussions to know what that would look like,” Wallace said. “We know it would probably land on our campus, and we have space for it. Everyone involved is on board. But if we’re going to build this thing, we have to make sure we position it in the best possible way. . “