New microenterprise financing builds pipeline of bankable borrowers

Just last year, Zach Johnson was a laborer with a part-time side gig trimming trees. Just last year, Stacey Poe earned less than minimum wage at a commercial cleaning company.

Today, Zach Johnson is owner of Johnson’s Tree Service. Stacey Poe is owner of Lucky Ducky Cleaners. Both are new and needed employers in their rural Missouri communities.

Each was able to make the shift from low wages to business owner with middle-class incomes thanks to a new microenterprise financing effort focused on rural communities.

The START HERE Revolving Loan Fund serves people who have the skills and determination to make it, but who lack the credit history and business track record they need to get traditional financing from a bank.

Start Here. Grow Here. Stay Here.

Operated by the community development corporation New Growth, the loan fund is part of a larger collaborative effort by New Growth, parent West Central Missouri Community Action Agency, and regional partners called the START HERE Business Acceleration Network. This group developed the loan fund in order to prime the rural economy pump; it provides the microenterprise financing needed to build the pipeline of bankable businesses that rural communities need to grow.

“We cannot afford to lose one business or new business opportunity in our rural communities,” said Lisa Jones, who manages the loan fund’s development as New Growth’s Chief Economic Inclusion Officer. “Each one, no matter how small, makes a significant difference in a rural place compared to a city with many more businesses.”

Since March 2021, its first year in microenterprise lending, New Growth has financed 23 rural businesses from the START HERE loan fund, including 12 new businesses.

The goods and services rural small businesses provide are also essential to their communities’ survival and growth, according to significant research supporting entrepreneurship as a top rural development strategy. Keeping current residents, and attracting new residents and employers, depends on rural places having the things people want and need, from tree trimming to cleaning services.

Filling the financing gap

When forming the network in 2019, START HERE partners zeroed in on the need to fill a huge gap in financing available to small and startup rural businesses. Too many have no way to get started despite a solid business plan and ready customers; they are too small, too new, or too risky for banks to consider, yet.

START HERE partner Kelly Asbury, Director of the Missouri Small Business Development Center (MOSBDC) at State Fair Community College, said the microenterprise loan fund has been the missing piece for many of her clients. Based in Sedalia, Asbury serves 13 mostly rural counties.

“There are times when you know in your gut that this entrepreneur is going to be a rock star. But then you can’t get them financing; it’s really tough,” she said.

“We’re talking about projects that are going to cash flow, the owner has the experience to make the business happen … but they don’t have the collateral or the credit they need to move forward with bank financing.”

23 businesses funded in first year

New Growth’s START HERE loans range from $500 to $50,000 and have averaged $8,000. Interest rates of 4% to 12% above PRIME are higher than those banks offer. But terms and collateral are flexible. New Growth can turn around micro loans within 14 days once borrowers provide all needed documents.

In addition, most borrowers receive business development support through one or more START HERE partners, including the new 15-county New Growth Women’s Business Center. It is the first and only such U.S. Small Business Administration-designated center in Missouri and Kansas to serve only rural entrepreneurs, women and men.

Seizing business opportunity

Zack Johnson worked with MOSBDC’s Kelly Asbury to build a business plan around significant opportunity he saw for a tree service company in the area he covers in and around Sedalia, Marshall, and Warsaw, Missouri. Only one other company exists, and it handles commercial, not residential, jobs.

Just 24 years old, Johnson said he was ready to take charge of his future as an entrepreneur after working as a laborer. “I was tired of working for other people. I knew I needed to figure out what I wanted to go into because you have to enjoy it.”

New Growth Loan Fund Manager Michelle Smith was his loan officer. Johnson needed to buy a costly and key piece of equipment, a skid steer, to turn ready customers and opportunity into a growing business, and good jobs.

Smith said she knew he could turn it around because he already had jobs booked out for nearly a year. She was doubly sure when he submitted all of his loan paperwork within a week.

“He was so thorough. It was really impressive,” she said. Johnson currently employs 3 people. He paid off his 5-year loan in five months.

From paycheck to prosperity

Stacey Poe and husband Larry Poe of Bronaugh, Missouri (pop. 199), are in their early 50s. They can tell you all about the challenges of making a living in a rural area when factories that used to dot the countryside close up and move away.

“We’ve worked minimum wage at factories, and most of them have gone under or offshore,” Stacey Poe said, listing three companies she used to work for that moved out of the country.

When their latest employer, a commercial cleaning company, closed due in part to Covid-19 disruption, the Poe’s were in perfect position, with skill and knowledge of the business, to pick up the work.

Stacey Poe recounted: “I pitched to the state (government office buildings), ‘Why not let the smaller guys doing this work, and caring about the buildings, do it?’ … And they went for it.” She was awarded three contracts off the bat to continue cleaning state office buildings in Nevada, Missouri.

Stacey Poe then needed money for supplies and such to take on this opportunity; Lucky Duckyy Cleaners would not have incoming revenue for two months. New Growth filled that need with a working capital loan from the START HERE Revolving Loan Fund.

Loan officer Michelle Smith and the team at New Growth continue to work with Lucky Duckyy to manage rapid growth given more contracts since startup last year and incoming calls from other cities.

“We helped her get set up with a CPA for bookkeeping and taxes, and soon with someone to help with payroll,” Smith said.  Lucky Ducky is currently hiring two employees.

Stacey Poe is focused on growing sustainably and diversifying into other commercial cleaning work in addition to state offices.

“If I don’t have someone in place to clean I won’t put in for building,” she said. “You can’t put all your eggs in one basket or spread yourself too thin.”

On the way to the bank

Johnson’s Tree Service and Lucky Ducky Cleaners should be able to get future financing from traditional banks, because they are rapidly building the business track record, financials, credit and collateral that traditional financing requires.

“That’s our job,” said New Growth’s Lisa Jones. “We get businesses going and growing so they can graduate to the financial mainstream and help secure our rural future.”

So far, funding for the startup loan fund has come from partner organization contributions, including New Growth parent West Central Missouri Community Action Agency, and from the USDA Rural Microenterprise Assistance Program.

New Growth is actively seeking additional loan capital to serve strong rural microenterprise demand.