Small businesses who can’t get a loan could find lenders through a little state program that needs to start moving money in 2013.

The program is only just picking up steam. 

Some $15.4 million in Treasury funds came to Minnesota to help encourage small business lending thanks to the Small Business Jobs Act of 2010. The programs offer loans and loan guarantees to businesses with fewer than 500 employees, preferably much smaller, minority-owned and in economically distressed parts of the state.  

Federal guidance says the state should distribute $9 million in loans and loan guarantees by October 2013. So far, a little more than $1 million has been used.

“Activity is increasing, and we expect to meet that goal,” said Blake Chaffee, spokesman for the Minnesota Department of Employment and Economic Development.

The point is to stimulate private lending with public dollars. DEED reports that in 2012, $1 million in publicly funded loans and guarantees for 31 businesses have helped leverage $15.9 million of private money. According to state estimates, 233 jobs were created and 472 retained.

Only lenders who’ve been OK’d by DEED can make the loans, each of which must also get final approval from DEED. The lenders are generally foundations and neighborhood development corporations.

The largest of the  programs is the Emerging Entrepreneurs Fund, which can lend up to $150,000 to a small business, provided private lenders match public dollars. The program loaned $615,000 in 2012, which helped create $10.8 million in private loans.

“The goal is 10 to 1,” Chaffee said.

If DEED can get $10 of private investment for every $1 it commits to a small business, that would be $154 million of investment in Minnesota small businesses. 

“It is a demand thing, so we’re going to work our way to the 80 percent by 2013,” Chaffee said.

Banks have said for months that loan demand is weak. Lending by traditional institutions like banks has slowed since the recession as loan officers tighten credit standards and consumers try to chip away at their debt. Depoosits at U.S. banks now outnumber loans by $2 trillion, which is a problem for institutions that make the bulk of their profit by lending and chargning interest.

The state's entrepreneurs fund is designed specifically for minority- or women-owned businesses and businesses in economically distressed areas. Another way to use the federal money is called the Capital Access Program, which tries to encourage lenders to work with companies that might not meet their credit standards. It uses a special loss reserve to bolster these questionable loans.

Companies like Northshore Manufacturing Inc. in Two Harbors, the French Hen Café in St. Paul and Raices Residential Cleaning in Brooklyn Park each received federal dollars to help leverage larger private loans. The largest state commitment was for a $224,000 loan guarantee for STAFF Manufacturing in Lester Prairie, which DEED says helped attract $2.2 million in private loans.

“One of the biggest challenges faced by promising small businesses is gaining access to capital in the early stages of their development,” said DEED Commissioner Katie Clark Sieben. “This program provides Minnesota businesses with funding that will enable them to expand and create jobs.”


A full list of the programs' recipients and their lenders is here.