The topic first went to the council last month, taken by Redevelopment Agency Director Richard Knoll, who proposed having the agency buy several city-owned properties – Dutch Harbor, the Lakeport Fire and Lakeport Police stations, and a property on Bevins – in order to create funds for the program.
The effort is intended to help offer loans ranging from $15,000 to $75,000 to businesses that need working capital in times when credit is hard to get and businesses are hanging on.
Councilman Jim Irwin, who voted against the proposal when it was first brought to the council last month, suggested that making changes to the terms of the program would make it more palatable for him.
Irwin said the city should be the “lender of last resort,” rather than just the best deal that businesses can get.
“We might accomplish that through upping the interest rates a little bit,” he said.
The proposed interest rate is a 1 percent origination fee, but Irwin suggested making it the prime rate, currently estimated to be about 3.25 percent. He added that he wants to make sure the loans only to go businesses that have a chance of making it. In order to ensure that, he wanted requirements for copies of tax returns going back three to four years, showing the business did well when the economy was good.
Irwin was concerned that the city appeared to be getting into the loan business. Knoll, however, said that's nothing new.
“The city has been in the loan business for 20 years,” Knoll said.
Not through the general fund, countered Irwin.
Knoll replied this loan program is not technically a general fund program. “It may be a kind of hybrid.”
He said redevelopment is trying to set up the program, the guidelines of which the council would dictate. Knoll said he's trying to create a streamlined application process.
Knoll said that, when loaning funds, the city typically does look at tax returns and business details concerning profit and loss and cash flow analysis. If the council wants more analysis, staff can do it, he said.
“What you're trying to say here is you want to minimize risk,” Knoll suggested.
“That's exactly what I'm trying to say,” said Irwin.
Knoll said he's not trying to pull the wool over anyone's eyes – there is definitely a risk to the city in making the loans.
The city already has experienced loss, either through people refusing to repay the loans or going into bankruptcy. That has necessitated going to court to collect, Knoll said.
But Knoll said he didn't want the program's requirements to get to the point where applications get bogged down in a difficult process and the money doesn't get out to businesses that need it.
Councilman Bob Rumfelt said small businesses can come and go quickly, sometimes in as little as six months. Maybe if they had help at the five-month mark they would have made it, he suggested.
“I think we need to streamline it, we need to keep our interest rates low,” he said, and be willing to be risky enough “without being criminal.”
“That will never work on Wall Street,” quipped City Attorney Steve Brookes.
Rumfelt estimated that between 60 and 80 percent of the local economic is composed of small businesses. “We have to do something to help small business,” he said. “I think it would be shameful if we didn't.”
Knoll said that having the council in an oversight position on the loan program may give them a sense of comfort, a suggestion with which Council member Suzanne Lyons agreed.
The city's businesses are definitely struggling, Knoll said. “Almost every day there are new contacts being made or stories that are being heard or told about people who are in trouble.”
He said the loan program tends to fill a niche that exists for many business people who can't necessarily go down to the bank to obtain a line of credit. “Therein lies the need to have solid criteria,” he said, noting that many businesses are weeded out during the vetting process.
Lyons said that many newer businesses can't get lines of credit, and many would be viable if they can get past their first two years. Or, Knoll added, through economic rough patches like this one.
Mayor Ron Bertsch asked if Knoll foresees a business under two years old applying for a $75,000 loan. Knoll said he would be surprised to see it. “I'd really have to question that.”
Rumfelt asked if the Lakeport Regional Chamber of Commerce could apply. Knoll said no, however, nonprofits have applied in the past.
Lyons asked if there are support services to go along with the loan. Knoll said Mt. Konocti Facilitation and Community Development Services assists in that capacity.
Irwin said his main concern is risk. “This really boils down to a business decision.”
The money for the program has been entrusted by city residents with the city government, Irwin said. “I could go along with it if we really tightened the requirements.”
Irwin added, “This is not the purpose of the general fund.”
Rumfelt made the motion to adopt the business stabilization loan program guidelines and direct staff to bring back the program's capitalization for separate consideration, with Lyons seconding. The council voted 4-1, with Irwin voting no.
Business owners see merit in program
Leslie Firth, owner of the Kitchen Gallery and president of the Lakeport Main Street Association, was at the meeting Tuesday to hear the discussion.
She thinks the loan program is important to businesses, especially newer ones like hers.
“I believe there is probably half a dozen businesses in line to take advantage of it,” she said, adding that she's one of them.
Last summer's lack of tourism – which Firth credited to the area's wildfires and smoky skies, and high gas prices – coupled with the economy is hitting business people like her, who need working capital to ride out the storm.
“I don't know where else I could go at this point to get a loan,” she said.
Firth noted that she's staying optimistic, thanks to new leadership in the country and hopes for this coming tourist season. “I have some hopefulness.”
Shari James, owner of Shari's Secret Garden, has been in business 16 years.
“I think it's a valuable program,” James said of the proposed loan plan.
However, she said she likely won't apply to borrow money for her needs, which don't include capital purchases.
James said the city's programs to help businesses, including the facade improvement programs, have been very valuable. “I think they're cooperative and supportive,” she said of the city.
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