Kingsport micro-loan pool still treading water

Matthew Lane • Jan 1, 2008 at 12:00 AM

KINGSPORT — A program to help with downtown redevelopment, which has been in the works for more than two years, has yet to get off the ground and no funds have been distributed to its only approved client.

Kingsport announced in October 2006 the launch of a small-business micro-loan pool to help with redevelopment efforts in downtown. However, according to Aundrea Wilcox, director of the Kingsport Office of Small Business Development and Entrepreneurship (KOSBE), the structure of the loan pool is not fully in place.

“Nothing is really good to report, as far as someone being awarded a loan,” she said. “One client has been approved, but because the structure is not in place fully, the funds cannot be distributed yet.

“We’re waiting to hear from the IRS on our tax-exempt status. We have failed to set up the organization properly. KOSBE, the KCEC (Kingsport Community Enhancement Corporation) ... just really didn’t know what it took, as far as all of the pieces that were necessary.”

The crux of the program is a group of banks would loan money to people who could not secure traditional loans. Initially, the city wanted four banks with a $600,000 pool of money. To date, three banks have signed on with a $250,000 commitment. A fourth bank is expected to be on board with the program.

The maximum loan for businesses in the downtown redevelopment district would be 10 percent of the pool. For businesses located elsewhere in the city, the maximum loan would be 7.5 percent of the pool.

The interest rate on the loans will be prime plus 2 percent, and the loans would be for a maximum of 10 years. Start-ups and existing small businesses will be eligible for the loans, and collateral may be required depending on the qualifications and financial history of the applicant.

Applications for loans are submitted to KOSBE, the KCEC is the entity that oversees the program, and the Micro Loan Review Committee (made up of four members) reviews and approves the loans.

“When the KCEC board went to Regions Bank, they came back and said they needed the nonprofit letter and other documentation,” Wilcox said. “It’s forcing us to get it correct. That’s been the holdup. It’s been our lack of knowledge about the process of establishing a lending organization.”

The KCEC applied for its tax-exempt status with the IRS in September along with an expedite request.

Alderman Ken Marsh, who pitched the idea of the loan pool back in June 2005, said one of the holdups has been the state of Tennessee lost the KCEC check when it applied for its tax-exempt status.

“So about three months went by, and then they admitted they lost the check. So we had to send them another check, which was done in November. Now we’re waiting on the state to grant us our tax-exempt status,” Marsh said. “It’s amazing how much red tape there is in anything anymore. It’s amazing what it takes to do the simplest things.”

Another impact to the program has been a change on the review committee — Ken Maloy, who left Bank of Tennessee within the past year, has been replaced with Stephen Dixon of Bank of Tennessee.

Marsh said the program would not be where it is today without Bank of Tennessee’s help.

Since launching more than a year ago, six businesses have applied for loans, but only one has been approved for $32,000, which is less than what it applied for, Wilcox said. And to date, they’ve yet to receive any funds.

“It’s very unfortunate for the client, but they’re bearing with us. We are so lucky for that,” Wilcox said, adding there would likely be more hurdles and bottlenecks to the program. “We’re just not knowledgeable to get it done. There’s not a dedicated person to get it done, because it’s not KOSBE and there’s not a permanent person for the KCEC.

“They ought to have an executive director or somebody all the time to take care of the data.”

The history behind the loan pool dates back to the Board of Mayor and Aldermen’s budget talks of 2005.

At that time the city was exploring ideas for downtown redevelopment, and one idea came from the Kingsport Housing and Redevelopment Authority — the creation of a downtown redevelopment fund, which would be money loaned or granted to business owners for smaller redevelopment projects.

The KHRA suggested the redevelopment fund be funded by a portion of any approved tax increment financing (TIF) in downtown. The BMA reduced the funding level from 20 percent to 10 percent but promised to put $500,000 in seed money into the fund.

The seed money would have came from a five cent hike to the property tax rate. However, Marsh successfully lobbied the BMA to support his plan for a loan pool to come up with the money and not increase property taxes by a nickel.

“I really objected to that because it’s the wrong thing for government to be doing, and I think we could do it on the private side, which I think we still can,” Marsh said. “I don’t think government should be giving money away to private enterprise. Private enterprise is supposed to stand on its own. Where is it written that government should prop up everybody that comes along, and that seems to be the direction everybody is going that way.

“It’s a matter of socialism ultimately.”

The Kingsport Economic Development Board agreed to pay Merchants Holding Company $2.5 million up front to help fund the construction of the Kingsport Pavilion shopping center. MHC had to give Target 10 acres of land to entice them to come to the Model City.

The BMA agreed to repay that debt — at $500,000 a year for five years beginning in July 2008. Sullivan County also agreed to give the KEDB $1 million toward the development of the shopping center.

Marsh said the city would get that money back in sales and property taxes “pretty quick” and adds that TIF in the right places is a good system.

“With Food City, it was terrible. That was just a giveaway,” he said.

Getting back on track with the topic at hand, Marsh said the loan pool is still a very viable process. Marsh has kept the BMA updated on the program periodically including it in a “work session tickler” — a memo that goes out to city leaders updating them on a variety of city projects.

“I’m encouraged it is still making its way forward, albeit at a slower pace than we all hoped,” Marsh said. “One thing that is happening parallel to this, there are several other programs where people can get money who can’t get standard credit through normal banking institutions.

Wilcox outlined some of these alternatives KOSBE has been seeking and utilizing in a recent memo to city officials, which include:

• Superior Financial Group’s Community Express Loan Program. KOSBE began partnering with the program in December 2006, and more than $200,000 in small-sized loans have been approved.

• The Patriot Express Loan. Regions Bank has reviewed one loan application but did not approve it.

• The SBA 7(a) Loan. GreenBank is reviewing a $300,000 loan request, and the business plan is for a full-service restaurant.

• The USDA Rural Microloan and the Small and Minority-Owned Business Assistance Program.

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