Small stimulus: A survival line for region's startup firms

By Michael E. Kanell

The Atlanta Journal-Constitution

After scraping together his savings, Miles A. Davis had enough to buy the equipment needed to open a strength and conditioning center but he was still short on working capital to run the club.

He called a series of banks and went through the list. No go.

“And I did not have a backup plan,” Davis said.

But in late October, Appalachian Community Enterprises agreed to give him a $20,000 loan. A month later he had opened CrossFit in south Cobb County. Without that loan, he would have searched for an investor. “Then, I would not have had full ownership," he said. "And no way would I have been able to open the club that quickly."

It is proof that stimulus comes in small packages, too.

Although public attention has been focused on the billions of dollars in federal spending meant to spur the economy, money from a low-profile, nonprofit outfit also has sustained some local companies.

ACE is one of the nation’s 800 Community Development Financial Institutions. Created in the early 1990s and overseen by the Treasury Department, its mission is to extend credit where credit is sometimes hard to find.

Which lately has been all over.

The law caps ACE loans at $35,000 -- a pittance by the standards of big business. But this is not for big business. The program is aimed at the vulnerable but critical edge of the economy where tiny, newborn companies are struggling to survive long enough to build brands and markets.

They need money to grow, but their revenues are undependable.

For the past two years, the position of startups has been doubly precarious: Recession has chilled consumer and corporate spending, siphoning off the lifeblood of a new business.

It got worse. Collapse of the housing market froze lending by local banks while the related crisis in financial securities paralyzed big lenders.

Some small businesses hunkered down to wait out the crisis, but233 Georgia companies last year turned to ACE and asked for a loan.

“Small businesses have been unable to get capital, so we stepped up our lending,” said Elizabeth Penney, ACE's director of community outreach.

The loans are pegged to the risk, said Sandy Headley, ACE’s vice president of lending. With help from stimulus funds, the loans now range between 6 percent and 12 percent, several percentage points lower than usual, she said.

From last year’s applications, the organization pared the requests down to 91 companies, lending $1.3 million -- an average of roughly $14,300 per loan.

IfPeople needed only a little more than that. The Atlanta-based company offers online communications strategies and customer management -- mainly to nonprofits and “green” businesses. But after relocating from Argentina, IfPeople watched sales evaporate as the recession deepened, co-founder Tirza Hollenhorst said.

The company tried the Small Business Administration and couldn’t find a bank that would give it money with that agency’s guarantee. It came upon ACE, applied and was given a loan of $17,500.

The loan amounted to less than 5 percent of six-employee IfPeople’s revenues, Hollenhorst said. “It is not massive. But having that amount lets you push right in, do some training. It allowed us to make a one-time investment in branding and communications. I think that will put us on a path to reaccelerate growth.”

Chuck Rose, partner in Decatur-based Ecosource Home and Garden, which has three employees, said his company was struggling last year.

The company that had started off making biodegradable flower pots was strapped for cash and looking for a loan. It needed to hire a sales manager, ramp up its technology and invest money in new products.

A problem loomed, potentially fatal.

“Credit had dried up,” Rose said. “I tried everything we could try to get a loan. There was nothing available.”

So he went to ACE and asked for the maximum. Late last year, the loan came through.

Of course, without demand a loan only delays failure. But for companies that do have customers and need to grow -- and for companies whose customers will come as recession lifts -- even a small loan can mean survival.

The organization’s loans last year supported or created about 540 jobs, according to ACE chief executive Grace Fricks.

That pales compared with the jobs supported by the giant federal stimulus. But it was pretty important to Ecosource Home and Garden.

“We were in a world of hurt,” Rose said. “Without that, I seriously doubt we would still be in business.”