City considers offering loans to promote business expansion

Small businesses may soon be able to secure financial assistance from the city if municipal leaders decide to approve a new loan program.

At its Monday meeting, the City Council discussed establishing a business assistance revolving loan program that would provide loans of $5,000 to $25,000 for companies wanting to expand.

As the economy begins to recover from its severe downturn and consumer spending increases, some small businesses are looking to grow.

However, due to tight lending requirements now in place within the banking industry, small-business owners are having a difficult time acquiring the capital needed to do so.

The city’s program would, in essence, fill that gap, said Mayor Pro Tem Glen Becerra, who proposed the idea of a loan program in April.

“I don’t believe this program will be needed for a long time, but right now banks aren’t doing the job banks are supposed to be doing . . . obviously because of the credit crunch and concern over past lending practices,” he said.

Becerra said the expansion of business will increase the city’s tax revenues and job base.

But Councilmember Barbra Williamson expressed some concern over the idea.

“I just don’t think we should be in the banking business,” she said.

Since city staff members don’t have the expertise to serve as loan processors or managers for the program, they’ve recommended that the Economic Development Collaborative-Ventura County (EDC-VC) administer the program.

Based in Camarillo, EDC-VC manages its own $3-million portfolio as well as a $2.2-million portfolio for the county’s two business loan programs.

Williamson asked why the city needs its own loan program when the EDC-VC already offers a similar one.

“The focus of this one is that it would be in Simi Valley for Simi businesses and that it would be tailored to the local businesses here,” City Manager Mike Sedell replied.

Williamson responded that the EDC-VC loan officer comes to Simi and she knows of many local businesses that have successfully utilized the services the collaborative provides.

She said the city—or the Chamber of Commerce—should look at better promoting EDC-VC to small businesses before creating its own loan program.

Becerra said he understood Williamson’s concerns and he doesn’t foresee the program being long term. However, in the short term, he said, with the economy the way it is, the city should be responsive to the needs of its business community.

“This . . . allows us to better take care of our own,” Becerra said.

As proposed, loan amounts would range from $5,000 to $25,000, and all funds would be leveraged with a dollar-for-dollar match provided by the applicants.

Applicants would need to have a current business plan and be able to demonstrate how the loan would provide a public benefit: generation of additional sales tax to the city, business creation or retention, or job creation or retention.

Loan interest rates would be negotiable but not less than the city’s rate of return plus 2 percent, putting the rate at about 5 or 6 percent— an attractive number to local businesses, said Councilmember Steve Sojka, himself a small-business owner.

Loans could be used for business start-up, working capital, interior and exterior improvements, and purchase of equipment, furnishings or inventory.

The council liked the idea of requiring applicants to show a turndown letter—a denial of a loan by another financial institution—to keep the city from competing with local lenders.

Sojka was concerned with how difficult it might be for a small business to get one of the loans, saying he didn’t want to overwhelm a business owner with paperwork.

Assistant City Manager Brian Gabler, director of economic development for the city, said the intent of the program is to make the process as easy as possible.

‘There are hoops, as it were, that they will have to jump through, but hopefully the lending criteria will be easier to accomplish because we are not a larger bank that is going to have to balance out a large portfolio,” Gabler said.

As outlined, the city would contribute $150,000 annually to the program for four years. At year three, the program would generate enough revenue to cover its own administrative costs.

At year four, the repayments coming in, coupled with the interest and application fees, would make the program “self-sustaining and revolving,” Gabler said, and the city wouldn’t have to put in any additional money to fund new loans.

The program’s loan pool would be able to fund about eight to 10 loans per year, he added.

“I think this is a good thing for our business community,” Sojka said. “Do I want to become a bank? No. Do I want to compete with the private enterprise? No. But do I want to help small businesses here in Simi Valley? Absolutely yes.”

Williamson wasn’t convinced.

“I just have a real problem with it, especially since I think it’s a duplication of services that are already offered out there,” she said.

At the mayor’s suggestion, the council agreed to form an ad-hoc committee—for which Sojka and Becerra volunteered—to work out the details.

The proposal will then be brought back to the council for a final decision.