Ohio Asset Development Summit

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Ohio Asset Development Summit

• November 28, 2007

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Microenterprise Organization of Ohio
Terri Fetherolf, President
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Microenterprise-the definition

• Employs up to five individuals
• Requires 35,000 or less in start-up capital
• Lacks access to the traditional commercial
  banking sector

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Microenterprise vs.Traditional Economic
Development

• Microenterprise serves entrepreneurs who are left
  out of the mainstream business world

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• Microenterprise typically
• Addresses the credit gap
• Is an asset building strategy
• Builds on entrepreneurial culture
• Takes into account Economic and Geographic
  segregation

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Who runs Micro programs?

• Community Action agencies
• Local governments
• Non-profit organizations
• Faith-based organizations

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Program Models for Microenterprise Lending

• Typical lending models are designed to serve very
  small businesses with 5 or fewer employees with
  capital needs under 35,000. Microenterprise
  lending typically targets disadvantaged
  individuals.

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Peer (circle or group) Lending
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Training and Technical Assistance Model

• Personal and business development training serves
  as screen for participants.
• Staff assumes role of mentor or role model.
• Programs refer participants to traditional
  sources of credit, or other micro loan funds.

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Direct (individual) Lending

• Microenterprise owner applies directly to a
  program for financing.
• Loan process usually includes completion of
  application, personal and business financial
  information and credit report.
• Loans are approved by staff, loan review
  committee and/or board of directors.

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• Minimal training or technical assistance services
  may be available to the borrower.
• Collateral is usually non-traditional. Some
  programs do not require collateral due to high
  transaction costs.
• Market or above interest rates are charged since
  the issue is access to capital, not cost of
  capital.

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Self-sufficiency (Comprehensive) Model

• Designed to move people out of poverty to
  self-sufficiency through a combination of
  personal and business development training,
  assistance in crafting a business plan to secure
  financing, access to credit, and ongoing
  assistance after loan is made.
• Personal and business development training serves
  as screen for participants.

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• Step lending is done to moderate risk to the
  borrower and the program.
• Long term relationships are established enabling
  program to make character based lending.
• Staff assumes role of mentor or role model.
• Programs strive to mainstream participants into
  traditional sources of credit for long term
  success.

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Best Practices for the Comprehensive Model
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• Use business plan as a tool for the loan
  application.
• Allow participants to self-select throughout the
  program.
• Provide extensive technical assistance.
• Incorporate creative training techniques to teach
  new information emphasize practical experience
  to demonstrate sales capacity and knowledge of
  the market.

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Client/Program Outcomes

• Specific program outcomes or results to be
  achieved from the program such as
• how many participants will attend training
• how many businesses will be started
• how many businesses will be assisted
• how many loans will be made
• how many jobs will be created

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Desired customer outcomes

• Participants increased their knowledge of
  financial literacy by some
• Participants increased their family income by
  some
• Participants contributed some increase to the
  local economy in gross sales
• Participants contributed some increase to the
  local tax base

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Agency Outcome Objectives

• To increase access to financing for LMI
  entrepreneurs
• To increase the number of entrepreneurs who
  develop conventional banking relationships
• To expand opportunities for our target population
  to build assets
• To decrease individuals dependence on state and
  federal assistance programs

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Defining MicroenterpriseProgram Success

• Economic Development
• Human Development
• Community Development

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Economic Development Results

• Businesses created
• Businesses maintained
• Businesses expanded
• Sales growth
• Profitability
• Efficiency

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Human Development Results

• Increasing self-esteem
• Increasing skill levels
• Increasing educational levels
• Increasing ability to plan and complete projects

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Community Development Results

• Increasing employment opportunities
• Increasing viability of local economy
• Contributions to local tax base
• Reduction of dependency on public funds

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Microenterprise in the U.S. and Ohio

• 2002 Aspen Institute counted 650 programs
  nationally
• 2005 FRB of Cleveland study-60 in Ohio
  (respondents)

www.clevelandfed.org/CommAffairs/CRREPT.cfm
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How can Micro help?

• Eligibility PWDLMI
• Access to credit and capital for underserved
  markets

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Micro programs are key suppliers of training and
technical assistance to startup and existing
businesses
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What are we doing right?

• Provide technical assistance that is often
  one-on-one and tailored to fit the needs of the
  individual
• Kitchen Table technical assistance
• Distance learning
• EnterpriseWorks specializes in self-employment
  and micro-enterprise opportunities for people
  with disabilities

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What do we need to work on?

• Marketing Ohio Rehabilitative Services
  Commission-BVR-to the client and to micro
  programs
• Reciprocal referrals
• Getting on parallel tracks can make a difference
  in success
• BVR may help purchase startup equipment, which
  can be used for collateral on loan

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• The challenges for PWD are often the same
  challenges as
• with anyone else - fear of failure,
  unreasonable expectations, poor planning. The
  disability is just one additional factor to
  incorporate into the business planning process.  

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Microenterprise Organization of Ohio
P.O. Box 21972Columbus, OH 43221-0972Phone
614-340-8797 www.microenterpriseohio.org/