Micro-Loans Target Would-Be Entrepreneurs

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MANCHESTER, N.H.-St. Mary's Bank has launched a pilot program to help prospective business owners take their first steps.

The $711-million, 78,000-member credit union is offering entrepreneurs micro-loans of up to $5,000 as part of its Community Outreach Program, which was launched in 1995 and today continues to provide assistance, such as the Family Emergency Loan Program. The small business loans are being offered through the CU's partnership with abi Innovation Hub, a local not-for-profit for entrepreneurs.

Community Outreach Director Tom Champagne explained that abi "works with a number of small businesses on a daily basis, and if they see an organization with a good business plan that they think may be interested in our loans, we'll have them apply, and hopefully we'll be able to make a few of these loans."

Individual loans are capped at $5,000, and according to Don St. Germain, EVP Lending, will be priced between 8% and 10% APR, "recognizing that these will involve higher risk than an established company." While St. Mary's has allotted $25,000 for the pilot run of the program-which is slated to run through December-St. Germain said that it could expand beyond that initial pool if it is seen to be successful and if the demand is there.

St. Mary's had originally considered offering block grants rather than loans. "There's a sense of ownership in doing it this way," said St. Germain. "When you get something for free, it's just not valued as much, and this also gives the new business owners a start on corporate credit."

While the underwriting standards are not drastically different for the pilot program than for other loans, St. Germain said that there is a tolerance for lower credit and some assumed charge-offs that the CU might not ordinarily have. But, added Champagne, "we're looking for people that have a good business plan and a well thought-out business. ... We know that these are going to be smaller, start-up type businesses ... that aren't going to have the years of history that other businesses will have."

Champagne added that the initiative would mostly be promoted through the credit union's partnership with abi and word of mouth, but that the CU was "not going to be spending a lot of money running ads."

St. Germain stressed that the program is not meant to significantly boost loan outstandings, and is "purely about our commitment to the community." As of March 31, St. Mary's Bank had a loan portfolio of more than $478 million. St. Germain said that while "demand isn't quite what we would like," lending overall has stayed strong, and the credit union is "still putting money on the street every month."

He attributed that to being in a state with a diverse economy and unemployment below 5%--nearly half the recently reported national average.

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