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Program provides loans to small businesses

By Megan Workman

CHARLESTON, W.Va.  -- Banks often back off when it comes to giving startup businesses loans, an investment analyst at the state's venture capital firm said.

They require a track record from a company before they feel comfortable lending, said Michele O'Connor, investment manager at West Virginia Jobs Investment Trust.

"Capital has been very difficult for some businesses to acquire in the state because banks don't tend to lend to startups, so [businesses] struggle to find partners to provide that capital," O'Connor said.

When the trust became administrator of the state-run West Virginia Capital Access Program (WVCAP) in 2011, O'Connor said she felt "reserved enthusiasm" because she knew the program would benefit businesses, but banks hadn't "loosened up their lending" - and that hasn't changed, she said.

The WVCAP is designed to supply small businesses with the money they need to invest, expand and create jobs. West Virginia's program has access to $13.1 million -- the minimum any state could receive, O'Connor said -- through the State Small Business Credit Initiative, created under the federal Small Business Jobs Act of 2010.

The initiative provided $1.5 billion nationally to strengthen state programs that support lending to small businesses, according to the U.S. Department of Treasury.

The funds are used to help finance small businesses that are creditworthy, but may not qualify for traditional lending.

The program offers four separate funds in the state, which include one equity and three lending funds.

In West Virginia, the money has helped hire new employees, buy new equipment and create new products for startups and seasoned companies.

The WVCAP has preserved more than 300 jobs and created the potential for 278 new jobs in the state, according to the Jobs Investment Trust.

Business owners have also updated their company logos, websites and received help putting together a business plan through the operational assistance funds made available by the Claude Worthington Benedum Foundation and the state Department of Commerce.

More than 12 companies have collected more than $100,000 in operational assistance, according to WVJIT.

Seven program participants situated across the state have access to the WVCAP funds, O'Connor said.

They are the Natural Capital Investment Fund, the Center for Rural Health Development, Inc., INNOVA Commercialization Group, New River Gorge Regional Development Authority, Mid-Ohio Valley Regional Council, Regional Economic Development Partnership, and Wyoming County Economic Development Authority.

These alternative lenders are "on the forefront in assisting businesses throughout the state," when banks weren't on board, O'Connor said.

By generating $10 in new private lending for every $1 in federal funding, the SSBCI funds are expected to produce $15 billion nationwide over five years.

That's $130 million that could spur new lending and investment activity in the state, O'Connor said.

Each state has two years from the date its program was approved to distribute all of the funds.

Any funds that are paid back by businesses are returned to the WVCAP program, which will ultimately create the $130 million, O'Connor said.

"The state has five years to turn $13 million into $130 million and to do that we're going to require that some of those loans be paid off in two years so it can help other businesses," O'Connor said. "Not only is there an incentive to the program and the state, it's certainly an incentive to those program participants to make good deals, good transactions and good loans so those funds can come back in their portfolio so they can turn around and support other businesses."

The WVCAP got approval from the U.S. Treasury to start its new program in November 2011 and its first funds were available on Dec. 1, 2011. The program launched in January 2012.

The federal funds are made available to every state in three transfers. West Virginia has applied and received approval from the U.S. Treasury for its third and final installment for nearly $4.5 million.

She said the Mountain State will distribute all of its $13.1 million allocation by the end of summer, which is ahead of most states.

In a progress report presented during April's legislative session to the West Virginia Senate Economic Development Committee, WVJIT said West Virginia has the fourth-highest use of funds as a percentage of funds assigned in the nation.

The WVCAP has approved more than 30 funding requests totaling more than $10 million, O'Connor said. Of that, 23 of the investments have been closed for nearly $6 million in WVCAP funds.

"Those states that relied heavily on banks accessing the funds and lending have not faired as well as states that chose paths such as ours to disperse the money," O'Connor said. "The continuing challenge has been bank participation."

Berkeley Springs Instruments President Gene Silverman said he has dealt with a lot of banks over the years -- which is why he reached out to WVCAP when he wanted to expand his company.

INNOVA and the Jobs Investment Trust each invested $500,000 in loans to help the high tech pipeline sensor manufacturer open a research and development facility in Morgan County and launch its newest product. The wireless Eagle Array Sensor monitors the thickness of oil and gas pipelines and tanks to make the data available to customers on the Internet.

Silverman said his business is high-risk, but there is much more room to grow, which is why more money is necessary.

Nontraditional lenders are willing to take higher risks, said Matt Wender, marketing liaison for the state program.

"Banks are still reluctant to take any risk at all without a 100 percent guarantee," Silverman said, "and I think this program is perfect for product development opportunities for us. For us, it's absolutely perfect."

Silverman said all of the components came together at once, from new technology to data transmissions, to expand Berkeley Springs Instruments. The missing element was the funding.

He said he chose the WVCAP route because "it was very, very attractive to us" for its willingness to help West Virginia companies, fair terms and an overall easier experience.

"There is no doubt that several of these companies wouldn't be able to either continue or start without these funds," O'Connor said. "If it weren't for these dollars, these transactions couldn't happen."

"I don't know if any of these companies could raise this money without this program," Wender said. "To have access to traditional sources of lending, I don't think there is anyone on this list who couldn't do it without WVCAP."

The companies the state-run program has sourced aren't just high tech companies, either, Wender said.

B&L Farm in Summersville got help to purchase 166 additional acres. Owner Brian Sparks raises grass-fed beef along with lamb and wool production.

Chris Loftis reached out to WVCAP to restart a former bowling alley. Loftis Lanes now employs four full-time and 18 part-time workers.

The Jobs Investment Trust provided funds to US Glass, new owner of Fenton Art Glass Co., to help the company resume production of art glass. The money will be used for operating capital, marketing and advertising support.

O'Connor said the U.S. Treasury is impressed with what West Virginia has done with the capital program.

Clifton Kellogg, director of the SSBCI, reiterated that statement in an email to The Charleston Gazette.

"West Virginia has done an exceptional job of quickly deploying these funds so their small businesses can invest, expand, and hire," Kellogg said.

For more information about WVCAP visit www.wvjit.org, or contact O'Connor at 304-333-6828 or amo.jit@frontier.com, or Wender at 304-469-6364 or mwender@cwv.net.

Reach Megan Workman at megan.workman@wvgazette.com or 304-348-5113.

 


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