Lending money to restaurants gives most loan officers indigestion, but a new federal program has granted nearly prime-rate loans to restaurants and other small businesses that have a high failure rate.
The Micro Loans Program is part of a federal initiative called Enterprise Communities. President Clinton's administration allocated $500 million in the current fiscal year to help rural communities work themselves out of poverty.
The CSRA Regional Development Center administers a $3 million grant, which includes $500,000 available for Micro Loans. Opportunities to renew the federal grant expire after 10 years as a way to force the communities to strive for other funding sources or internal financing from loan repayment.
"It is to help people become self-sufficient and create jobs," said Riley Stamey, a banker from McDuffie County who sits on the board of the Regional Development Center. He tutored the nine-member loan committee on how to evaluate loan applications.
In the nine months since the Augusta program began, it has granted seven 10-year loans for a total of $99,000. Another four loans are pending, totaling $85,000. Loans have gone to a garage, three restaurants, a dry cleaner, a hair care supply store and a farmer.
Since average loans are just $17,000, the application process allows the board more discretion than banks traditionally give their loan officers, according to Mr. Stamey. Still, he has had to teach loan committee members to use the same care and to require similar documentation and business plans demanded by conventional lenders.
"We are going to try to stay pretty close to them so they don't get into any serous trouble," said Tim Maund, executive director of the Regional Development Center. "We try to be more helpful than punitive."
The loans range from $1,000 to $50,000, and 75 percent of them must go to businesses in 10 rural census tracts where more than 30 percent of the population lives below the poverty line. Applicants can contact James Peoples at the Regional Development Center at 737-1823 for information.