Local governments back business loans

Some businesses fail, others bring jobs to area.

Biggest area loansMOON Co-Op

Oxford, Ohio



Oxford, Ohio


When leaders of Coolants Plus Inc. wanted to move out of their cramped West Chester Twp. factory in 2013, they didn’t have the city of Hamilton in mind.

But a friend mentioned an old Hamilton space needed a tenant and then, when city leaders offered up a $50,000 forgivable loan to help rehab the building, company officials decided it was time to move more than 20 jobs to the city.

“Without the city doing that, we probably wouldn’t have moved here,” Coolants Plus Vice President Darrin Ward said of the company’s move to the 100,000-square-foot building. “It was probably one of the best things that happened to our company.”

The move — with the help of the loan that the company won’t have to pay back because they’ve met job growth goals — has allowed company officials to expand the business and add 11 new employees to payroll, Ward said.

Local governments have loaned millions of dollars over the last few decades to help new or growing businesses, from a lingerie store in Oxford to a thrift shop in Middletown.

Some have failed. Others are behind on payments. But many have succeeded and brought jobs to the area.

It makes the difference

Since 2007, Hamilton city leaders have given out nearly $950,000 through a forgivable loan program funded by federal community development grants.

The money has helped a total of seven businesses, including Coolants Plus, to move here or expand, bringing 308 new jobs to the city, said economic development director Jody Gunderson.

The loans are forgiven if the company can meet job projections.

So when city leaders promised to give auto supplier ThyssenKrupp Bilstein of America Inc. $100,000 in 2012 — and again loaned $100,000 to the company for a major expansion earlier this year — the manufacturer pledged to create more than 360 new jobs in the coming years.

Gunderson said the company met job projections for its 2012 loan and has until 2018 to meet expectations for the most recent loan.

Coolants Plus has already exceeded the job creation projects for their $50,000 loan, Ward said.

If the company can meet the job creation terms, then, the loans essentially amount to cash. Gunderson said the city usually ends up paying for new business equipment with the loan.

He said many businesses shop around to see what they can get from areas and where they can get the best deal.

“You’ve got to understand, we’re competing within the state and areas outside of the state,” Gunderson said.

But for some projects, businesses failed and taxpayers still won’t get their money back.

The Riverbank Cafe, for example, which closed in 2013, was supposed to have paid off its $100,000 loan last year. But less than $75,000 of the principal was paid back before the restaurant filed for bankruptcy and closed. A new restaurant, J.Austin’s Riverbank Cafe, has since opened in the same location but does not have a loan from the city.

Gunderson said the city has focused less on handing out loans to retail and restaurants in recent years but he would like to add more of those to the city’s lending line up. Currently, the city has $200,000 available for lending to businesses.

City of Oxford officials, though, have focused almost exclusively on handing out loans to small business owners, including clothing stores and yoga studios. The county’s largest employer, Miami University, already sits in Oxford.

The loans, which come from a pot of money the federal government gave to Oxford decades ago to start a revolving loan program, are meant to help the “average Joe” start a business, said the city’s economic development director Alan Kyger. Since Oxford has a revolving loan program, it relies on businesses paying back their loans with interest to keep the program funded and growing.

“The purpose of the fund isn’t to help those who don’t need help,” Kyger said. “The whole purpose of this revolving loan fund is to help those who typically can’t get 100 percent of their finance through a bank.”

The organic grocery store co-op, the Moon Co-Op, raised $400,000 among its owners back in 2011 to launch its Oxford location. And the owners were able to get a $93,000 bank loan. Once the city pitched in an additional $245,000, the shop was able to open its doors.

“It made the difference between this small business being able to open and it not opening,” said the grocery store’s board president Bernadette Unger.

Unger said the store is important for the area because although it’s a cooperative that relies on people to pay membership fees for some revenues, anyone can shop there and 40 of the store’s suppliers live within 25 miles of Oxford. The store also employs 14 people, mostly part-time workers.

But paying back the loan has been a challenge for the co-op.

The city has renegotiated the loan terms three times — and allowed the store’s roughly 700 owners to make interest payments for three years. It’s flexibility the store might not have had with a bank lender, but Kyger argues it’s worth it for the city. Earlier this year, Oxford renegotiated the loan to a 10-year term and is allowing grocer to make smaller payments. They hope to start making full payments on the loan next year.

“If we ask them to make the full payment and that causes them to go out business, we’re not doing the business any good or the community any good,” Kyger said. “They’ve got a nice store, they provide a nice product.”

Only one loan — a Lebanese-style restaurant called Arabian Nights — has defaulted since 2008.

During the last decade, seven storefronts have been loaned more than $670,000 through the program. Two popular restaurants, Patterson’s Cafe and Quarter Barrel, have been in business for more than five years in the college town. A yoga studio just got a $20,000 loan this summer while a backpacking and hiking store got the same size loan in 2011.

A lingerie store called Hush Intimate Apparel benefited from a $45,000 loan in 2013 and it’s 180 days behind on payment. The store’s owner declined to comment for this story but said she has a plan to pay the money back.

Why should the government get involved?

When cities step in to fill a gap in financing for business owners, the move can be risky for taxpayers said Greg Lawson, a policy analyst for the Columbus-based Buckeye Institute, a conservative government watchdog group.

“Why should the government be doing it instead of a bank?” Lawson said of the loans.

Last year, Butler County Commissioners refused to entertain the idea of loosening up restrictions on the county’s loan program, which is self-sustaining and has loaned out nearly $25 million in the last decade for similar reasons.

Still, some local government leaders say incentives are becoming increasingly competitive — and necessary — for cities and counties to offer up.

Warren County Port Authority leaders are looking at offering a revolving loan fund program to their line up, said director Martin Russell earlier this week.

Budget cuts in the city of Middletown forced officials there to divert federal funds from the city’s business loan program to building facade improvements. The program loaned nearly $400,000 to businesses, including the Meander Thrift store and the Midd Cities industrial park developers, from 2007 to 2009.

Now, city leaders are considering bringing the program back, said Matt Eisenbraun, the assistant economic development director for the city. Eisenbraun said the city will consider adding a number of economic development incentive programs during this year’s budget process. He said he will present a list of options to city leaders in coming weeks.

“We’ve put a lot of time and effort looking at what other municipalities do,” Eisenbraun said.

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