Establishing an Iowa Microloan Foundation

Iowa is at or near the bottom nationally in business startup rankings. A steering committee of sixteen was formed in 2006 to identify the gaps in Iowa’s entrepreneurial development system. Gaps were identified for microentrepreneurs--those with five or less employees and requesting loans up to $50,000. Addressing the gaps is consistent with the ISU Strategic Plan. An inventory of existing programs and initiatives was developed. Two surveys and several interviews were conducted with lenders and technical assistance providers across the state to confirm the hypothesis that microenterprise is being underserved in regard to access for loans, technical assistance, and equity capital. A business plan was drafted for a demonstration project. Grant funding for a demonstration project was approved and will be used as a 15 percent required match for an SBA Microloan application.

The research confirmed gaps in capital and technical assistance for Iowa’s microentrepreneurs. Access to capital received the highest need rating from respondents in a Microenterprise Survey conducted in collaboration with IDED consultants. A survey of Iowa Bankers Association members indicated 68 percent of respondents were interested in regional projects for assisting entrepreneurs. The research and business plan development process created promising prospects for a demonstration project. Initial financing for a Microloan Application and four Microenterprise Pilot Projects has been secured. A nonprofit microlender called the “Iowa Foundation for Microbusiness and Community Vitality” is being incorporated. The entity is to provide market-based, risk-adjusted interest rates to encourage loan clients to graduate to commercial lending within six years. The entity also will provide incentives for technical assistance and networks to support microloan clients. Four microenterprise assistance projects will be selected to organize initial local and regional support for microloan clients. The Iowa Microloan Foundation seeks to ramp up to assisting 150 new microloan clients per year by the end of a three-year startup period. Each loan approval includes a technical assistance plan and $500 for a TA incentive grant for each client. The Foundation seeks to achieve financial sustainability in nine years.

Contacts:
Ron Prescott, Economics
179 Heady Hall
Iowa State University
Ames, IA 50011-1070
rprescot@iastate.edu
515-294-5862

Mark Edelman
Community Vitality Center
183 Heady Hall
Iowa State University
Ames, IA, 50011-1070
medelman@iastate.edu
515-294-6144