VOL. 11 | NO. 27 | Saturday, July 7, 2018
Pathways to Growth
By Michael Waddell
A group of nonprofits and banks have created a program to increase lending to Memphis-area minority- and women-owned businesses. Last month, entrepreneurial hub Epicenter and Pathway Lending launched the $15 million Memphis Small Business Opportunity Loan Fund, which is aimed at helping small businesses improve their access to capital.
“A part of our focus is making sure entrepreneurs have access to the resources they need when they need them,” said Epicenter president and CEO Leslie Lynn Smith. “On the capital stack side, it’s making sure they have access to capital as and when they need it, including grants, equity and debt.”
Smith points out the numbers are still very stark in terms of debt-to-equity capital that flows into businesses owned by women and people of color, with both segments sitting at less than 5 percent. Debt hovers in the 20 percent to 27 percent range.
“There’s a variety of reasons for those numbers, but we’re just trying to remove all of the barriers that prevent people from launching and growing their businesses,” said Smith. “There are a lot more companies today being started by women and people of color. The challenge we’re trying to correct is we’re not seeing those businesses grow at a rate consistent with their white male counterparts.”
In addition to unlocking extra capital, other supports like access to customers, technical assistance and training will be available to help loan recipients increase their growth.
Pathway Lending will be the administrator of the new fund, with the lender’s new Memphis office based in Epicenter’s headquarters in Cooper-Young. Pathway typically targets African-American, female-, veteran- and minority-owned businesses.
“The Pathway piece is a really robust business loan fund that allows small businesses that may have less experiences in shorter business line trends in terms of financial experience to access favorably priced debt capital,” said Smith. “So we’re excited because it brings a new flexible tool to the market and gives entrepreneurs another opportunity.”
She’s also excited the fund is large enough to support some bigger deals. Loans will range from $5,000 to $1 million for growth and are aimed at businesses that may not qualify for a conventional bank business loan. The fund also includes technical assistance and business advice.
“We think the initial funding could last for somewhere from three to five years,” said Smith. “Our hope is that as returns and new investors come in we’ll be able to grow and sustain the fund. Hopefully if we do our work well, it never goes away.”
Nearly 200 people attended two informational sessions held in late June, including Tanocha Thedford, owner of Big Momma’s & Granny’s Catering.
“I’m hoping to get money for working capital and equipment, and I really just want to find more information about how I can get the funds,” said Thedford. “I recently leased a building in Bartlett, my business is growing, and we’re going to have our own storefront for the first time.”
Formerly an airline attendant, Thedford started her own business in 2011 and has built up a strong clientele list catering to commercial accounts and selling hot prepared items as well as frozen and refrigerated dishes.
“We’ve grown a lot, but we’re still a small business,” said Thedford. “We’re in that niche where we still need some help because we’re venturing out.”
For the past three years, she has operated her business out of a leased kitchen space at Unique Catering and Event Center in Bartlett.
As a result of the information sessions, at least four loans are in the process of being underwritten.
“So we should be funding our first couple of loans in the next week or so,” said Hank Helton, Pathway’s senior vice president of lending.
Pathway, which formed in 1999 from a private economic development initiative in Oak Ridge, Tennessee, expects to make approximately $50 million in loans across the state of Tennessee this year. It touts a success rate of 99 percent on recouping its loans. Pathway also manages small-business opportunity funds in Nashville and Knoxville.
“This relationship that we have with Epicenter and what we think we can do for the Memphis community is probably the best thing we’ve ever done,” said Helton. “Having access to the resources that Epicenter provides and being a part of creating that ecosystem of entrepreneurs, I think is going to be extremely beneficial for us as an organization and also for the community.”
The lender is open to funding any type of business other than those involving “sin industries” such as alcohol, tobacco or firearms. Helton generally avoids startups, instead focusing on businesses that are one to three years old.
Types of loans awarded – typically fixed-rate at 8 percent to 10 percent – include accounts receivable, business acquisition, debt consolidation, emergency repairs, equipment, working capital, inventory, marketing, payroll and real estate.
Travis Hughes, Pathway's vice president of commercial lending and client relations in West Tennessee, will lead the new Memphis office at Epicenter, and Helton expects to add more staff in the coming months.
“Hopefully the $15 million is just the start,” said Helton. “We’d like to get that deployed and active and out in the community, then continue to revolve it and raise additional funds.”
The partnership also leverages Epicenter’s network of entrepreneurial partners and support services to connect business owners to this funding opportunity.
“We’re excited about this partnership that we have with Pathway and this loan fund that I think is going to help small businesses in Memphis to grow and hopefully grow enough to where they can start hiring people, because statistics prove that small businesses that hire keep the employees longer than big businesses,” said Floyd Harvey, Epicenter executive in residence for capital structures.
Harvey brings more than 44 years of experience in commercial banking to the table. He helps companies prepare to see lenders like Pathway by asking them to focus on how they will grow their businesses over the next two to four years with technology, hiring and retaining employees, capital expenditures/fixed assets, and capital.