Small businesses are the foundation of a thriving community, but not every business can qualify for a traditional bank loan to get the capital it needs to grow.
Across the country, local governments, nonprofits, and community organizations are launching their own small business loan funds with flexible requirements to help close that gap. While this type of program requires deep expertise and skilled management of many moving pieces, you don’t have to figure it out on your own. We’ve spent more than 55 years helping communities do exactly this, providing the expertise, guidance, and proven process needed to launch a successful loan fund.
Let’s walk through what a loan fund is, how it benefits your community, and exactly how we can partner with you to bring one to life.
Small business loan fund basics
A small business loan fund is a pool of capital that an organization, municipality, or other entity commits to lending directly to businesses operating within a defined community or geographic area, such as a city, county, state, or region.
As borrowers repay their loans, those dollars are lent again to new businesses, making a loan fund a renewable community asset rather than a one-time source of funding, such as a grant. As long as loans are repaid, the same capital can continue supporting local businesses for years or even decades.
The fund’s impact multiplies further when paired with the SBA 7(a) program. Because SBA guarantees up to 75% of each loan, your fund’s capital only needs to cover the remaining 25% of risk. That structure lets your capital support roughly 4x its value in total lending. A $2 million fund, for example, can support up to $8 million in loans over time, multiplying the impact of your investment while keeping capital working in your community loan after loan.
What a loan fund makes possible for your community
A loan fund’s renewable structure is what makes it an impactful economic development tool, but the real case for launching one comes down to how they help communities thrive and grow.
Traditional banks typically favor larger loans to established, low-risk businesses. That leaves plenty of strong businesses without a clear path to capital. These include newer businesses still building a track record, businesses seeking smaller loan amounts, entrepreneurs in lower-income areas, and buyers looking to acquire established local businesses as owners retire.
A local loan fund can help fill these gaps. It gives small businesses that are not yet positioned to qualify for bank loans the capital to grow and positively impact their neighborhood by creating more jobs, keeping downtowns vibrant, and providing essential local services. A loan fund is a practical way to invest in the long-term health and vitality of your community.
You don’t have to build this alone
Once you’ve decided a loan fund makes sense, the next step is finding the right partner to bring it to life.
Running a successful loan fund takes underwriting expertise, portfolio management, marketing know-how, and more. Grow America brings that expertise to you from day one, so you’re not building it from scratch.
Partnering with us also opens the door to additional sources of capital, stretching your dollars further. And because underwriting stays independent from your organization, loan decisions stay focused on the businesses that responsibly qualify.
Our experience comes with a few specific advantages in addition to the 4x capital leverage described above:
- Community needs analysis framework: We help map the loan products already available in your area, identify the gaps, and build the case for your fund.
- Loan fund technology: Application intake, processing software, and portfolio servicing tools are built out and ready to go.
- Marketing toolkit: Training, materials, and ongoing guidance are available so your team can confidently champion the fund locally.
Your path to launching a loan fund
If a loan fund sounds like the right fit for your community, here’s how to get one up and running, with us alongside you at every step.
1. Identify a need and reach out. You don’t need a fully formed plan, just a sense that businesses in your community are missing out on capital. Reach out to Grow America early, and we’ll help you assess the need and identify the right resources and path forward together.
2. Make sure the pieces are in place. Once we’ve confirmed there’s a need, we’ll help you assemble three things you need to launch a fund:
- A capital source, whether that’s general fund dollars, federal funds like Community Development Block Grants (CDBG), or redevelopment area funds, each with its own flexibility and restrictions worth thinking through. It’s fine to start small, since additional funds can be added at any time.
- A staff member who can serve as the face of the program and the first point of contact for local businesses.
- Buy-in from the stakeholders who will champion the fund, whether that’s your mayor, city council, board, or local business organizations.
3. Align on loan fund goals. We’ll have a candid conversation about your goals and our credit philosophy to make sure they line up. For example, we might not be the right partner if your priority is making small loans to startups that are just getting off the ground, and it’s better to know that early. Within our framework, loan criteria like geography, business type, and loan size can be customized to fit your community’s goals.
4. Get the loan fund approved. Your stakeholders will want to understand what the program does, who it serves, and what the partnership involves. We’ll help you make that case with a program overview, presentation materials, and draft contract language ready for review.
5. Formalize our partnership. Once your stakeholders approve the program, we’ll sign a contract that makes things official. The contract spells out who does what: Grow America handles underwriting, portfolio servicing, and marketing support, while your organization serves as the local face of the program and first point of contact for borrowers.
6. Start marketing and making loans. We provide a marketing toolkit built to make promoting the fund easy. Your designated staff member takes it from there as the local face of the program, backed by our training, materials, and ongoing guidance. Once qualified businesses start applying, we’ll handle all of the underwriting and processing, delivering closed loans in your community.
Let’s start the conversation
Successful loan funds pair two things well: your community’s knowledge of the businesses that need capital, and our experience getting that capital into their hands. Together, that combination turns one investment into years of growth, one small business at a time.
If businesses in your community would benefit from greater access to capital, the first step is simple—reach out and start the conversation. We’d love to help you get there.
Contact Bryan Doxford at bdoxford@growamerica.org to get started.