How Big Girl Cosmetics got a huge new reach thanks to a microloan program
Opportunity knocked — and Kiley Russell almost missed it because she couldn’t get a loan.
Her Hyde Park-based Big Girl Cosmetics and skin care business, which sells its products in four Macy’s stores and at her spa, had the chance to expand to another big department store chain.
Her eight-year-old company needed a small loan to fund the added production. But lenders weren’t cooperating — roughly two dozen of them turned her down.
Thanks to new microlending programs that are sprouting around Chicago, she was able to get the financing she needed, and her products will be in four Chicago area Carson’s stores this fall.
Riley received a $10,000 loan through Chicago Neighborhood Initiatives, a nonprofit that along with the Women’s Business Development Center is providing microloans of $500 to $25,000 to small enterprises that find themselves shut out by traditional lenders.
The two nonprofits are among the first to receive training to establish microloan programs through the Chicago Microlending Institute, which began training about a year ago. There is a $24 million annual unmet demand for microloans loans in the Chicago area. That is according to Jonathan Brereton, chief executive officer of long-time microlender Accion Chicago, which runs the institute. Brereton says banks typically avoid smaller loans because they’re not very profitable thanks to origination costs.
“Banks have moved up market since the recession,” Brereton says. “Businesses that need anything under $100,000 don’t really have many options.”
Successfully meeting the microloan demand can help maintain and create jobs, advocates say.
Accion Chicago has provided more then 3,000 loans totaling more than $23 million, creating or maintaining 10,000 jobs, since its founding in 1994, representatives say. It has been growing at a 20 percent clip.
That’s “about as fast as any lending company really should be growing just given the risks, so what we’re trying to do is bring new organizations on that can also grow,” Brereton says. “What we want to do is work for as many customers as we can and help them to start their businesses and expand to create jobs.”
Roughly half of the companies Accion has helped employ on average about 5 people. The remainder are sole proprietorships. Most of the businesses are minority-owned.
In Chicago, more than 20 percent of the city’s residents work for firms with five or fewer employees, and many of the businesses are located in low- to moderate-income neighborhoods. Mayor Rahm Emanuel says these businesses are part of the backbone of the economy.
The city provided $1 million to fund the loan program and establish the institute. The training budget is being funded by Citibank and the Chicago Community Trust.
Through the first quarter of this year, 39 loans totaling $347,000 were funded, creating or maintaining 149 jobs, representatives say.
The loan terms are typically 20 months and the interest rate is typically about 13 percent — higher than typical bank rates, but lower than credit card rates.
“We want to incentivize people to go to the banks as soon as they are able,” Brereton says. “Ultimately we look at the same criteria that a bank looks at, but we are more flexible.” The institute anticipates making roughly 150 loans totaling $1.3 million between the fourth quarter of 2012 through the fourth quarter of 2013.
The Women’s Business Development Center has made two loans, and three others have been approved, according to Eva Brown, center director of Access to Capital. Chicago Neighborhood Initiatives has originated about $108,000 in loans to seven borrowers, most to businesses on the South Side.
“Without the loan I would have been stuck,” says Riley.
She used her loan funds to secure partnerships at manufacturers that require payment upfront. She says she initially launched her business with $60,000 from her savings and $19,000 she got from selling a car she won when she attended a taping of the Oprah Winfrey Show.
“A lot of times with small businesses when you have opportunities, you aren’t able to do anything with them because you just don’t have the capital to fund it,” she says. “Without these type of programs I wouldn’t have been able to do this.”
The Chatham Business Association is hosting a free workshop to educate the public on the institute program April 25 from 9 a.m. to 3 p.m. at 800 E. 78th Street.
Photo by Andrew A. Nelles