October  2006      Vol. 15, No. 9  REAP HOME PAGE  A publication of the Center for Rural Affairs    
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REAP Increases Maximum Lending Limit
Loans up to $35,000 will be considered for qualified REAP Direct Loan applicants

BY JEFF REYNOLDS, REAP PROGRAM DIRECTOR

How many times have you heard the phrase, “You have to have money to make money”? In 1990, I purchased a “fixer-upper” convenience store and this famous phrase was so true – sort of. I didn’t have very much cash on hand, so in my case, I needed to borrow money to have a chance to make money. So really, for probably the majority of us, the phrase should be, “You sometimes need to borrow money in order to have a chance to make money.”

It’s obviously true that making money in a business is much easier once the debt is retired. It would be great if there was never a need for debt, but the cold hard reality for most is that we weren’t born with a silver spoon and have had difficulty in accumulating cash and/or equity in any true substantial amount. As long as we have done our homework in planning our business startups or expansions, borrowing money is many times the only way to get started in business or take a business to a new level.

Raising Limit to $35,000
After careful consideration, the Rural Enterprise Assistance Project (REAP), a program of the Center for Rural Affairs, has decided to raise its maximum lending limit from $25,000 to $35,000. This decision has been a work in progress. It follows many years of successful lending while maintaining a historical default rate of less than four percent.

Legislative Bill (LB) 59 was passed by the Nebraska Legislature and signed into law during the 2005 session. LB 59 redefines the definition of a micro loan as any business loan up to $35,000. The national definition has been $35,000 for several years.

Background of the REAP Direct Loan Program
The REAP staff made a decision in late 1998 to expand our lending portfolio to provide direct loans to individuals. This decision developed from experience in trying to meet the needs of a growing micro sector.

Peer group borrower businesses often grew beyond REAP lending limits, but were not eligible for loans at the local bank. And in areas where there were no REAP associations, individuals who could not access a loan at the bank did not have access to lending capital.

The REAP direct lending program was piloted in 1999 with a maximum loan limit of $15,000 and soon became a permanent part of the project. The maximum loan limit was changed to $25,000 in 2000 and has now been increased to $35,000.

The direct lending program gives individuals access to loans for their businesses. In the past fiscal year, REAP placed 41 Direct Loans totaling $380,560. These loans and extensive client technical assistance also leveraged over $1,398,250 in additional debt financing from traditional lenders, other revolving loan funds, and private sources during this time period. Since inception of the Direct Loans, REAP has placed 213 Direct Loans totaling $2,681,818.

The REAP Direct Loan Program is helping to leverage other funds. As part of REAP’s technical assistance services, REAP provides business planning services to REAP members. These services have resulted in leveraged lending in many instances.

There have been many cases where a REAP client has completed their business plan in consultation with their area REAP Business Specialist and have been able to secure a loan from a traditional lender, development district, community action agency, or a local loan fund. REAP staff have also helped in “packaging” loans that include other lenders in addition to REAP’s loan fund. Historically, REAP has “leveraged” loans totaling $7,050,655.

New Limit Makes Sense
After careful consideration, it is clear that increasing the maximum loan level for REAP to $35,000 makes great sense. The potential additional lending capital for rural entrepreneurs will in most cases be a difference maker and will also bring the REAP program inline with the state and national definitions of a micro loan. The increase will also provide greater opportunities to “leverage” other sources of additional loan capital.

It has always been REAP’s goal to meet the debt financing needs of all members – individually or by collaborating with partners. The REAP Direct Loan Program is meeting this need most effectively. REAP looks forward to adding additional lending products to our current product mix in the future. See our current REAP lending products .

Special thanks to our great funders who make the work of REAP possible. Funding comes from many sources and includes: the Community Development Block Grant program through the Nebraska Department of Economic Development, the Cooper Foundation, Share Our Strength Foundation, Kellogg Foundation through the HomeTown Competitiveness Initiative, Nebraska Microenterprise Partnership Fund through the Nebraska Microenterprise Development Act, Small Business Administration Microloan & Women’s Business Center Programs, and from the United States Department of Agriculture.


Contact: Jeff Reynolds, REAP Program Director, 402.656.3091 or by email at jeffr@alltel.net.
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