Kent Business Loan Fund Sees Defaults, Local Banks Absorb Losses

Kent banks are losing about $65,000 this year due to defaults in a small-business loan program in partnership with the city.

At least five small businesses have failed to continue paying on loans obtained through the Kent Mini-Loan Program, which is a partnership comprised of the city, local banks and the Kent Regional Business Alliance. The KRBA administers the program, which is intended to make modest loans available to small businesses that otherwise would not qualify for typical, more stringent business loans with area banks.

Of the $64,962 being liquidated by the banks as a loss, the city is on the hook for 10 percent, or about $6,500, under the terms of the program.

Kent Economic Development Director Dan Smith said the program has been in place since 1996 and these defaults, which developed in the past four to five years, are among the first.

“The mini-loan program was always anticipated to be a business start-up program," Smith said. "It was always anticipated to have defaults to it. But the idea of the program was to help local entrepreneurs get their start, get local lending they might not get through traditional loan applications.”

Seven banks currently participate in the program and eight will be absorbing the loss as part of these recent defaults. The banks, and their losses through the program, are:

• Home Savings Bank, $13,021.03
• Portage Community Bank, $12,988.74
• KeyBank, $11,314.52
• First Merit, $11,314.52
• First Place Bank, $11,282.23
• Huntington Bank (Second National and Sky Bank), $4,163.45
• Huntington Bank, $2,551.41
• Chase (Bank One), $1,674.22

The banks agreed to make a total $250,000 available through the program when it was founded in 1996 under the condition the city would be responsible for 10 percent on any losses or defaults. Terms of participation include a requirement that businesses receiving a loan take part in business counseling with the KRBA.

Jack Crews, president of the KRBA, declined to comment on, or identify, the businesses that defaulted under the program.

"I am not at liberty to discuss clients that have defaulted since we are in varying stages of pursuing payment," Crews said in an e-mail.

At least six other participating businesses in the mini-loan program have paid their loans back in full. Those individual loan amounts ranged in size from $15,000 to $50,000 and totaled more than $195,000.

To cover its share of the loss, voted earlier this month to create a "city loan loss fund" and allocated $10,000 for the fund. Of that $10,000, $6,500 will be used right away for the current losses.

Smith said the city's loss-fund account was apparently never created in 1996 despite it being identified as part of the program.

“I think the fact that we haven’t had to write off any bad debts (previously) ... or use the loan-loss fund from the city’s perspective is a testament that most of our small businesses, entrepreneurs do better in the Kent area than other areas," Smith said. "But given that, the economy’s been pretty trying since 2007, 2008.

"In reviewing the program with the banks, we don’t anticipate any other defaults in the near future,” Smith said.