Iowa Center for Economic Success shares the big impact of small loans
Microloans meet entrepreneurs where they are.
Defined by the U.S. Small Business Administration as a loan of $50,000 or less, a microloan is one of few avenues open to new small businesses in Iowa, particularly in low-income areas, said Jose Venales, director of credit and loans for the Iowa Center for Economic Success, a nonprofit economic development organization with offices in Des Moines and Muscatine.
The Iowa Center offers microloans through the SBA’s microloan program and its Iowa Center Loan Fund, which launched in 2021 and was certified as a community development financial institution, or CDFI, in 2022 by the U.S. Department of Treasury.
A CDFI provides financial services to underserved communities to help those who have barriers to accessing capital through traditional lending. CDFIs can be a bank, credit union, loan fund or venture capital provider. As a CDFI, 60% of those served by the Iowa Center’s loan fund must have lower income or be from low-income or rural areas, Venales said.
The CDFI certification allows the Iowa Center to loan entrepreneurs up to $100,000, which Venales said helps as costs are now higher for all businesses.
“The new $50,000 is $100,000 … it’s really difficult to do much with $50,000 these days,” he said.
Venales said Iowa has nine CDFIs and the Iowa Center is the only CDFI offering loans up to $50,000 or more. By comparison, Minnesota had 34 CDFIs as of January 2024.
“Communities are run by small businesses … and there has to be a way for those businesses to get funded, so the way I see it Iowa is a little behind the ball on access to capital.”
To learn how microloans work and their effect on small businesses, we sat down with Venales in February and two Iowa Center clients: Suman Hoque, chef and co-owner of HoQ in Des Moines and the new Flora eatery at the Greater Des Moines Botanical Garden, and Jeff Hafner, owner of organic farm Early Morning Harvest in Panora.
Making microloans happen
Venales said the loan fund prioritizes affordability for clients. Loans have a five-year term and a 6% interest rate for all clients no matter their financial standing.
Hoque said the three loans he has received from the Iowa Center in his 13 years in the restaurant business have helped him expand and diversify.
He said restaurants typically do well in their first few years because they’re new. When he was looking at how to keep the business sustainable after opening HoQ, he turned to producing breakfast wraps and hot sauce at the downtown Des Moines Farmers Market and later RAGBRAI.
A $50,000 loan funded a delivery vehicle, a freezer and fridge, packaging and bottles. Hoque said without that addition to the business, he wouldn’t have enough work for employees during slower months.
“Winter is not that busy [for the] restaurant … so I do a lot of prep during that month,” Hoque said. “We make naan bread — we keep making naan bread, and then we freeze those, and the hot sauce, we made it in the fall and then we are bottling, so it’s a win-win for both [us and our employees].”
Last year, a $100,000 loan helped him buy the equipment for Flora, and this summer, he will be selling lamb, chicken and tofu wraps and mint tea at the Iowa State Fair.
Venales said the goal of the loan fund is that clients build wealth and ultimately become eligible for traditional financing.
Traditional financial institutions can help small businesses on that path through capital investments into the loan fund. Being a CDFI, the Iowa Center is able to accept investments and the investors receive a return through the Community Reinvestment Act, which is meant to incentivize financial institutions to help meet the needs of communities they serve, including low-income areas.
“Imagine if they invest $1 million into the Iowa Center, it says that they have $1 million on [the Community Reinvestment Act] invested,” Venales said. “They didn’t make a donation, so they’re getting back their money plus a return.”
He said long term, the investments can help banks build relationships.
“Our message when we look for investors is that as you’re investing into the fund, you’re creating wealth [that] small businesses need and in the long term, they’re going to come back to you for financing,” he said.
The loan fund is revolving, meaning any new funding and loan payments coming in go toward future lending. The fund has grown from $100,000 in 2021 to $3 million with $1.7 million lended so far.
Jeff Hafner. Photo by Duane Tinkey
Hafner is working with the Iowa Center to make Early Morning Harvest more efficient after he and his dad saw viable opportunities in their hobbies of farming and milling grains into flour.
During the pandemic, their flour sales spiked. Then, there were more signs.
“We also came to realize that most of our landlords were over 80 years old and that when they pass on, we did not have the cash flow to buy the ground to keep the farm going,” Hafner said.
“[After] a little bit of self-analysis, we saw an on-farm store has potential because Des Moines keeps moving closer to Panora and the mill had potential, so we decided to push. … It’s been a slow growth that has really taken off here in the last six months.”
So far, the farm has been largely self-funded with some grants and SBA assistance along the way. Hafner had applied for grants to help fund automations that help his employees when he came to Venales looking for a $30,000 loan for day-to-day expenses.
Venales and the Iowa Center staff helped him zoom out to look at his broader business opportunities.
“I said, ‘Jeff, what if we do the full automation? You came here for $30,000, we can do $100,000 for full automation because that makes sense for us, but also for you,’” Venales said. “I want to make life easier for you … so you can go out there and focus on your business.”
Venales said coaching businesses is necessary to determine if a loan is the right path for clients based on their business plan and goals.
“It’s more about ‘OK, what kind of coaching is Jeff going to take out of doing this loan?’ because it’s hand-in-hand, it’s him and I working together,” he said.
“I don’t think Jose knows how much [he helped],” Hafner said. “I went back and walked through the whole process. … To go clear back to the grain bin and [ask] what do I need to make my employees’ lives easier, to be more efficient, really helped.”
Hafner said he knows that his “why” is to grow.
“I don’t want to be the biggest in the United States, I just want to be a force in the Midwest.”
Future forward
Venales said the Iowa Center aims to raise $10 million for the loan fund by the end of the decade, but it will require growing the team.
“We need to grow the team because it’s not only doing the loans, it’s also doing that technical assistance,” he said. “The technical assistance is what matters the most for us because [then] we’re going to put businesses out there that are going to be more qualified to make a financial decision and that’s what’s important.”
Hafner said outside of his business goals, he wants to grow his employees and other entrepreneurs.
“I’ve told [the Iowa Center], you want me to come talk to somebody? I’ll tell them my school of hard knocks and give them some ideas, not a problem.”
Hoque said as an entrepreneur, having people believe in him is a big motivator.
“Sometimes you go to the bank, sometimes they say no, but I keep coming up with new ideas and the Iowa Center keeps believing in me. … Having somebody believe in you [makes you want to do] more.”
Sources of microloans around Iowa
Kiva Iowa
newbo.co/kiva
Kaitlin Byers, capital access manager
kaitlin@newbo.co
Iowa MicroLoan
iowamicroloan.org
Jeff Williams, president
jwilliams@iowamicroloan.org
Iowa Community Capital (CDFI)
iowacommunitycapital.org
info@iowacommunitycapital.org
Jeff Williams, executive director
jwilliams@iowamicroloan.org
One Economy Financial Development Corp.
oefdc.org | info@oefdc.org
Vince Lintz, executive director, vince@oefdc.org