Page 143 - 1-Entrepreneurship and Local Economic Development by Norman Walzer (z-lib.org)

132 Deborah M. Markley

Community-based revolving loan funds also provide entrepreneurs who
are starting businesses with access to capital that is unavailable from more
traditional banking institutions. Revolving loan funds (RLFs) lend to entre-
preneurs from a pool of capital and, as loans are repaid, the monies are
loaned to other entrepreneurs in the region. Rural RLFs have been started by
communities, utilities, community development organizations, and others,
often using federal sources of funds such as USDA’s RBEG program. Most
RLFs are focused on addressing capital gaps in their market—making loans
to entrepreneurs who do not have access to other sources of capital. While
some entrepreneurs in the start-up phase can often qualify for these loans
initially, many require access to business assistance and training programs in
order to develop the business plan and financial statements/projections
needed for a lending decision.
The Rural Enterprise Assistance Program of the Center for Rural Affairs in
Nebraska makes loans from a revolving loan fund in addition to offering a
peer lending program. The focus of these programs is on providing debt
capital to rural-based entrepreneurs who are starting new or growing exist-
ing businesses in the state. To receive a direct loan, the entrepreneur must
create one or retain one full-time job, thus allowing self-employed entre-
preneurs to benefit from the program. Typically, entrepreneurs who use the
program have been unable to get a loan from a bank or need an additional
partner to qualify for a bank loan. The peer lending program provides an
opportunity for rural entrepreneurs to borrow $1,000 initially and, upon
repayment, qualify for additional loans of $2,000, $4,000, $8,000, and up
to $10,000 (Center for Rural Affairs 2006).
Most rural entrepreneurs who are just starting businesses rely on their
own or alternative sources of capital rather than institutional sources of cap-
ital such as banks and venture capital funds. The success of these entrepre-
neurs in gaining access to start-up capital depends in large part on the avail-
ability of these alternative programs in their communities or regions. The
increased prevalence of both microenterprise programs and community-
based revolving loan funds, either as part of a community development fi-
nancial institution or another community-based organization, throughout
rural America provides an opportunity for shared learning about how these
sources of capital can be most effectively provided to entrepreneurs who are
just starting in business.

Financing Enterprise Operations
After the initial start-up phase, an entrepreneur’s main capital challenge
is to find the resources to finance the ongoing operations of the business.
Depending on the size and capital needs of the entrepreneur’s venture, the
alternative financial institutions described above—microenterprise pro-