YOUNGSTOWN Loan program clears up woes

The goal was improving the process while still factoring in the needs of minority companies.
By ROGER G. SMITH
CITY HALL REPORTER
YOUNGSTOWN -- Chaos reigned in the city's minority loan program 18 months ago.
Loose criteria left 19 of 21 of the loans granted in some form of default. Ambiguities in the program were causing delays. The delays festered. Charges of racism surfaced in one case.
The uncertainty, however, has been replaced with a tighter process that also aims to change the perception of such loans as more than just giveaways.
"I feel a lot more confident in it now than a year and a half ago," said Jay Williams, director of the city Community Development Agency.
Williams, a former bank vice president for lending, was central in reforming the minority and female loan program.
The spark came two years ago.
Issues over loan
In early 2000, questions arose about a proposed $40,000 loan from the program to JNH Trucking. The company wanted to buy two dump trailers so it could expand.
The city's board of control -- the mayor, finance and law directors who approve spending via contracts and loans -- had questions. The questions came despite a review by the Mahoning Valley Economic Development Corp., or MVEDC. The agency underwrites, or analyzes, city loans before they're approved.
Among the questions were whether JNH's base really was in the city, how many employees the company actually had and how back federal taxes factored into the loan. JNH argued that such questions were answered months earlier and that the company qualified for the loan program. The company pointed to racism for the delays, which the city strongly denied. By April 2000, the loan essentially was dead.
Who was right about whether the company qualified for the loan was unclear.
That was precisely the problem. The minority loan program contained far too many gray areas in its criteria and procedures, Williams said.
Miniloans as model
The city partially funds another loan program, referred to as the miniloan, which has more defined and strict standards.
The goal was instituting the miniloan's tighter process while still factoring in the needs of minority- and female-owned companies, Williams said.
Previously the minority program was looked upon largely as an entitlement to such companies, immune to the realities of lending, he said.
Government loan programs for minority companies remain necessary, Williams said. Rejection rates of minority companies in private sector banking remain too high, he said. But granting loans to companies with no chance to succeed doesn't help anybody, either, he said.
"What good have you done if 19 of 21 loans have failed?" Williams asked. "Simply accepting a higher failure rate just because it's the city of Youngstown is unacceptable."
Instead, he and other city officials agreed, the new program should give minority companies and their unique problems one more review if they don't qualify for bank or government loans. Even banks have second-chance committees that review previously rejected loans, Williams said.
How it works
Reform involved several steps.
First, miniloan procedures were applied to the minority loan program.
Any company -- whether or not they are minority- or female-owned -- now uses the more detailed miniloan application if private banks won't back their loans. The move cuts duplication and resolves questions in the minority program such as the ones that plagued the JNH loan request, Williams said.
Minority companies that don't get miniloans then automatically are sent into the minority program.
Underwriting procedures were clarified, too.
Misunderstanding between the city and MVEDC led to less thorough reviews than necessary, another problem with the JNH loan, Williams said. Now there is a clear process.
The same underwriting done on miniloan applications is done in the minority program. That improves accountability, said Donald French, MVEDC executive director.
"Instead of reinventing the wheel, that was used as a model," he said.
After underwriting, MVEDC makes its recommendations on granting minority loans to the city's control board. The control board has the final say and can approve, deny or modify a loan.
City officials will do their best to look closely at anything that may have been overlooked which would allow a minority- or female-owned company to qualify for a loan, Williams said. There is no one item to focus on in deciding whether a minority company should get a last-chance loan, he said.
"It's always going to be different in each case," Williams said.
Responses
A trial run this summer with the new minority program procedures went well.
Cooper's Electric of Youngstown needed a short-term working capital loan to secure a contract. Cooper's followed the new process, and the company received a $20,000 loan. The loan was paid back in full.
Even a critic of the city's handling of the JNH loan agrees the new system is better.
The new process gives minority and female business owners a more clear idea of where their loan stands, said William Carter, director of the Youngstown Area Development Corp.
"It's flowing fairly successful now. It's a good start. Now we need to make more loans," Carter said.
YADC contracts with the city to help companies start the minority loan application process. Carter guided JNH through the previous minority loan program.
The minority fund has about $200,000 in it, with between $50,000 and $65,000 available now at 3 percent interest, Williams said. Fees are: $100 for loans up to $9,000; $150 for loans between $9,000 and $20,000; and $200 for loans between $20,000 and $50,000.
Williams hopes to see at least 75 percent of future minority loans succeed.
rgsmith@vindy.com