Larry Thomas, owner of a small New Haven construction company was in danger of going bankrupt until local micro-lender Elmseed gave him training and funding to turn his struggling business into a profitable endeavor.
Elmseed Executive Director Javier Puig ’07 said the organization is about to start a capital campaign to facilitate its growth. The largely student-run non-profit organization, which was founded in April 2001 following a $20,000 award from the Yale Entrepreneurial Society’s Y50k competition, gives loans to local entrepreneurs like Thomas to start their businesses in the Elm City and now has a clientele that includes an owner of hot dog stands, a clown and a fashion designer.
Recently, Elmseed received a number of grants, including a $10,000 grant last May from the Board of Aldermen as part of the $4.5 million Community Development Bloc Grant the federal government awarded the city for community development initiatives.
But despite outside funding, Puig said Elmseed has reached the stage where it needs outside capital to grow. While Elmseed has relied largely on grants from individuals and corporations such as Citizens Bank of New Haven, Puig said he wants the organization to become self-sufficient and be able cover its expenses with the interest it earns on its loans.
“We are looking to operate on self-sufficiency so we can get out and impact more people,” he said.
Puig said the enterprise offers micro-loans to its clients — from a first loan of up to $1,500 to a fourth loan of $12,000 — as well as training in sound business management. But unlike most other enterprise funds, he said Elmseed — which has a repayment rate of 90 percent — offers loans to its clients without collateral requirements, although the borrowers undergo a rigorous application process.
Elmseed’s model, Puig said, is the Grameen Bank in Bangladesh, which issues loans to members of numerous small communities based on the group’s history of debt repayment as a whole. He said this fosters accountability based on community pressure on each member to meet debt payments. Grameem Bank was awarded the 2006 Nobel Peace Prize for its work in community development.
Elmseed divides its clients into groups of five or six small businesses, known as centers, and allocates a certain amount of loan money to each center. Puig said this version of Grameen Bank’s model — which creates a similar incentive for individual members to meet their payments — makes it possible for Elmseed to offer loans to individuals with poor credit rating.
Thomas said the training Elmseed provided him in business management has helped his company to grow considerably. Before receiving the micro-loan, he would work on small $1,000 to $5,000 building projects, which left him with little money to take home at the end of the day. Now he is able to work on projects worth over $50,000, he said.
He said the meetings with Elmseed staff and guest speakers with expertise in running small businesses were especially helpful in putting all of the clients’ businesses into perspective.
“They told us, ‘Right now you are a small business, so you should not advertise on TV, but look at other ways of advertising like buying a billboard or posters,’” he said.
While Thomas said he first came to Elmseed because of the micro-loans it offers, he has realized that the instruction he received has more been more helpful than the loan money. He said he hopes the organization will grow so the many aspiring entrepreneurs in New Haven can create stable long-term businesses with the funding and training Elmseed offers.
“If they have a little bit more money to advertise, they will blossom,” Thomas said. “[Elmseed] might even need to have a small school.”
The city operates its own Small Business Initiative, offering capital loans to incoming and existing businesses in the city, although sound credit history is a prerequisite for borrowers, and the minimum loan amount is $10,000.
But Ward 1 Aldermen Nick Shalek ’05 said the city’s priority with the SBI is to attract larger companies to the city to boost employment. Small business owners, he said, often need more money for their business than SBI can offer.
“A lot of the work Elmseed does, the city does not have the resources to do,” Shalek said. “With the large loans, they are targeting the businesses that might create more immediate jobs, but there is definitely a need for both.”