City’s gap financing aids startup businesses

City’s gap financing aids startup businesses

Friday, December 28, 2007
Denver Business Journal – by Brian Giulieri Denver Business Journal

Kathleen Lavine | Business Journal
Dunn (left), owner of Great Divide Brewing Co., worked with William
Lysaught, small-business loan program manager at the City and County of
Denver’s Office of Economic Development, for a loan for a new bottling

When Brian Dunn wanted to start the Great Divide Brewing Co. at
22nd and Arapahoe streets in 1993, he raised $190,000 through a small
group of private investors.

But he needed another $60,000, and applied to 11 banks for a loan.

Each bank said "no."

"We found that traditional lenders, banks have no appetite for startups," Dunn said.

But the Denver Office of Economic Development (OED) said "yes," and
through its Revolving Loan Fund program, gave Dunn the financing he
needed to open in 1994. Now, the OED is helping again, loaning $175,000
as Dunn undertakes a $1.2 million bottling line expansion. Again, he
wasn’t able to fund the project completely through banks and private

"It’s a huge benefit the city provides to Denver businesses," Dunn
said. "It helped us get started. We are now able to return benefits to
the city through job creation and bringing value to our neighborhood."

Through public and private lending partnerships, the City and
County of Denver is providing last-resort gap financing for businesses
and nonprofit organizations to stimulate business growth and revitalize
underserved neighborhoods.

Since 1979, Denver has used Community Development Block Grants
(CDBG), provided by the U.S. Department of Housing and Urban
Development, to finance economic development in low- and
moderate-income areas through three loan programs:

  • The Revolving Loan Fund (RLF).
  • The Neighborhood Business Revitalization (NBR) program.
  • A community development financial institution (CDFI), operated by Seedco Financial of New York City.

Gap financing is available only when a small business or
entrepreneur has exhausted all alternatives, according to Bill
Lysaught, OED small business loan project manager. The RLF and NBR
programs don’t offer 100 percent financing, but do fill in gaps left by
the private sector.

Lysaught manages both of those programs, and said they began
because business owners and residents wanted to draw new businesses to
declining commercial districts, but lacked the resources and
infrastructure to do so.

"We’re doing this gap financing because we’ve determined capital is
hard to come by for any small business, but in distressed areas it’s
even harder," he said.

Lysaught said the two programs provide approximately $5 million in
gap financing annually and have loaned $130 million overall.

Lysaught said RLF and NBR applicants must have good business plans.

Steve Ballas wanted to move his hot dog business, Steve’s Snappin’
Dogs, in February 2006 from his truck into an abandoned gas station at
the corner of East Colfax Avenue and Monroe Street. He needed financing
to supplement the money he saved from the sale of the Corporate Deli
and Grill on 17th Street and from bank loans.

The OED gave Ballas a 10-year, $89,000 loan at 3 percent interest,
with his Hilltop home as collateral, through the NBR program. And when
a concrete shortage and construction overruns raised the project’s
cost, the OED gave him another $20,000.

Steve’s Snappin Dogs will celebrate two years at its Colfax location in February 2008, and employs 14.

Ballas said the NBR program is changing Denver. "All it does is
take a nice, cool, old neighborhood and gives it the shot in the arm it
needs," he said. "What the city is doing is helping these neighborhoods

In February, Denver enlisted Seedco Financial to create a CDFI, a
nontraditional lending entity that provides low-interest financing
assistance with flexible payment terms to businesses, nonprofits and
commercial projects in low- and moderate-income neighborhoods. CDFIs
use block grant dollars, which private investors supplement.

Seedco signed a five-year contract with Denver, gaining access to $15 million in CDBG.

In its first six months, Chapman said Seedco has approved six loans
for $5 million, with $3 million of that coming from the private sector.
Chapman also said he expects to have approximately $15 million to lend
in 2008.

The Mile High Housing Fund is an affordable housing development
CDFI that recently received a five-year, $500,000 loan at 4.5 percent
interest from Seedco to match funding it received from banks.

Jeff Seefried, executive director, Mile High Housing Fund, said his
group isn’t Seedco’s typical customer. He said Mile High will use the
funding for affordable housing projects, such as a small mixed-use
development under discussion in West Denver.

Seifried said the investment capital Seedco is bringing to Denver could mean big things for urban revitalization projects.

"Financing resources aren’t the only piece to the puzzle when it
comes to redevelopment, but are a critical piece of the puzzle," he
said. "It’s like having another arrow in your quiver — and it’s a good


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