For entrepreneurs looking for capital, Montana can be a tough place to do business. Bankers, by their own account, can be “very stingy.” Montana attracts only a tiny fraction of the venture capital that goes to nearby states. And people who can’t qualify for conventional lending often can’t get federally backed loans either.
For Indians, the odds are even longer. Much of the land on reservations is held in trust, and home ownership rates are low, making it hard to find the collateral to secure a loan.
The Small Business Opportunity Workshop, hosted Tuesday at Montana State University Billings by U.S. Sen. Jon Tester, attempted to show potential business owners ways around those daunting traps.
It was the 16th workshop around the state hosted by Tester, who said that Montana ranks No. 1 in the nation in business start-ups per capita and No. 6 in long-term job growth.
The Montana Legislature also recently passed House Bill 481, which attempts to give entrepreneurs access to investors without going through a lengthy and expensive registration process. Under the legislation, potential business owners pay a $50 filing fee and fill out a five-page application. When it is approved, they can raise up to $1 million in 12 months.
Ordinary investors can invest up to $10,000 in the business. The amount that accredited investors can invest is unlimited.
The idea is to bring equity crowd funding to Montana, and two businesses have been approved to begin seeking investors: New Moon Clothing in Butte and Wildrye Distilling in Bozeman. The federal government is still working on rules to allow the practice nationwide.
Monica Lindeen, the state’s commissioner of securities and insurance, said she started her own small business in Yellowstone County back in 1995 the old-fashioned way: Partners quit their jobs, took out second mortgages and ran up credit card debt. Crowd funding could be a far more attractive alternative, she said.
Will Price, managing partner of Next Frontier Capital in Bozeman, is looking for other ways to invest in Montana businesses.
The venture capital firm, formed last year, is looking to invest in Montana technology companies in amounts from $200,000 to $1.5 million. So far, it has invested in two companies: Submittable, a Missoula company that provides Software as a Service management solutions, and SiteOne Therapeutics of Bozeman, which is attempting to create alternatives to prescription painkillers that kill 15,000 people a year with overdoses.
Price said that less than $1 million of venture capital is invested in Montana every quarter. That would have to increase to $40 million to $60 million per quarter to put Montana in line with states such as Colorado and Utah, he said.
“I think there’s way more in the state than the state gets credit for nationally,” he said.
A new program to increase investment in Indian Country was introduced by Casey Winn Lozar of the Montana Department of Commerce. Under the Native American Collateral Support pilot program, the state has invested $500,000 that can be used to secure loans to Indian-owned businesses. As the loan is paid off, the money goes back into the program.
By comparison, “We’re very stingy,” said Ed Garding, who retired Jan. 31 as chief executive officer of First Interstate Bank. Although 70 percent of banks’ income comes from lending, a bank will fail with loan losses of just 1.4 percent, he said.
That means that borrowers need to come to the bank with a solid accounting system, three years of positive cash flow or three years of reasonable projections of cash flow, and a good, clean balance statement.
Credit unions, with much smaller assets than most banks, typically also make smaller loans, said Jack Lawson, CEO of the Missoula Federal Credit Union. He said that loans for start-ups are often too risky for credit unions, but that they can help businesses with accelerating growth. Credit unions look at cash flow, assets, a knowledgeable borrower, creditworthiness (including personal guarantees) and business plans that can give the right answer to this question: Does the business make sense?
The difficulties of conventional lending should not discourage entrepreneurs, said Shalon Hastings, owner of Taco Del Sol and Hub Coffee in Helena. She was able to obtain traditional financing backed by a Small Business Administration loan to pay for a cabaret license and to expand her business.
“Don’t be afraid of bankers,” she said, adding, “Make as many contacts as time allows to build relationships with a couple of different bankers.”
After all, she said, banks are in business to make money, and one way they do that is by loaning money.
“Why not go out there and grab some of that?” she said. “And good luck.”