Citibank announced this week the launching of an innovative program aimed toward driving capital to small businesses, particularly those located in inner city areas that are considered to be economically distressed. Partnering with merchant bank Next Street, Citi plans to create what they are calling the Next Street Opportunity Fund: a $30 million funding entity set up specifically to lend capital to high-performing small businesses.
Contributions for this fund will come primarily from Citigroup (at $25 million), with the nonprofit Enterprise Community Partners (known for their nationwide support of affordable housing) contributing $2.5 million, and Next Street and a group of wealthy investors rounding out the balance. However, loan assets will be distributed by Next Street, who has a 6 year history of working with small businesses in New York and Boston.
To qualify for an Opportunity Fund loan, small businesses are expected to have between $3 million and $60 million in annual revenue, to have been in business for a minimum of 5 to 7 years, and to be poised for imminent growth. Borrowers are required to retain Next Street as a consultant to offset the lender risk, which will provide a strategic piece to help that company take maximum advantage of the capital they’ve borrowed and drive sustained growth. Loan amounts are expected to range from $1.5 million to $2 million, with repayment terms extending anywhere from 5 to 7 years. It’s important to note that this is not a program intended to facilitate recovery for troubled companies but rather to stimulate expansion for up-and-coming ones.
What makes this program unique is that loans will be distributed based on growth potential rather than past performance, thereby targeting small businesses with the potential for rapid growth. In addition, the Next Street consultancy requirement provides direction for those loan recipients, thus blending high-level strategic business advice with the growth capital needed to implement those strategies and put them to work.
Mandelbaum, Robb. “ Citibank Tries a New Approach to Small-Business Lending.” The New York Times. 2/2/12. (2/2/12.) http://boss.blogs.nytimes.com/2012/02/02/citibank-tries-a-new-approach-to-small-business-lending/?ref=smallbusiness.
Resources for Entrepreneurs. “Citi Teams Up with Next Street to Create $30M Small Business Lending Fund.” Gaebler.com. 2/3/12. (2/3/12.) http://www.gaebler.com/News/Small-Business-Finance/Citi-teams-up-with-Next-Street-to-create-$30m-small-business-lending-fund-900000073.htm.
Zimmerman, Eilene. “Next Street, Citi Create $30M Small-Biz Loan Fund.” Crain’s New York. 2/2/12. (2/2/12.) http://www.crainsnewyork.com/article/20120202/SMALLBIZ/120209975.