by Daniel Grant

Courtesy of The Crafts Report
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Brad White, a sculptor in Louisville, Kentucky, received a last-minute invitation to exhibit a 7' x 3' welded steel piece in China during the 2008 Beijing Olympics. However, shipping the work there and back would cost approximately $1,000, which he didn't have on hand. So where would that money come from?

Numerous public and private grant programs exist, but the process of applying, being accepted (or rejected), and then receiving the money can take months. Opportunities can come and go during that wait. The fact is that the foundations and public agencies that make those grants aren't looking to help an artist pay for supplies or equipment or shipping costs: they are interested in the product as it serves the greater community, not the individual's operating expenses.

Of course banks are an option, but they're often reluctant to make small loans of perhaps just a few hundred or a few thousand dollars: first, because the return on investment is so low, and second, it costs as much administratively to make a small loan as a large one. Additionally, small-scale borrowers might not have collateral for the loan or the available collateral doesn't fall into a bank's customary notion of assets. Banks also fear that self-employed people, especially those working out of their homes and particularly those who call themselves artists, can't be relied on to repay their loans.

Remaining loan options include hitting up parents and friends, maxing out credit cards, or both.

However, for some, another possibility looms. A handful of private businesses, nonprofit organizations, and public agencies exist that specialize in small loans--often called "microloans"--specifically for individual artists and art organizations.

Brad White found his $1,000 through the Louisville Visual Art Association (www.louisvillevisualart.org). Since 2007, the Association has made microloans of $1,000 to artists living and working in Jefferson County, Kentucky, charging three percent interest for the 18-month term of the loan. "A lot of artists have an exhibition coming up, and they need help paying for installation or supplies," said Shannon Westerman, executive director of the Louisville Visual Art Association. He added that every single loan to date has been repaid.

The Louisville Visual Art Association is not alone in this type of venture. Each year since 1991, the St. Paul, Minnesota-based, nonprofit Springboard for the Arts' (www.springboardforthearts.org) loan fund has provided about a half-dozen loans of between $1,000 and $5,000 to craftspeople and artists. "The need has to be arts-related," said Noah Keesecker, program manager. "We're not here to make car loans or finance a trip to Spain." These loans also are not for emergencies, like paying an artist's medical bills. The money can be used for purchasing new equipment or supplies or it can be used for opportunities, such as a performance for which ticket revenue or other earned income will repay the loan.

How do microloans work?
The borrowing artist is charged simple, rather than compounded, interest of one point above the prime rate. The average payment is $100-120 per month until the loan is paid. Collateral consists of something insured by the artist, such as an automobile or computer. The artist's own work will not be accepted as collateral. Though collateral is required, Keesecker noted that the default rate in the 20 years that this loan fund has been in existence has been less than five percent. "We haven't found artists to be bad risks," he said.

Keesecker added that most banks are wary of lending to "people with spotty or no credit history." Over the years, Springboard for the Arts has made loans to artists who have declared bankruptcy, a bit of brinksmanship that traditional financial services would avoid. "We take a higher risk than a normal lending institution would."

The Craft Emergency Relief Fund (CERF+) in Montpelier, VT, best known for its emergency grants, also has a loan program that provides between $500 and $8,000 for work-related expenses, charging no interest and requiring no collateral for the five-year term of the loan. Les Snow, financial services manager at CERF+, noted that the organization makes 10-20 loans per year and that recipients are given a seven-month grace period after obtaining the loan before they are expected to begin repaying it. For more information, visit www.craftemergency.org.

Following a somewhat different model is Northern California Grantmakers (www.ncg.org) which makes "bridge" loans of $5,000-10,000 to individual artists and $5,000-50,000 to nonprofit arts organizations in the Bay Area. These short-term (six months) loans, with a current interest rate of 2.25 percent, enable artists pursuing a project approved for funding by an arts agency in Oakland or San Francisco to purchase equipment and materials needed for the projects, since the agencies only will reimburse the artists for their expenditures. The required collateral is the agency's promised grant award.

HOW FAST do you get the loan?
The process of obtaining the needed money varies from one organization to the next. The Louisville Visual Art Association is the fastest, awarding loans to approved artists within one week, but CERF+ is right up there, usually providing money to approved craftspeople within two weeks of receipt of a completed application.

Northern California Grantmakers may involve four to six weeks, and Springboard for the Arts between six and eight weeks. Springboard takes longer than Northern California Grantmakers, because it must start from scratch to learn about an artist's credit and professional history while Grantmakers can rely on other arts funding agencies to have vetted their loan applicants.

At Springboard, there is a credit check, conducted in cooperation with a local bank that partners in the loan program, an evaluation of the applicant's employment and bank history, and a current statement of outstanding debts and overall net worth. The organization also will want to meet applicants in person and to see samples of the artist's work, as well as to receive some sort of document that indicates projected income. Applicants also take recordkeeping and budgeting workshops that Springboard periodically arranges for artists and others seeking loans.

Not everyone is accepted for loans. Keesecker claimed that two-thirds are rejected for such reasons as lack of employment, a too-low credit score, or their reason for wanting the loan doesn't qualify. Still, the default rate is low, in part because the application process is thorough and the organization "keeps in contact with artists, to make sure we know what's happening and, if any problems arise, how we might help."

Other options?
Artists have other small loan options than just the organizations whose programs have "arts" in the title. There are hundreds of nonprofit microlenders around the U.S. that also provide business counseling and training to applicants. Many of these organizations themselves borrow money from the federal government's Small Business Administration (www.sba.gov/content/microloan-program) at discounted rates in order to make loans to small businesses in a variety of fields.

These nonprofits make loans to eligible borrowers in amounts up to $50,000. The average loan size is about $13,000, and repayment plans range from a few months to six years with the average being three-and-a-half years. Some form of collateral is required, determined on a case-by-case basis by the particular SBA office, and borrowers are required to undergo some form of business management training. The Small Business Administration guarantees between 50 and 75 percent of the principal amount of its guaranteed loans, thus reducing some of the risk in lending to start-ups that might not have enough collateral or a solid credit history.

As opposed to banks, nonprofit microlenders don't assess penalties for early repayment, since they primarily seek the return of its loan money to lend again. That is why they are called "revolving" funds. "We're in the ownership business, not the loan production business," said Malcolm White, a spokesman for the Durham, North Carolina-based Self-Help (www.self-help.org), which since 1980 has provided tens of millions of dollars in financing to more than 2,000 small businesses including artists and craftspeople. Self-Help's loans range in size from $5,000 to $35,000, with interest rates of the prime rate plus six points (currently, 9.75 percent) and a term of five years maximum.

The nation's largest nonprofit microloan provider, Accion USA (www.accion.org), based in Boston, has made $119 million in loans to 19,000 entrepreneurs around the country since 1991, and some of these are individual artists. The amount of an Accion loan can be for as little as $1,500 or as high as $50,000 with interest rates ranging from 8.99 to 15.99 percent, depending upon the amount of the loan and the credit-worthiness of the borrower. These loans, which have a maximum term of five years (the majority are two-and-a-half years), often do not require collateral and can be approved within five to 10 business days. Elizabeth Garlow, business development officer for Accion USA, noted that 35-40 percent of her case load consists of home-based entrepreneurs, many of whom are artists or artisans. In addition, Accion developed in 2010 its "Sprout" loan program, which focuses on "brand new or pre-revenue entrepreneurs, where loans may go up to $5,000."

The interest rates for microloans tend to be higher than for loans offered by banks, in part because the borrowers represent a varying level of financial risk and, with some exceptions, these rates tend to fall somewhere between bank loan and credit card interest rates. (The San Francisco-based Bill Float, which pays borrowers' bills up to a maximum of $200, requiring repayment within 30 days, charges between seven and 37 percent interest.)

The requirements for loans from for-profit microlenders are generally the same as for nonprofits, although the for-profits often charge additional fees (application or advance fees, bill processing fees, monthly service fees, late fees). The money can be used for most anything, and artists and craftspeople are as apt to request and receive a loan as anyone else.

Where all these microlenders are alike is in their focus on individuals and small businesses that need small to medium-sized amounts of money, without placing undo stress on the applicant's financial background. "Our applicants need a credit score of some amount," said a spokeswoman for the Atlanta-based Kabbage, which makes loans of between $500 and $40,000 to individuals who sell online through Amazon, eBay, Etsy, Shopify and Yahoo! "It doesn't necessarily have to be a good score, but the person has to have some credit history."

Lending Clubs
Yet another source of potential, somewhat high interest loans are online peer-to-peer lending companies, or "lending clubs." Here, prospective borrowers list the amount of money they need, why they need it, and other information. Potential investors search through listings, open an account with the borrowers to whom they agree to loan money, and charge interest rates determined by the lending club on the basis of a borrower's credit-worthiness.

Scott Sanborn, chief marketing officer for Lending Club (www.lendingclub.com) in San Francisco describes Lending Club as "an alternative to the stock market," aimed at investors who look to aid small businesses in their start-up and operating costs. Lending Club earns its money through charging borrowers an origination fee after they start to receive money (there is no cost to list a project needing investment) and charging investors a service fee after they start receiving monthly repayments. Listings are kept on Lending Club's Web site for up to two weeks, but Sanborn stated that most borrowers receive their full funding within five or six days. Not everyone can list their projects, however. "We aren't helping to arrange loans to people who banks wouldn't loan to," he said, as borrowers are required to show a minimum household income of $70,000 a year and net worth of at least $70,000, excluding a person's primary residence. Two-thirds of the borrowers at Lending Club are seeking to pay off their credit card balances. Sanborn claimed that this way of acquiring money tends to lower borrowers' interest rates 20-30 percent.

A more hybrid peer-to-peer program that helps artists is Kickstarter (www.kickstarter.com), in which individual visual or performing artists or creative groups identify a project for which they need a certain level of funding, most of which is under $10,000. Investors--actually, patrons--read through the projects and provide money for activities of interest to them. The average pledge is $71, and the largest number of pledges is in the neighborhood of $25. Kickstarter receives a fee of five percent of the total if the entire listed amount is reached; if the total isn't reached within two weeks, the project is de-listed, and no patrons are out of money. The borrowers aren't required to repay their patrons, although they usually give them something--an album, for instance, if the borrower is a band or a print if the borrower is an artist. It is often to pay these kinds of expenses--the production costs of an album or print edition, for instance--that artists will be seeking the money for in the first place.


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