The merchant bank Next Street has partnered with financial services company Citigroup Inc. to create Next Street Opportunity Fund, a $30 million pool of lending capital for inner-city, high-performing small businesses.
Citigroup will contribute $25 million. The Baltimore-based nonprofit Enterprise Community Partners will kick in $2.5 million, and the balance will come from Next Street and a group of high net-worth investors, according to Next Street's founding partner and president, Ron Walker. Next Street, based in New York City and Boston, specializes in working with urban small businesses across the U.S.
Only small-business clients of Next Street in New York City and Boston will be able to qualify for the Opportunity Fund. Existing and potential clients can apply through Next Street or Citi. Decisions about loans will be made by Next Street, which provides advisory services as well as cash to small businesses.
“Our model is to provide both high-level strategic advice and growth capital,” Mr. Walker said. “We believe the advice and guidance is as important, if not more important, than the capital. We have a staff of business consultants, marketing experts and organizational development specialists that work with each small business.”
Next Street, whose cofounder is Tim Ferguson, has about 50 employees. Since its launch six years ago, the bank has worked with about 100 small businesses in New York and Boston.
To qualify for Opportunity Fund money, a small business must be in growth mode, with revenues between $5 million and $60 million, and have a business checking account at a retail bank. “They have to be somewhat successful already,” Mr. Walker said. “This isn't a micro-loan program or a program for troubled companies. We are targeting small businesses that are 5 to 15 year old.” The goal is to help these city-based businesses grow so they can create jobs and help with economic recovery. Next Street would not disclose interest rates, but Mr. Walker said they will be commensurate with risk.
The creation of the Next Street fund comes at a time when access to capital is still a big problem for small businesses. For the third quarter of 2011, the Small Business Association reported that all loans under $1 million were down 1.2%, continuing a yearlong slide. Even loans by megalenders—those with $50 billion or more in assets—remained relatively flat from the second quarter to the third quarter of 2011.
But small-business lending may on its way back. Citi announced separately in September that it was committing $24 billion in small business lending over three years, from 2011-2013. The bank surpassed its $7 billion lending commitment to small business by more than $900 million in 2011, a 30% increase over its small business lending in 2010. This year Citi has stated it is working to surpass its $8 billion small business lending commitment.
Other big banks are stepping up lending, too. J.P. Morgan Chase & Co. reported this month that it lent $17 billion to U.S. small businesses in 2011, up 52% from 2010. The bank made 45 % more loans in 2011 than it did in 2010. And this week, Bank of America Corp. reported it had loaned $6.4 billion to U.S. small businesses in 2011, a 20% increase over 2010.
As a small business itself, Next Street gains credibility by partnering with banking giant Citi. “It's a validation of our model,” Mr. Walker said.
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