Lending a Hand

Staff Writer
Columbus CEO

Each month, more than 8,000 un- and underinsured Americans turn to Prescription Hope for low-cost access to more than 1,500 prescriptions.

"We work with medication manufacturers and take care of the entire realm involved in ordering a 90-day supply for each individual. We also take care of refills. The manufacturers ship the medications directly to each person," says Doug Pierce, founder, president and CEO of Prescription Hope in Westerville.

In 2011, Prescription Hope seized an opportunity to expand and meet growing customer demand by applying for a GrowNOW loan.

GrowNOW is the state's latest iteration of an economic development linked deposit program, an effort that dates back to the 1980s. A partnership between eligible financial institutions and the Ohio Treasury, GrowNOW gives small business owners an interest rate reduction on commercial loans for two years, with an opportunity for renewal. In return, borrowers commit to creating or retaining at least one full-time or two part-time jobs in Ohio for every $50,000 they borrow, up to the loan limit of $400,000.

With two GrowNOW loans totaling $150,000, Prescription Hope-essentially an intermediary between physicians and pharmaceutical companies-hired 34 people, purchased computers and implemented a marketing plan to guide its growth. "GrowNOW gives small businesses like us the money we need to grow," Pierce says. "The impact of the interest rate reduction makes it affordable to borrow. It allowed us to finance our company's future."

"GrowNOW is the state's most widely used economic development program. It's in use in 85 of Ohio's 88 counties," says William Bishilany, deputy treasurer of state and economic development director for the state treasurer's office.

It's not hard to see why the state offers economic development assistance to small businesses. Firms such as Prescription Hope account for a significant share of Ohio's economic production and hiring. According to U.S. Small Business Administration (SBA) data released in 2011, 195,830 small firms made up about 98 percent of the state's employers as of 2008. Those companies accounted for 48 percent of private-sector jobs.

GrowNOW is one of several economic development programs offered by the state. By reducing borrowing costs, supporters say, such programs encourage job creation and retention in Ohio's communities. Considering an expansion? Here are some of the ins and outs of the GrowNOW program.

GrowNOW Primer

Since January 2010, GrowNOW has helped to create or retain more than 6,000 Ohio jobs, according to the state treasurer's office.

"Currently, the interest rate is being reduced on $232 million in loans," Bishilany says. "For the fiscal year that ended on June 30, 2012, we have 1,133 small businesses that are GrowNOW borrowers. And when you look at the industries represented by those borrowers, it's across the board."

Eligible businesses must have fewer than 150 employees, be organized as a for-profit entity, be headquartered in Ohio and maintain offices and operating facilities in the state. The majority of employees must be Ohioans.

GrowNOW is a revolving loan fund supported through the Ohio Treasury's investment portfolio. "Up to 12 percent of our investment portfolio goes toward the creation and retention of jobs, so we have up to $600 million for the revolving loan fund," Bishilany says.

About 120 financial institutions across Ohio are participating GrowNOW lenders. Recent program changes, such as implementing an online application, have made GrowNOW more attractive to financial institutions.

"Our economic development programs were floundering somewhat because of the financial crisis. We made some changes in the last two years, such as allowing banks to put the state's deposits in any interest-bearing instrument instead of just CDs," Bishilany says.

"Because of our size, the type of deposit account didn't affect Huntington so much as it did community banks. Having the choice of where to place the state's deposit is definitely helpful to smaller banks," says Steve McNeil, vice president and business banking credit product manager for Huntington National Bank.

The Process

To obtain a GrowNOW loan, a small business borrower must first apply for a fixed-rate business loan at a participating lender. While at the bank, or online, they also can apply for GrowNOW. "Most of our customers prefer to fill out the online application. Many of them do it on their own before or during our underwriting process. It's really common for those who have used the program before," says McNeil.

The treasurer's office generally reviews GrowNOW applications within 48 hours. There's no minimum GrowNOW loan amount. "The amounts run the gamut, but the average loan is just under $200,000," Bishilany says.

Once the bank approves the small business loan according to its credit standards, the Ohio Treasury deposits money at the bank at a below market-value interest rate. "The state does not lend directly to the borrower. It also does not guarantee or grant money," says Seth Metcalf, general counsel and CFO for the state treasurer of Ohio. "As borrowers repay the loan, the state gets the money back, so it can continue to create and retain jobs with additional loans to other small businesses."

During the GrowNOW application process, borrowers indicate how many jobs they intend to create or retain. "At the end of two years, if they created or retained the number of jobs they said, they qualify for renewal. We use that as a means of measurement," Bishilany says.

To protect taxpayers' investment, the state's deposit is insured by the Federal Deposit Insurance Corp. (FDIC) or collateralized. "The state does earn 15 basis points on each GrowNOW loan, so we do get some return on the investment, but the point of the program is job creation," Bishilany says.

The GrowNOW interest rate reduction is based on the interest rate offered by the bank. Interest rates above 5 percent merit a 3 percent reduction; other loans have a reduction of 2.1 percent.

Reduced rates apply only to loans made in the name of the operating company. They can be utilized for a maximum of two, two-year periods. Small business owners may participate in GrowNOW for four years during any six-year period. The actual loan term can be longer than two years and the loan amount can exceed the $400,000 program limit, but businesses benefit from the rate cut only under those caps. Borrowers may have multiple loans up to the $400,000 funding limit.

That's how Prescription Hope used the program. "In May 2011, we moved to our current location in Westerville. We wanted to significantly increase our patient load and add employees. Our Huntington lender, Brandon Cowen, introduced us to GrowNOW," Pierce says.

In June 2011, Prescription Hope took out its first GrowNOW loan for $50,000. "We used it for computer equipment and manpower. It allowed us to hire 15 new employees and buy a computer for each of them," Pierce says.

"We saw how the GrowNOW loan was actually working for us, so in October 2011 we applied for an additional $100,000. We couldn't have taken out the additional amount, though, without the reduction," Pierce says. "With the second loan, we hired another 19 people and we submitted a marketing plan to grow our business. We serve 19,000 doctors across the country, but had never been able to afford to market to them about what we do. The loan gave us the ability to put a marketing plan into place."

GrowNOW was part of the financing package Dr. John Dubos secured from Commerce National Bank when he moved his dental practice. "My first GrowNOW loan was in 2006, and we retained nine employees," Dubos says. "It was a good fit, so when we were planning to move into a new location in Grove City, I applied again in 2011. It helped me to free up capital. More money went to principal and less to interest, so I could put more money into the building."

Each time, Dubos borrowed the maximum $400,000. With the 2011 loan, Dubos hired two full-time and two part-time employees. He also retained 10 jobs. "The extra savings definitely helped," he says.

Dubos credits GrowNOW for allowing him to bring other jobs to Grove City. "I was able to build space into the building for other dental specialists. Two different specialists use that space in my building throughout the week, and each of them brings five or so employees with them. Having that space has caused a domino effect, because up to 10 more workers are employed in Grove City now. The savings from the rate reduction of the GrowNOW loan let me build that space out," he says.

A Competitive Advantage

While small business owners use the GrowNOW program to create or retain jobs, financial institutions use it to attract and retain customers.

"It's always been a simple government program to use," says McNeil. "It's a business-friendly program that works very smoothly for us as a small business lender."

Huntington considers GrowNOW to be a competitive advantage. "Sometimes we know we're up against a bank that doesn't offer the reduced rate, because they're not a participating bank. It's just an added benefit we can offer small business customers that others don't," McNeil says.

McNeil says the bank has about 250 program loans on its books. "I'd say that 75 percent of the GrowNOW loans we have are due to our lenders recommending the program to their customers," he says. "In some cases, the rate reduction makes the difference in the customer being able to afford the monthly payment or not. That's especially true in the smaller business segment, those companies with sales less than $1 million."

It's also helpful to borrowers and bankers alike that GrowNOW loans can be used in conjunction with other lending programs such as SBA loans, Ohio Development Services Agency 166 Direct Loans (for land and building acquisition, expansion or renovation, and equipment purchase) as well as various tax abatements, incentives and credits.

"The appeal is it's a low-cost funding source for us, and it's a challenge to raise deposits," says Mike Lamping, president and CEO of Citizens Bank of Ashville in Pickaway County. "We don't have any active GrowNOW loans right now, but when we see situations where it applies, then we have it to offer. We're always looking for good loans, so anything we can do to help our customers is a good thing."

Lamping says the challenge for community banks is finding out which small businesses are eligible and then telling them about it. "Small business owners usually don't come in and ask us about GrowNOW specifically by name," he says. "These types of programs get a lot of press in Columbus, but I don't know how effective that media coverage is here in Pickaway County, for example, and how many of our local businesses are aware of it."

Dubos agrees. "I've told other small business owners about GrowNOW," he says. "It's definitely worth looking into, but so many people don't seem to know about it. If you're qualified, you should ask your bank if it's right for your business. It's a great program that's easy to use. I tell people it's helped my dental practice a lot."

Lisa Hooker is a freelance writer.

Reprinted from the November 2012 issue of Columbus C.E.O. Copyright © Columbus C.E.O.