Minnesota unveils $10 million low-interest loan program for small businesses

Minnesota small business owners will have access to $10 million in low-interest loans under a new state program, at a time when many are grappling with rising interest rates.

Gov. Tim Walz and Lt. Gov. Peggy Flanagan on Tuesday announced the launch of the Minnesota Expanding Opportunity Fund through the Department of Employment and Economic Development (DEED). Created during the most recent legislative session, the program will provide loans to Minnesota nonprofits that in turn will lend the money to small businesses that women, people of color or those in greater Minnesota operate.

"One of the biggest challenges for small business is just straight access to capital. That's exacerbated a bit when you have interest rates going up," Walz said at a Capitol news conference. "One of the things that has always been a role of government, whether it's the Small Business Administration or DEED, is to have some of that access to capital working with private lenders, nonprofit private lenders, to make that happen."

Nearly half of all Minnesota workers are employed at a small business, Flanagan said. And small businesses are launching faster than they did before the COVID-19 pandemic: More than 61,000 started in Minnesota in 2022, nearly a third above 2019, DEED Deputy Commissioner Kevin McKinnon said.

"Building a diverse and vibrant small business ecosystem is critical to a thriving state and economy," Flanagan said. "We've talked about this a lot, and now we are putting our money where our mouth is."

The Expanding Opportunity Fund will provide loans between $100,000 and $600,000 to eligible nonprofits at a 0.5% annual interest rate. The maximum interest rate nonprofits can charge small businesses is the prime rate — currently 8.5% — plus 2%. The program will continue until either June 30, 2025, or whenever the one-time $10 million appropriation depletes.

Existing DEED programs, including the Emerging Entrepreneur Loan Program and the State Small Business Credit Initiative, have already provided millions of dollars in loans to small businesses, McKinnon said. The Expanding Opportunity Fund is "adding another tool to that toolbox" for businesses that might struggle to access traditional financing, he said.

"When small businesses can't necessarily get the amount of capital that they need through traditional sources, this can make up a portion of it," McKinnon said.

Linda Ewing, interim executive director at Coffee House Press, said the nonprofit publisher used a $150,000 DEED-guaranteed loan to pay author royalties after revenue declined during the pandemic.

"Nonprofits are no different than small businesses in terms of needing capital to sustain the organizations and to grow," Ewing said during the news conference. "We really appreciate this support."

Amy Tsegaye and Dereje Wudmatas used a $35,000 Emerging Entrepreneur loan as working capital after buying and renovating the space for their Lowertown restaurant, Erta Ale, with their own money. The loan covered costs such as supplies and payroll, Wudmatas said.

"Without you guys," Tsegaye said Tuesday, turning to look at Walz and Flanagan, "I might not [have been able to] open my business."