Filling the gaps

EDA-administered micro loans help attract, retain business
Herb Melrath, owner of the Daily Grind on Main Street in Front Royal, stocks his shelves with coffee last Thursday.   Rich Cooley/Daily

Herb Melrath, owner of the Daily Grind on Main Street in Front Royal, stocks his shelves with coffee last Thursday. Rich Cooley/Daily

FRONT ROYAL — President Calvin Coolidge once said, “The chief business of the American people is business,” and that is certainly true of the Front Royal-Warren County Economic Development Authority.

The authority is responsible for promoting Warren County and Front Royal as a business-friendly community, as well as recruiting new businesses to the area. In doing so, the authority is also responsible administrating two USDA-approved loan programs for “businesses that cannot go to a bank and receive a traditional loan,” said EDA Director Jennifer McDonald.

“These programs are meant for gap funding because they might not have the credit history or what have you,” McDonald said. “It’s for those risky businesses, the lower income that can’t get those bank loans.”

The micro loan program was established in 1997 when the USDA awarded the EDA a $500,000 rural business enterprise grant to establish a revolving loan for local businesses. McDonald said 25 percent of the loan can be used for working capital, such as utility expenses and payroll, and the majority of the money should go toward equipment and capital improvements.

Since 1997, the EDA has loaned $1.7 million to start-ups and businesses looking to expand, with 90 percent of the loans going toward downtown businesses, McDonald said.

Steve Burke, Front Royal town manager, said the EDA and its programs have been key to downtown revitalization efforts.

“The EDA absolutely plays a critical [role] in promoting the downtown area to new businesses as well as offering various loan programs and incentives to encourage businesses to locate to Front Royal, specifically the downtown area,” Burke said.

McDonald said in the 18 years since the revolving loan was established, about three or four businesses went delinquent on their loans, amounting to an $86,733 loss of the original funds over the years.

“We used to have a $50,000 cap on the loan, but then we had to reduce it to $10,000 because our funds started running low in 2013,” McDonald said. “I would say we’ve had an 80 percent success rate with the businesses we’ve loaned to.”

McDonald added, “We have a $50 application fee for our loan and we want proof the business has 10 percent of the capital needed for their project, because we want to know they are invested in what they’re doing.”

Tom Eshelman, owner of Driver’s Choice Training Center on East Jackson Street in Front Royal, borrowed $40,000 from the EDA in 2006 to start the school and another $10,000 in 2013 to purchase another car. Eshelman said if it weren’t for the loan program, the driving school would not have existed.

“We needed start-up capital for the automobiles, the computer software and the business software, as well as fixtures for our classroom, such as projectors and things like that,” Eshelman said. “Most lending institutions wouldn’t fund hard equipment and things like that because they lose value the moment you buy them.”

Eshelman said the driving school employs five people and provides a service for the community.

“There was no one offering classes for students before,” Eshelman said. “There’s about 400 annual graduates between Skyline and Warren County and about half of those kids use our behind-the-wheel instruction.”

Herb Melrath, owner of the Daily Grind on East Main Street, borrowed about $20,000 from the loan program in 2013, just before the loan cap was reduced. Melrath said he used the funds to purchase a new espresso machine, an air conditioning unit and to hire one additional employee.

“The loan helped me continue to grow the business, but more importantly, the loan offered financing that was easier as far as monthly payments go,” Melrath said. “Being able to take the loan for 10 years, at that time, was great for us.”

Melrath, who has owned the coffee shop since 2004, said receiving the loan was “pretty easy.”

“For me, I had already been in business, so I think my credibility was established for me to secure the loan,” Melrath said.

In 2014, the EDA, through the USDA, was awarded a $500,00 one-time loan called the intermediate relending program. McDonald said the loans come through the USDA and the EDA acts as a conduit, vetting the businesses that have applied according to standards based on those used in the micro loan program, with a greater emphasis on job creation or retention.

“You have to set your own loan parameters for the USDA,” McDonald said. “A borrower has to be creating or retaining at least 15 jobs.”

Businesses can apply for up to $150,000 under the loan. McDonald said the loan is available for both start-ups and expansions.

“We don’t prefer one over the other,” McDonald said. “We look at business plans, credit history, that sort of thing in deciding who receives it. It’s ultimately up to the USDA to decide who gets the loan.”

McDonald said the loan program has been largely tapped out, with Dominion Health and Fitness receiving $100,000, Keystone Transport Solutions receiving $150,000 and an upcoming restaurant receiving funds as well.

Mike Kitts, general manager and co-owner of Dominion Health and Fitness on Winchester Road, said the loan helped cover costs of much needed repairs to the gym.

“We used it to get five new treadmills, repainted the walls, got carpeting and redid the pool area,” Kitts said. “We used local labor for all that except for the treadmills … a lot of our painters were from Warren County.”

Kitts said the loan was a business decision he’d “do again in a heartbeat.”

“We got more and more people talking about the equipment, talking about the pool area so I think we are satisfying current members and can market it toward new members,” Kitts said. “I think the loan enabled us to be more competitive in the community.”

Keystone Transport Solutions came to the Inland Port in September 2014 and focuses on lumber logistics. Bill Ellis, CFO of the company, said while the loan it received was small in comparison to the amount of equity invested in the company, it helped with purchasing handheld computer devices used to track inventory and helped create 14 new jobs in logistics planning, finance and machine operation.

“I think the most critical thing about this loan program is the fact the money can get implemented early on,” Ellis said. “Generally, start-up businesses don’t have access to this type of capital, but when they do, they don’t need it.”

Ellis added, “I hope other businesses that are export oriented understand this program and use it.”

Ellis said through his experience with the loan program, he thinks the EDA is highly competent in helping businesses establish themselves in Warren County.

“Our company has experience working with economic development authorities across the country,” Ellis said. “I should say, Warren County has one of the most effective economic development authorities we’ve ever dealt with.”

Contact staff writer Henry Culvyhouse at 540-465-5137 ext. 184, or

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