Where?s the Money Going?: Northwest Arkansas? Population Surge Is Probably The Cause of More SBA, Venture Capital Investing

Maybe it’s the mountain air or a collective brain wave of entrepreneurial thought. Either way, it appears that more U.S. Small Business Administration loans and venture capital have northwest leanings when it comes to investing in Arkansas.

About 51.4 percent of the SBA-guaranteed loans in the six-county area during 2003, or about $15.44 million worth of that area’s total, were made to businesses in Washington County. The area considered includes Benton, Washington, Carroll, Madison, Sebastian and Crawford counties (see chart).

There were 119 loans totaling more than $30 million made in all six counties. Statewide during 2003, there were 412 SBA loans made totaling $102.4 million to Arkansas companies (and a handful to nearby Oklahoma firms by Arkansas banks). So the state’s northwest corner represented nearly 29.5 of the SBA-guaranteed loans in all of Arkansas’ 75 counties.

Businesses in the Little Rock metropolitan area, by comparison, got 51 SBA loans totaling about $11.2 million or about 10.9 percent of the statewide take.

Pat Walker, an economic development specialist with the United States Small Business Administration in Fayetteville, said the reason there are so many SBA-guaranteed loans in Northwest Arkansas is simple: The money is going where people are going.

Several population growth studies predict that Benton County’s population could grow as much as 65.2 percent from 153,406 in 2000 to 253,495 by 2013. Washington County’s is gauged as high as a 43.8 percent jump from 157,715 in 2000 to 226,835 by 2013. Population growth is nowhere near as steep in most parts of America, much less Arkansas.

“I think it’s a given that this is one of the fastest growing areas of the country,” Walker said. “And people aren’t going to be starting new businesses where the population is decreasing.”

Terry Jones, regional account manager for CIT Small Business Lending Corp. in Tulsa, said he has been on the trail of good ideas in Northwest Arkansas for years. His firm made five SBA-guaranteed investments in the market during 2003 that totaled $2.46 million.

Jones, whose area covers Arkansas and Oklahoma for CIT, was a lender with First Union Small Business Capital (formally known as The Money Store Commercial Lending Division) from 1993 to 1999. He’s been with CIT since 2001 and generally does loans ranging from $300,000 to $3 million each.

“We’re not a bank, and all we do is SBA so we consider ourselves the experts in this area,” Jones said. “We hope to grow our loan volume to about $45 million total in Arkansas, most of that in the northwest part of the state. We’re doing more loan volume in Northwest Arkansas right now than we’re doing in Tulsa. We’re heavy into owner-use commercial real estate, business acquisitions and partner buyouts, medical users such as dentists and franchise purchases.”

Tallying Ad-Ventures

Venture Capital funding in Arkansas is much harder to track geographically.

According to the National Venture Capital Association in Arlington, Va., four venture capital deals totaling $9.3 million were consummated in Arkansas during 2002. The NVCA’s yearbooks are widely regarded as the most thorough source of venture funding information, but its figures trail a year.

The organization also showed $10.4 million in 2001 Arkansas venture volume.

But Les Lane, vice president of finance for the Arkansas Science & Technology Authority in Little Rock, said it’s been his experience that most Arkansas venture capitalists don’t report the data to firms that track it either because they don’t know to or they fear sharing their information. The result is Arkansas comes in lower on a number of economic growth meters.

Lane said the ASTA tracked more than $10 million of venture investing during one quarter of 2002 alone. Regardless of the totals, he said, the vast majority is coming from angel investors inside the state and it appears there’s more activity in Northwest Arkansas than anywhere else.

“The thing that keeps coming back up is we’re starting to see some real wealth transfer from one generation to the next in Northwest Arkansas,” Lane said. “There’s a lot of people who had early jobs at Wal-Mart or wherever, and they’re passing the money down. It seems like the second generation has an entrepreneurial bent as well, and that they’re thinking like an entrepreneur instead of wanting to go to work for a big company.”

Lane said as more local venture capitalists and angel investors learn to trust that reporting agencies will use information about their deals properly, the area’s numbers will look a lot better.

Still Hope for Alpha

Seed-stage capital could be more reachable for area fledgling technologies later this year. The Alpha Fund, a conduit for investments of $50,000 to $500,000 in ultra-new technologies, has been making presentations to several potential institutional investors.

The fund’s founders said in 2002 they hoped to reach $5 million in capitalization through private investments. But of late, they’ve sought help from the Arkansas Institutional Fund (a funder of funds) and the Winthrop Rockefeller Foundation. John Nock, an Alpha investment committee member, wouldn’t say how much money had been raised so far. But he said it will eventually be a perfect complement to sources of federal funding such as the Small Business Innovation Research grant program.

“What we found was that funding new technologies was a relatively new endeavor for Arkansas’ investment community,” Nock said. “Our strategy has been to include as our next step institutional players who have expressed an interest. Most Arkansas institutions don’t have historical procedures for investing in new technology, so initially it’s been slower going.”

TAB CHART

Six-county Breakdown

The following is a breakdown of the SBA loans made during 2003 to businesses in the six counties that make up Arkansas’ northwest corridor.ttt

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Source: U.S. Small Business Administration Office in Little Rock