PhillyInc: Filling the financing gap when a good idea strikes

Few business tests are more arduous for entrepreneurs than when they cross the "valley of death."

That's not some contrived challenge on a reality TV show. It's a real-life situation for those who've dreamed up and prototyped a better mousetrap but haven't developed it to the point where venture-capital firms or banks are willing to provide the financing needed to bring the product to market.

In recent years, wealthy private investors, known as angels, have increasingly stepped onto the hot sand to lend a hand to hot-growth companies. Plenty of other start-ups never make it out of the valley.

On Tuesday, Small Business Administrator Karen Mills visited the Navy Yard in South Philadelphia primarily to talk up President Obama's proposed payroll-tax cut and other parts of the American Jobs Act. But she also was there to discuss the federal agency's latest effort to fill that financing gap.

The Intermediary Lending Pilot program, or ILP, which was included in the 2010 Small Business Jobs Act, is different from the SBA's traditional loan programs, under which banks make loans that are guaranteed by the federal government.

Under the ILP program, the SBA makes a direct loan of $1 million to 20 nonprofit lenders, who then lend the money to start-ups and small businesses. Those intermediaries are permitted to make loans up to $200,000 to businesses for working capital, real estate, or equipment.

Interested nonprofits

had to apply to become one of the 20 to receive $1 million. When the SBA announced the winners in August, Philadelphia was the only city with two such groups: Ben Franklin Technology Partners of Southeastern Pennsylvania and Philadelphia Industrial Development Corp.

RoseAnn B. Rosenthal, president and CEO of Ben Franklin Tech Partners, said her organization most likely would make loans of between $100,000 and $200,000 to companies that have previously received funds through its seed-capital program.

"The companies in our portfolio are at a very early stage, and it's hard for them to get follow-on dollars," she said.

What the SBA's Mills and acting U.S. Commerce Secretary Rebecca Blank really wanted to talk about was an aspect of the proposed American Jobs Act that would aid all small businesses: cutting payroll taxes in half.

I asked both why they thought a continued payroll-tax cut would induce small-business owners to create jobs. Private-sector economists have estimated it might create anywhere from 500,000 to 1.9 million jobs in 2012.

Mills said hiring had increased at small businesses in April, May, and June before taking a pause since then. The hope, she said, is that business owners will "restart that activity" once they know the payroll-tax cut will last through 2012, and factor in proposed tax credits for new hires.

Contact columnist Mike Armstrong at 215-854-2980 or marmstrong@phillynews.com,

or @PhillyInc on Twitter. Read his blog, "PhillyInc," at www.phillyinc.biz.