Loans for innovation: MN pilots a rare model

The Minnesota Department of Deployment and Economic Development (DEED) has launched a new loan program for entrepreneurs with high-tech products or services. The loans are similar in size to microfinance options increasingly available to new bricks-and-mortar establishments, but flexible payment options and innovation-focused criteria are intended to make Minnesota Innovation Loans for Entrepreneurs (MILE) uniquely appropriate for tech-based economic development.

The debt provided through MILE is generous to entrepreneurs. There is no interest on the loan, and repayments do not start until year two, escalating through the four-year term. Loans may be $20,000-$50,000 and must be equally matched by another source.

Many organizations looking to support innovative entrepreneurs prefer equity-based capital solutions. From Minnesota’s perspective, investments can put the state in situations that force a choice between fiduciary responsibilities to the company and to state taxpayers. Grants, another common approach to providing funds to start-up technology companies, cannot form a sustainable program model.

With the primary audience for the MILE program being new businesses, DEED has established a scoring criteria that emphasizes opportunities beyond repayment potential. Loans are also scored on business capacity and strategy, need, and impact. Businesses must have been in operation for no more than five years and employ no more than five people. Retail locations and several direct service industries are also excluded from eligibility.

DEED plans to make up to six MILE loans per year. The program is currently a pilot, and business reporting requirements, post-repayment monitoring and repayment performance will help the agency determine the future opportunity for the model.