Financing businesses in rural Alaska: mainstream banks sometimes shy away from financing businesses in rural Alaska, but there are options for entrepreneurs in Bush communities.

• Author: Stricker, Julie
• Position: Alaska Native Business News

When Hugh and Trina Short decided to move from Anchorage back to their hometown of Bethel and open a Subway sandwich business in 2001, they knew they faced many hurdles.

First was finding a space to lease. The Shorts found a neglected, dilapidated building near the center of the town of 5,400 that looked promising. They wrote up a business plan and Nuakauiak Yup'ik Corp. of Toksook Bay agreed to go into a partnership agreement with them to buy the building to house the restaurant, and to lease it out as commercial space.

Then they had to get financing for renovations and startup costs.

FEW FINANCING OPTIONS

Most mainstream banks are leery of financing enterprises in rural Alaska which are considered high risk. Many state programs and nonprofits that provided loans to rural businesses during the 1980s and early 1990s were shutdown because of budget constraints, say David Hoffman, CEO of Alaska Growth Capital, an Anchorage based "alternative financing" program. At the same time national corporations that were no familiar with the rural Alaska market purchased some major Alaska banks.

Alaska Growth Capital was launched to help fill the gap. In 1996, the Alaska Science and Technology Foundation announced that it would provide a $3 million loan to provide seed capital for the establishment of Business and Industrial Development Corporations or BIDCOs, Hoffman says. AGC was selected to receive the funds and opened in 1997 as a wholly owned subsidiary of Arctic Slope Regional Corp.

Alaska Growth later received additional capital from ASRC, the U.S. Treasury Department and the Denali Commission. In return for government funds, Alaska Growth had to provide assurances that it would provide a certain minimum level of loans each year to economically distressed parts of the state, Hoffman says.

Hugh Short approached Alaska Growth Capital with his Subway and commercial lease proposal and sparked their interest.

"It's something new and different in rural Alaska," Short says of the sandwich and salad franchise. "With the value of the property we had out there, we were pretty bankable. We got a little bit of cash to do the renovations and get some tenants in and now we're in business."

The Shorts aren't alone. Since its inception, Alaska Growth Capital has financed dozens of businesses worth millions of dollars all across the state. Businesses include value-added fish-processing companies; retail businesses, such as community stores in Galena and Nome; and...