vvEPA
United States
Environmental Protection-
Agency
Office of Pollution Prevention
and Toxics
Washington. DC 20460
August 1995
EPA/742-F-95-OOT
Pollution Prevention Fact Sheet
Credit Assistance
Pilot Project
What is fh« Credit Assistance Prd/«cf?
The Maryland Department of the Environment and EPA's Office of PoUution Prevention and Toxics
recently conducted a pilot project to determine the extent to which small businesses are able to obtain
financing for pollution prevention equipment, and, if they are having difficulties, what type of assistance
might be effective in helping them obtain credit. The pilot project focused on dry cleaners in Maryland
faced with new Federal and state environmental requirements.
Specifically, a 1993 Federal air toxics role under the Clean Air Act requires dry cleaners either to
purchase "dry-to-dry" machines with a built-in refrigerated condenser (an in-process system for recovering
percholoroethylene~l'perclf-a toxic chemical used in dry cleaning), or to retrofit with this same type of
condenser pre-1991 machines that consume "perc" above a threshold amount,
Why W
-------
What W«r« fh« Results?
The results were unexpected Project staff met with members of the banking community (including the
American Bankers Association, the Maryland Chamber of Commerce, Signet Bank, First Union Bank,
and Potomac Valley Bank) to test the hypotheses. The banks confirmed their reluctance to handle small-
business loans, but gave different reasons: the amounts of these loans are often too small to allow a bank
to recover its costs or make a profit; or the business's cash-flow is insufficient to service the debt
Contrary to expectations, the banks were receptive to potential cost savings flowing from the purchase
of new equipment, and were not concerned with environmental liabilities associated with the dry cleaning
industry. Further, the banks stated that as long as the paperwork for a loan application was complete,
and an entity such as Maryland's Small Business Development Center had analyzed the financial status
of the business and could show that it would be able to meet the loan payments, the banks would loan
money for a purchase as small as $15,000.
To determine the need for financial assistance, the project staff contacted the 77 dry cleaners required:
to purchase new equipment. Only 12 of the 77 dry cleaners took advantage of the program to obtain help
in seeking bank financing. (Four of the 12 cleaners purchased retrofit units; eight purchased entirety new
machines.) The other 65 companies either obtained their own funding (many Korean-owned dry cleaners
have access to pooled funds in the Korean community), were able to obtain bank loans on their own, or
decided to wait for the retrofit deadline of September 1996 before making any investment.
What lessons W«r* L«arn«d?
Four key lessons emerge from this project that are relevant for programs which might impact small
businesses in the future. First, banks are not universally "scared off* by potential liabilities associated
with environmental lending. It would appear instead that banks are able to discern which industries are
likely to give rise to environmental problems and thus are not blindly averse to making environmentally-
related loans. .
Second, most small businesses, at least hi the dry cleaning industry, were able-to obtain financing, or were
reasonably sure they could. Still, 16% of the 77 firms contacted did take advantage of the assistance and
probably would not otherwise have been able to attain compliance. ,
Third, it should not be assumed that the mere existence of a financial assistance program will lead to its
use. The 12 companies that took: advantage of the assistance did so only after an active outreach
program identified and encouraged them to pursue the opportunities.
• Finally, to make small loans attractive to banks, it helps to have an intermediary attest to the credit-
worthiness of the borrower and to reduce^transaction costs by handling much of the paperwork. At least
in some cases; the only subsidy needed" to make a loan "fly* is for processing the loan application
paperwork-surety a less expensive proposition for the public than subsidizing the interest rate. As seen
in the present instance, the Small Business Development Centers are well suited for this role.
- For Mor» Information • ,
For further information on the pilot project, contact Liz. Taddeo, Maryland Department of the
Environment (410-631-4119). For general information on EPA/OPPTs efforts to enhance the ability of
small businesses to obtain financing for pollution prevention projects, contact Ed Weiler (202-260-2996).
------- |