Jonathan Patrick does not believe entrepreneurship is about marketing, logistics, talent or even capital, although each are essential to getting a new business off the ground.

What is really needed is the idea–the moment when an entrepreneur looked up from his or her daily tasks and saw an opportunity to fill a void, said Patrick, chief lending officer at the $225 million UT Federal Credit Union in Knoxville, Tenn.

Helping members realize their small business dreams earned Patrick CU Times' 2015 Trailblazer Lending Officer of the Year.

“There are thousands of budding entrepreneurs all around us,” he said. “Haven't each of us in our daily lives seen something that we know we could do better or more efficiently or less expensively if we had the chance or time or capital or energy?”

The reality is most people with good ideas for products or services do not start businesses because they lack time, capital, marketing, talent and logistics.

Patrick said he believes his credit union can and should help committed entrepreneurs overcome those obstacles.

“This is one of the things we should be doing as a credit union,” he said. “This is one of the most important ways we can impact our members' lives as well as the community.”

To that end, UTFCU set aside $100,000 in 2014 to launch the Line12Fund, which funds startup businesses and guides entrepreneurs through the pitfalls that can destroy new launches.

The fund's name came from Line 12 on the IRS 1040 tax form where individuals record the amount of income gained through their personal business efforts, Patrick explained.

“Our goal is to provide something that is a little bit like the television show “Shark Tank,” only longer term,” he explained.

“People who want to be entrepreneurs, present and press their ideas to a panel of professionals who have expertise in launching small businesses and who can help them better prepare as they make their way toward getting a loan to get started,” he added.

mixed martial arts, jonathan patrick, business lending, entrepreneurs

Prior to getting into business lending, Jonathan Patrick competed in mixed martial arts in the U.S. and Japan. While he has given up active competition, he said the lessons taught him about persistence and mental toughness.

Patrick, who comes from a family of entrepreneurs in the restaurant business, said UTFCU modeled the Line12Fund on his previous work with the Angel Capital Group, a network of investors who use their money to help fund startups.

A software platform developed by the two entities helps underwrite the entrepreneur's loan application and guide them through the process.

The goal is not only to help fund the startup and equip the entrepreneur to succeed, but also to offer aid to those who have been shunned by banks, Patrick said.

On the face of it, a startup microfund is a crazy concept, he acknowledged. The risk appears outsized and the monetary reward may be very small.

Loans for $50,000 or less to start small businesses, particularly if the applicant does not have a deposit or transaction account, will not interest most banks, he said.

The Line12Fund has an edge by working with entrepreneurs to develop a relationship so they know they have a resource when they face an unexpected challenge or have questions, Patrick said.

The fund does not ignore traditional underwriting metrics such as credit scores and debt load, but looks beyond those to the whole person and the business idea.

For example, many ideas never make it through the Think Tank, or testing, phase, Patrick explained.

That is not because the plans were bad ones, but instead the entrepreneurs had not thought them through with sufficient depth.

The key difference is that the Think Tank ideas can be tested, seasoned and improved until they finally receive funding.

“The Line12Fund sees helping entrepreneurs in more of a relational than transactional way,” he said.

Although the fund has only been operating since March 2014, Patrick said it funded more than the initial amount budgeted.

One applicant went on to land multiple, six-figure contracts after using capital from the fund to hire new staff.

Further, The Southeast Angel investment group invited the company to make a pitch after the entrepreneur presented the firm to the Line12 committee.

A borrower from the fund went on to pitch a business to the Shark Tank television show last September.

Patrick said he couldn't share any additional details about the results because the episode has not yet aired.

So far, Line12 has funded companies that produce videos, improve software platforms, sell e-cigarettes and offer on-demand poster printing.

Patrick shared an email from Jonathan Sexton, the CEO of Bandposters, one of the small firms that received financial assistance.

“The Line12Fund made it possible to gain access to the capital we needed to grow, quickly and efficiently, without having to give up a huge equity stake in our company, which will save us an incalculable amount of money in the future when we sell our company for millions of dollars. UTFCU is the best,” Sexton wrote.

Patrick is careful to put Line12's success in the context of UTFCU and the willingness of the credit union to consider and experiment with a new idea of how to underwrite and provide small business loans.

Still, this was only the latest in the credit union's small business lending efforts.

In 2012, the credit union partnered with the University of Tennessee Knoxville's Anderson Center for Entrepreneurship and Innovation to offer a series of one-hour seminars on how to start a small business.

The Small Business Administration also recognized UTFCU as a leader in Tennessee for two consecutive years.

The cooperative's SBA lending increased from five loans in 2012 to seven in 2013, and jumped to 23 in 2014, according to data from the NCUA. Furthermore, the credit union's overall small business loans increased from around $18 million in 2012 to $24.5 million in 2014.

Patrick said he hopes over time the Line12Fund idea and software to implement it will spread among credit unions. Others can then use the model in their communities to help members launch small businesses.

“Funding our members' startups and helping them succeed is going to be the sort of lending that will make the most difference in the next decade,” Patrick said.

“Credit unions should be doing more of it, and I hope the Line12Fund can help make that happen.”

Instant Insights /

Trailblazer Awards: UTFCU's Small Business Outreach Extends Beyond Funds

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