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Leon County
Board of County Commissioners Agenda Item#17 November 17, 2020 |
| To: | Honorable Chairman and Members of the Board |
| From: | Vincent S. Long, County Administrator |
| Title: | Status Report on Financing Options Available for Minority and Women-Owned Small Business Enterprises and Authorization to Partner with FAMU Federal Credit Union to Establish a $1 Million Revolving Microlending Program |
| Review and Approval: | Vincent S. Long, County Administrator |
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Department/Division Review and Approval: |
Alan Rosenzweig, Deputy County Administrator Ken Morris, Assistant County Administrator Benjamin H. Pingree, Director, Planning, Land Management & Community Enhancement |
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Lead Staff/ Project Team: |
Cristina Paredes, Director, Tallahassee-Leon County Office of Economic Vitality Darryl Jones, Deputy Director, Minority Women and Small Business Richard Fetchick, Business Development Manager |
Statement of Issue:
This item seeks Board acceptance of a status report on funding availability for minority and women-owned small business enterprises. This item also seeks the Board’s authorization to partner with FAMU Federal Credit Union to establish a $1 million revolving micro-lending program to enhance and diversify the existing capital pool in the market with federal CARES Act stimulus funding.
Fiscal Impact:
This item has a fiscal impact. Should the Board authorize the County Administrator to execute an agreement with FAMU Federal Credit Union, the County would allocate $1 million from CARES Act Funding for the revolving loan program. FAMU Federal Credit Union would contribute $250,000 annually for the administrative costs of operating the program.
Staff Recommendation:
Option #1: Accept the status report on financing available to minority, women, and small business enterprises.
Option #2: Authorize the County Administrator to execute an agreement with FAMU Federal Credit Union to establish a micro-lending fund in the amount of $1 million for black, minority, and women-owned businesses, leveraging $250,000 annually from FAMU Federal Credit Union for the administrative costs of operating the program.
Option #3: Approve the Resolution and associated Budget Amendment Request to establish a micro-lending fund in the amount of $1 million for black, minority, and women-owned businesses with FAMU Federal Credit Union (Attachment #1).
Report and Discussion
Background:
During the July 14, 2020, Budget Workshop, the Board requested an agenda item exploring program development and/or expansion, funding alternatives, and administrative options for microloan programs for black, minority, and women-owned businesses. This item seeks Board acceptance of a status report on funding availability for minority and women-owned small business enterprises and also seeks the Board’s authorization to partner with FAMU Federal Credit Union to establish a $1 million revolving micro-lending program to enhance and diversify the existing capital pool in the market with federal CARES Act stimulus funding.
Leon County has pursued improved access to opportunities for minority and women businesses since the creation of its MWBE Office and corresponding disparity studies. This commitment informs activities to the present day, notably the recent Leon CARES Small Business Grant Supplemental Award created for Minority and Women-owned businesses in the amount of $20,000, which to date has been awarded to 127 businesses totaling $2.54 million. The Office of Economic Vitality (OEV), since its founding in 2016, has emphasized economic inclusion, including the purposeful consolidation of the former City of Tallahassee and Leon County MWSBE divisions and including the MWSBE program under the auspices of OEV. One of the principal responsibilities of the MWSBE Division is to assist Minority, Women and Small Business Enterprises (MWSBEs) in building capacity through workshops, seminars and identifying both workforce and business development resources, including business financing. Under the Second Amended and Restated Interlocal Agreement, OEV serves as the economic development office for Tallahassee-Leon County and is not a lending institution, nor does the office have the legal authority to operate a loan program. Nonetheless, OEV has instead followed the guidance as described in our 2016 Strategic Plan and its strategy recommendations—“Partner with local financial institutions to develop a secured funding program for entrepreneurs seeking capital.” Accordingly, as detailed in this report, OEV has identified a series of business financing options available in the marketplace to minority businesses to ensure their retention and expansion and fortify its commitment to economic inclusion in the local economy.
During a September 2018 OEV Strategic Plan Workshop item, the Blueprint Intergovernmental Agency Board of Directors (IA Board) directed OEV to evaluate partnerships with FAMU Federal Credit Union, FAMU Small Business Development Center (SBDC), and Apalachee Regional Planning Council (ARPC) in order to maximize microloans available to MWBEs and entrepreneurs (Attachment #2). Subsequently, OEV began discussions with the ARPC to apply for grant dollars from the United States Department of Commerce Economic Development Administration (EDA) to capitalize on a new revolving loan fund. The collaboration was due to grant eligibility requirements as well as ARPC’s current success in operating such a fund throughout the region.
At the September 5, 2019, Blueprint Intergovernmental Agency meeting, the IA Board authorized OEV to provide a $200,000 match and submit a United States Department of Commerce EDA revolving loan grant application for the establishment of a $1.25 million small business loan program in partnership with ARPC (Attachment #3). The ARPC REVIVE! Revolving Loan Fund (RLF) became fully active in October 2020, and OEV is working with ARPC to promote the fund. More information on the REVIVE! RLF can be found on pages 9-10 of this item. OEV is also collaborating with the FAMU Federal Credit Union to create a marketing and engagement plan to inform minority-owned firms about FAMU’s business financing packages.
As directed by the Board, this item examines the types of financing available to minority and women-owned businesses in the Tallahassee-Leon County market area. Finally, this item seeks Board authorization for the County Administrator to execute an Agreement with FAMU Federal Credit Union to establish a $1 million revolving micro-lending program to enhance and diversify the existing capital pool.
Analysis
OEV identified business financing sources in our local market that are available to local MBEs. Strengthening all MBE firms is critical to our local economy’s growth and vitality because of the services and the jobs MWBEs create for our workforce. OEV’s research identified two lending options created solely to address the financing needs of black-owned businesses: the Black Business Investment Fund, Black Business Loan Program, along with three additional programs available to minority and women borrowers. The lending options identified include the following (Note: each of these are further detailed later in this status report, and in Attachment #4.):
In early 2020, the COVID-19 pandemic emerged and was declared a disaster by FEMA on March 13, 2020. Shortly thereafter, the Board declared a local emergency and financial assistance to businesses through local and CARES Act sources have dominated discussions of funding during the past seven months. At the Board’s July 14 Budget Workshop, the MWBE supplemental award was created in response to national and local findings that show disparate impacts of the virus on minority and women-owned businesses. A McKinsey & Company report released in May 2020 found that the COVID -19 crisis “could disproportionately affect minority-owned small businesses for two critical reasons: they tend to face underlying issues that make it harder to run and scale successfully, and they are more likely to be concentrated in the industries most immediately affected by the pandemic.” Through a local business survey conducted in June 2020, OEV found that 53% of minority and women-owned businesses experienced a 50% or greater decline in revenue, compared to 39% of non-minority/women-owned businesses. At the time of writing this item, Leon County CARES Small Business Funding had been granted to 278 self-identified Minority applicants, and $2.54 million awarded as MWSBE Supplemental to certified minority and women-owned businesses. National and local COVID-19 response funding appears to have temporarily made grants a more common alternative than loans.
During the summer of 2020, the County and City received letters from the Big Bend Minority Chamber of Commerce and the Capital City Chamber of Commerce related to the needs of minority businesses (Attachment #5). Both Chambers of Commerce communicated their strong interest in increasing the financing options for minority and women-owned firms, including microloans and microgrants. OEV responded to both letters from the Chambers of Commerce and addressed each of the concerns. Since the correspondence, OEV has been in dialogue with the Chambers of Commerce. In these meetings, the Chamber representatives continued to emphasize the importance of access to capital by minority and women-owned firms. Microlending for both Chambers of Commerce remains an issue of critical concern. The Chambers of Commerce did a joint survey of their members and other minority-owned business owners. Access to capital and microlending was one of the top three issues for the survey respondents. Thus, business financing remains a continuing concern for business community stakeholders and members of the MWSBE Citizen Advisory Committee.
Minority Business Capital Access, Nationally and Locally, Pre-and Post-COVID-19
Finance for small businesses and startups includes equity (e.g., venture capital), grants, and debt (e.g., loans). Access to capital depends on the industry, credit history of the borrower, and years of reportable cash flow (from creation to 3+ years in operation). The Small Business Administration (SBA) defines a microloan as a loan of under $50,000 with a maximum term of six years.
American small businesses appear to be shifting toward a greater share of minority and women-owned businesses. A 2015 Brookings Study found that between 1997 and 2007, “gross receipts…from minority firms grew much faster than the total gross receipts of non-minority firms… [and] minority and women business owners increased payroll counts by 26 and 6 percent, respectively.” The study notes that minority and women-headed households generally have lower amounts of accumulated wealth, making collateral potentially an issue, and advocates for the expansion and increased funding of the New Markets Tax Credit and State Small Business Credit Initiative as a way to better serve these business owners (Barr, 2015).
Furthermore, a report by the U.S. Department of Commerce, Minority Business Development Agency, found that “Among firms with gross receipts under $500,000, 23 percent of non-minority firms received loans, compared to 17 percent of minority firms. Among [firms with over $500,000 in annual receipts], 52 percent of non-minority firms received loans, compared with 41 percent of minority firms.” (Dept. of Commerce, 2010). Reviews of nationally available lending programs often cite the SBA to be an excellent resource. The SBA, through local lenders, offers the 7(a) loan program, Community Advantage Loans, Microloans, and an 8(a) Business Development Program. SBA loans and The Action Microloan, two nationally available programs, are described on page 10 of this item.
In 2018, there were 18 FDIC-insured institutions in Tallahassee with 76 local offices, hosting a total of $7.318 billion in deposits. According to the Federal Financial Institutions Examination Council’s (FFIEC) data, 2,749 loans amounting to $71,205,000 were made to businesses with gross annual revenues of less than $1 Million. By loan volume in this category, American Express led with 885 loans. By the total amount lent, Synovus led with $11,577,000 disbursed.
Locally, the question of capital access parity has been a topic of Board inquiry and discussion. As previously stated, the Leon County CARES Small Business Grant included a $20,000 supplemental award for minority and women-owned businesses that disbursed an extra $2.54 million to eligible businesses. Finally, the COVID-19 pandemic and responses thereto, may have increased demand for minority business financing. In response, the Paycheck Protection Program offered by SBA, and grant programs offered through Leon County, including the COVID-19 Economic Disaster Response (CEDR) grant and Leon CARES Small Business Assistance grant provided millions in forgivable loans and grants to businesses to preserve employment, cash flow, and upkeep of payroll, rent, mortgage, utilities, and COVID-19 safety costs. This may have impacted survey responses, although the survey did not limit responses to cover a particular period in the respondent’s business. As such, grants are likely to recede and loans to increase in importance to business financing during FY 2021.
The following section of this item will cover a survey of MWBEs to gauge local demand-side needs and a review of locally available minority loan funds, including the Black Business Investment Fund, the FAMU Credit Union Black Business Loan Program, The FAMU Small Business Development Center (SBDC) microloan program, The Northwest Florida Black Business Investment Corporation Fund in Partnership with Big Bend Minority Chamber of Commerce, The ARPC REVIVE! RLF, Small Business Administration Loans and Guarantees, the Accion Microloan Program, and a proposed microlending opportunity with FAMU Federal Credit Union utilizing $1 million of CARES Act funding.
October 2020 Minority and Women-Owned Businesses Survey
A survey conducted in October 2020 by OEV, well into the COVID-19 pandemic in terms of impacts and responses, helps to portray the business-facing side of the question (Attachment #6). The survey inquiries about how minority and women-owned businesses are obtaining capital and technical assistance to run and grow their operations. As mentioned earlier within the Analysis section, the current financial landscape is dominated by COVID-19 response grants, which may impact responses about main capital sources. While the survey did not request information from an exact time period (e.g., prior six months, year, etc.), responses skewed toward grants, which reflects the past eight months under pandemic conditions.
Of the 232 MWBE respondents, the two largest groups were women-owned (67%) and black-owned (60%). Sixty-three percent (63%) of respondents were already certified by either OEV or Office of Supplier Diversity (OSD), and another 28% were interested. Over half of respondents employed between 1 and 5 people, though all employment ranges were represented. The findings from the business-side capital access inquiry are as follows:
Regarding technical assistance resources available to businesses, those that respondents were most aware of included the FAMU SBDC and Jim Moran Small Business Institute. Over 74% of respondents had obtained financing or financial guidance from FAMU SBDC. See Attachment #6 for additional information. In all, this suggests that in the current climate, grants are seen as a major type of financing to turn to; however, it is likely that following the COVID-19 stimulus money, an opportunity for increased technical assistance and loan making will exist. According to Forbes, Bank Loans, SBA Loans, and Economic Development Organization loans are among the top funding sources available to businesses during non-recessionary times, with the only grant mentioned being federal Small Business Innovation Research (SBIR) funding.
Black Business Investment Fund
The Black Business Investment Fund (BBIF) is headquartered in Orlando, though the office maintains a regional presence in North Florida, with a staff person serving the region based in Jacksonville. The BBIF is a nonprofit community development financial institution with the mission of helping minority and underserved small businesses to access capital. It describes itself as “Florida’s leading non-traditional lender and financial coaching provider.” It offers loans of between $5,000 and $1 million and New Market Tax Credit loans of up to $2 million. On the financial coaching side, targeted business management training is provided to assist with repayment and business expansion goals. The Regional Director of North Florida reported that the office opened in November 2019 and just as it was gaining momentum, COVID-19 interrupted operations. It has serviced several Paycheck Protection Program loans in the region, but micro or working capital loan data was unavailable as of September 2020. It is likely that the BBIF will renew operations in North Florida, including Leon County, in 2021.
Florida A&M Federal Credit Union – Black Business Loan Program
The Black Business Loan Program was enacted in 2007 by the Florida Legislature. The program provides capital to eligible black businesses that cannot obtain capital through conventional lending institutions but that are otherwise commercially viable. Products include loans, loan guarantees, or investments, along with technical assistance. There are two loan administrators in the state: FAMU Federal Credit Union and Miami Bayside Foundation. The loan is accessed via an online application found at this link: https://famufcu.com/black-business-loans/. Particular aspects of the Black Business Loan Program are as follows:
COVID-19 further interrupted lending through the Black Business Loan Program in the Tallahassee area according to FAMU FCU leadership. The Paycheck Protection Program forgivable loan became the main source of capital sought by existing black businesses. Although COVID-19 disrupted loan volume, FAMU Federal Credit Union continues to offer technical assistance to loan seekers, which is part of the Black Business Loan Program. In light of OEV' survey responses and based on available data, the minimum loan size may be higher than some microloan candidates seek. Additionally, some candidates may seek terms longer than five years for repayment. Allowable uses, credit, and collateral appear to be highly flexible to meet different candidate needs.
Florida A&M Small Business Development Center
The Small Business Development Center (SBDC) provides a suite of services to small businesses, including Growth and Acceleration Services, Individual Consulting, SBDC Workshops, an SBDC at FAMU Resource Library, and Minority and Women business-centric resources. The following is an update on its loan and capital services from August 2020:
OEV coordinates on a continual basis with the SBDC to market its programs through E-newsletters and social media posts. This includes highlighting the loan program it manages. In light of OEV survey responses and based on available data, it appears that loan sizes align with preferences expressed by respondents.
The Northwest Florida Black Business Investment Corporation Fund in Partnership Big Bend Minority Chamber of Commerce
The Big Bend Minority Chamber of Commerce (BBMC) is working with Northwest Florida Black Business Investment Corporation (BBIC) to provide microlending and line of credit programs to members of the BBMC. Membership ranges from $25/year for students and $185/year for businesses with under ten employees, to $250/year for businesses with 10-40 employees, and $500/year for businesses with more than 40 employees. In light of the impacts from COVID-19 on black businesses, BBMC and BBIC have agreed to make the $300,000 available to nonmembers as well. Specifics of the program are as follows:
In light of OEV survey responses and based on available data, it appears that loan sizes and terms align with the preferences expressed by respondents. The program is listed on the BBIC site at this link: https://www.nwflbbic.org/black-business-loans-northwest-florida. At the time of writing this item, the BBIC and BBMC have not marketed this loan product for local black businesses, and no further information is currently posted on the BBMC website about the program.
Apalachee Regional Planning Council 2020 RLF
As stated previously, during the September 5, 2019 meeting, the IA Board authorized OEV to apply with ARPC for a $1,000,000 Revolving Loan Fund (RLF), which leveraged $200,000 of sales tax funds. The EDA announced its approval of the application in June 2020 and agreed to match it at $800,000. The RLF capital pool totals $1 million (titled “REVIVE! RLF” for local promotion and outreach) and is available to credit-troubled businesses for operating capital and equipment loans. ARPC will fund and house the loan administrator as part of its staff, and semi-annual reports will be provided to OEV to chart metrics such as minority and women-owned business recipients. The REVIVE! RLF was activated this October and began accepting and reviewing applications.
The ARPC has managed a prior RLF capital pool seeded by EDA since the 1980s, with loans being available to the eight rural counties in its region (this excluded Leon County per the EDA stipulation that it be rural-business facing). Since 2015, it has lent 62.8% of total financing to minority and women-owned businesses, representing over half of total loans: 26.7% of total loans were made to minority women, and 20% of the number of loans originated were made to minority male-owned businesses. A full report on the pre-existing RLF can be found in Attachment #7.
Of note, the earlier iteration of the RLF was available only to the rural Apalachee Regional counties. To expand availability to Leon County minority and women-owned businesses, the REVIVE! RLF will provide $1,000,000 targeted to Leon County businesses. Loan terms and structure include the following and are approved by the U.S. Economic Development Administration:
The RLF manager will work with local banks/lending institutions as they are in frequent contact with potential clients and can provide ARPC with referrals or gap financing opportunities. The ARPC is working to build its relationship with FAMU Credit Union to expand financing opportunities further.
ARPC will lead marketing and promotional efforts while working closely with OEV staff, to target minority and women business enterprises in Tallahassee-Leon County. The first wave will constitute a six-month effort with OEV to market the program strategically. OEV is sending letters to Certified Minority and Women Business Enterprises, which contains information on this RLF and FAMU Federal Credit Union’s programs. Based on survey responses, loan amounts conform to the majority of survey respondents, although some seekers may prefer smaller amounts. Working capital is an allowable use, which conforms to the majority of survey respondents preferred loan type. The need for fully secured loans (via collateral) may make this difficult for some respondents to fulfill. As such, the REVIVE! RLF program meets certain preferences expressed in the survey, while amounts on the lower end and collateral may not align with other loan seekers' preferences.
Small Business Administration Loans
The Small Business Administration (SBA) is a conduit for loan making and guarantees available to businesses through banks, credit unions, and community development entities. Its two loan programs with the smallest amounts are the 7(a) Small Loans and Microloans Programs. Details are as follows:
Data from the SBA indicated that as of March 2020, prior to the COVID-19 pandemic and Paycheck Protection Program, eight loans from 7 lenders totaling $5.1 million had been processed in Leon County.
Accion Microloan Program
Accion is a nonprofit lending network that operates nationwide. Its main purpose is to provide loans and technical assistance to small businesses. Accion Serving the East Coast is the branch active in Florida and reports $10.7 million invested in small businesses within the region representing 8,500 businesses. Details of the microloan are as follows:
FAMU Federal Credit Union Partnership to Establish a New Micro-Lending Program
While the field of available microloan options available to black, minority, and women-owned businesses has some existing options and has added new entrants during the past two years, the opportunity exists for the County to further explore a partnership with a microcredit institution to craft a microloan that further delivers on the idea proposed in the 2015 Blueprint Interlocal Agreement. Funding for this product would originate from the CARES Act stimulus provided to Leon County, which would be provided at $1 million. FAMU FCU would contribute $250,000 to cover administrative, marketing, and all operational costs.
Based on data from existing programs, a key feature of a potential future program would be flexibility. This would extend to potentially allowing applicants with lower credit scores to obtain a loan, setting a low floor to the allowable loan amount and allowing negotiable repayment terms. In essence, this would create a higher-risk program than existing products, with lower interest to compensate.
Recent discussions with FAMU FCU covered the feasibility of a new program, as managed through a forthcoming agreement. The new proposed program particulars are as follows:
In addition, FAMU FCU provided details on the submission package (the application fee for this micro-lending program has been lowered to $25. Other applications cost an applicant $250), which would include: the loan application, business debt schedule, profit and loss statement, personal financial statements, business, and personal tax returns, and a business plan for businesses that have not been in operation for more than two years. FAMU FCU has agreed to refer applications to FAMU SBDC Enrollment in Domi Gear Up /Ascend, Innovation Park SBIR/acceleration program, or any other business technical support partners required for further assistance, if deemed necessary. Finally, FAMU FCU will provide semi-annual reports to OEV to monitor loan making performance and to ensure capital is reaching black, minority, and women-owned businesses.
This new micro-lending opportunity differs from other current programs in that collateral will more than likely not be required for loans under $15,000 unless there is a specific credit risk as well as shorter timing to provide funds directly to the loan applicant. For example, a completed loan application under the Black Business Loan Program (also administered by FAMU FCU) could take up to two weeks for an applicant to receive funds. Under this micro-lending program, a completed loan application could take as little as one day for a client to receive funding due to the fact that it is a locally funded program. The program will also refer businesses to other partner organizations for technical assistance which could enable a business to continue to recover from the impacts of COVID-19, build additional capacity, and encourage growth opportunities. As mentioned previously, FAMU FCU will be administering this micro-lending opportunity with an annual commitment of $250,000 toward the administration and operations, as well as programing for financial education and counseling for loan applicants.
In order to establish the micro-lending program, this item recommends granting FAMU FCU $1.0 million in Leon CARES funding to establish a micro-lending revolving loan program. The $1.0 million is available from Constitutional Officer expenditures previously budgeted with Leon CARES funding now being paid for through FEMA (Attachment #1). When the Leon CARES program was originally established, if CARES funding supported loans, any loan repayments made after December 30, 2020 were required to be returned to the United States Treasury Department; meaning, the funds could only be loaned once and not act as a revolving program. However, recently the Federal Treasury and the State of Florida have issued revised guidance for seeking reimbursement of funding from the State. Under this new guidance, once the County receives the reimbursement from the State, the funding is no longer subject to the grant restrictions, including requiring all funding to be expended by December 30, 2020. Therefore, loan repayments made through the FAMU FCU revolving micro-lending program can continue to be utilized for new loans into the future. A detailed discussion on the revised reimbursement process is provided in the FY2020 Year Ending Budget Adjustment Agenda Item. In addition, the County Administrator will continue to update the Board weekly on Leon CARES program activity.
It is important to note that OEV and FAMU FCU have also been working with the Capital City and Big Bend Minority Chambers of Commerce regarding the structure of the program and promoting this new lending opportunity, should it be approved by the Board. Both Chambers have agreed to assist with promotion efforts on this microlending program. OEV will also provide technical assistance to FAMU FCU with branding and imaging.
Conclusion and Next Steps:
This item examined the current availability of microloans to minority and women-owned businesses, finding that business respondents express an appetite for additional capital, although numerous programs exist. Existing local financing programs include the FAMU Credit Union Black Business Loan Program, FAMU SBDC Microloan Program, NWFL BBIC/BBMC Microloan Program, and ARPC REVIVE! RLF serving minority and women-owned business loan programs. Small Business Administration loans are also made through commercial lenders and credit unions. National programs such as the Accion Microloans are available locally. Based on information obtained, this amounts to at least $2.585 million available to black, minority, and women-owned businesses through the programs described above.
Should the Board approve of the new revolving micro-lending program, it is anticipated that FAMU FCU will launch the program in early 2021. As stated previously, OEV, in cooperation with stakeholders including FAMU SBDC, Capital City, and Big Bend Minority Chambers of Commerce, is committed to promoting this new micro-lending program as well as the financial programs discussed throughout this item. Both Chambers have agreed to promote this lending option to their memberships.
FAMU FCU will also create a financial literacy program and business financial assistance for loan applicants. Technical assistance and business counseling remain important to minority and women-owned businesses. OEV is committed to organizing the infrastructure that facilitates access to capital for minority firms, as described in its Strategic Plan. OEV continues to work with stakeholders, specifically FAMU SBDC, to offer technical assistance.
OEV remains committed to the success of minority and women-owned businesses. At the December 12, 2020 IA Board meeting, an agenda item will provide a broader update on the latest initiatives and programs to support local minority and women-owned businesses with policy options for the IA Board’s consideration.
Options:
Recommendation:
Options #1, #2 and #3
Attachments: