Kelley Hughes started out her gluten-free baking business as part of small grocery shop a dozen years ago. "Gluten free – 12 years ago people weren't sure what that was," she says. As the business grew, she turned to Coastal Enterprises Inc. (CEI), a Maine-based Community Development Financial Institution and a NeighborWorks network organization, for a loan when she needed a new oven and mixer. After a fire burned down her shop and other Main Street commercial spaces, she went to the institution again, this time for counseling and advice.
"I worked with a business coach," Hughes says. "We met every few weeks and worked soup to nuts on business plan to become a full-service bakery." When she reopened her business, Wildflours Bakery, she used a loan from a traditional bank, and a smaller loan from CEI to help with the down payment. She's been baking and selling gluten-free breads, muffins, cupcakes and more, to customers, co-ops and restaurants, ever since.
Small businesses are often called the backbone of their communities. Many come into being in a traditional way: an idea, a plan, a loan from a bank. Others get their start in the communities that rely on them for jobs or services through help from small lenders, including NeighborWorks network organizations.
In rural areas, especially, it's easy to see the importance of small businesses and local lending. "When you have a population of 780,000 in the entire state, you can't have a lot of 10,000-employee factories," says Brent Ekstrom, executive director of Lewis & Clark Development Group in North Dakota. "Small businesses are extremely important and we're supporting them. That's where the growth is."
Since the early 1990s, Lewis & Clark, has assisted businesses with what Ekstrom calls "gap financing." If someone wanted to buy a grocery store, for instance, and the bank required a $50,000 down payment before they'd make a loan, Ekstrom's organization would lend the remainder. "We'd fill the gap of what they couldn't get through traditional lending," he says.
Businesses were born. Businesses grew. But when COVID-19 hit the United States this spring, with the Centers for Disease Control and Prevention recommending that people stay at home, business owners found themselves in a new situation. Some went from thousands of dollars in income to zero. Some actually grew – small town grocery stores, for instance, saw people staying close to home to shop small instead of driving to a larger store in Bismarck, Ekstrom says.
For businesses that were
They quickly distributed $300,000 with more loans in the pipeline. Now that SBA loans are coming through, that program is slowing down. Meanwhile, they've been offering technical assistance as their clients try to navigate a variety of loans and programs.
Rural Community Development Financial Institutions, or CDFIs, "have been instrumental in processing applications for Payroll Protection Program (PPP) funds from the Small Business Administration (SBA) to small businesses struggling to meet payroll during this crisis where large, traditional lenders may not exist in smaller communities or have experienced bottlenecks in processing large volumes of applications," says Sarah Kacker, the director of NeighborWorks America's Rural Initiative. "NeighborWorks member organizations directly assist with immediate, emergency capital lending and credit advising to small businesses across all of rural America."
Connecting with communities
In communities facing persistent poverty, local lending is especially important. So are community-based organizations. Five NeighborWorks organizations worked on building a roadmap recently as part of a study, "Building Assets: Strengthening Community in Low-wealth Rural Areas," supported by the Robert Woods Johnson Foundation.
Sheila Pierce, part of the cohort representing Little Dixie Community Action Agency, was looking at ways to build more of an economic base in Antlers, Oklahoma. "Over the past several years, people have moved out and a lot of stores have closed," Pierce says. But the area has natural resources, and the hope was to utilize those and to point people toward those – "things that could be utilized to attract people to the area and help them grow their business area."
Next steps for the project were paused – first by holidays, and then by COVID-19. But Little Dixie, which serves eight counties in Southeast Oklahoma, is moving forward with another project: in the next few months, they'll be working toward CDFI certification with their lending arm Southeast Oklahoma Development Corporation (SOCDC). The organization has been making loans with funding from SBA, IRP, economic development funds and other resources Pierce says. "We've been in that realm, but we know that as a CDFI, we'd be able to assist more people. It's not off the ground yet, but we know it will make an impact."
Meeting needs
The staff at Maximum Detailing, a vehicle detailer in Bismarck, North Dakota, spends its days cleaning the interiors and exteriors of cars, trucks, boats and more.
"The Bobcats bus," adds Kris Magstadt, who owns the business with her husband, Kevin.
"That's the local hockey team," Kevin Magstadt explains.
In normal times, they'd detail four or five vehicles a day, many of them from car dealerships trying to make a used vehicle look its best. "The average car takes four to five hours," Kevin Magdstadt says. "There interiors are the toughest."
But when COVID-19 hit, along with job losses and stay-at-home orders that kept people out of car lots, that part of their business screeched to a halt. "When dealers aren't selling cars, they aren't getting the trade-ins and they don't need the detailing," Kris Magstadt says. "That's 65 percent of our business."
With three full-time employees and one part-time employee, there was less work. And less income. And there was still r
They applied for the SBA's PPP program, which provides businesses funds to pay up to eight weeks of payroll costs. And they applied for a $50,000 loan through Lewis & Clark. Working with them, and with their local banker, "has been the easiest part of all of this," Kris Magstadt says.
In recent weeks, auto dealers have moved to online sales. Kevin Magstadt says things are starting to pick up. "With North Dakota start to open up, things are getting closer to normal," he says. "But not 100 percent."
Coastal Enterprises Inc. in Maine still processes loans daily ― and remotely. But the coaching and advice they offer businesses like Wildflours is increasing. "We provided that before the pandemic," says Elizabeth Rogers, chief communications officer. "Now we're in overdrive providing those same services and tracking and distilling federal relief measures for our clients."
From the CARES act and PPP loans to unemployment and health insurance benefits, "we are helping them navigate layoffs and closures and coaching them through a lot of emergency situations." Business advisors at CEI usually see 1,100 clients a year, she says. "They've had more than 2,000 sessions over the past eight weeks."
Another state with a rural economy, small businesses in Maine include natural resource businesses, famers, restaurants, aquaculture, childcare, renewable energy businesses and more. "Any business on Main Street America," Rogers says.
Each year, they lend around $18 million and they have an active portfolio of about 400 businesses. They work in close partnership with community and national banks. "We all have a role to play," Rogers says. "Typically, we work with borrowers who may not be able to work with a national bank yet due to credit history or cash flow." They build up their credit history, work with business advisors, and often move on to working with other banks. "That we consider a success."
She says the resources CEI gets from NeighborWorks America to support Maine communities "makes a big difference, not just for our rural communities but for the Maine economy."
"Small businesses are critical in every community," says Debbie Partin, senior vice president for Rural Enterprises Inc. of Oklahoma (REIOK). Last year her organization boasted $113.2 million in funded projects that put 835 people to work. Over the past few weeks, during the downturn associated with COVID, they came up with emergency grants and funding for struggling businesses.
"We've shortened our process drastically," says Partin. "Our small businesses needed the money fast. They couldn't jump through all of the hoops." Some they've processed in 24 hours.
Partin says they understand the risk is a little higher right now, but if a business needs $5,000 to cover their rent or keep the doors open, they are ready.
"We're trying to help with one to two months' worth of expenses," Partin says. "This is mainly for Main Street businesses. We're trying to fill a gap for the businesses that fall through the gap."
Businesses remain worried, she says. Their revenue has shut down. While parts of Oklahoma are opening back up, many businesses haven't been able to open the doors yet. When they get relief, she says, "they're very grateful. It provides some immediate relief."
Terms of the loan include a deferment for payment, followed by a 24-month payback, though that may be relaxed later, depending on circumstances. "We're trying to keep them from having a long-term payback for a short-term fix," Partin says.
Ekstrom is optimistic that the small businesses taking out loans will endure. "We've been working with these businesses for a long time," he says. "They were successful businesses prior to this. This is something they have to get through. I'm convinced we're not going to have a big default on it. And if we lose a little money because we tried to help a business make it, well, that is what it is."
