A New Strategic Vision for the Los Angeles Urban League
The Caltech Consulting Club Summer 2005
Anura Abeyesinghe Engagement Manager Michael Chang Wensi (Wendy) Xu Daniel Yi Associates
Prof. Preston McAfee Faculty Advisor to the Consulting Club
Contents
Contents ........................................................................................................................................... i Introduction..................................................................................................................................... 1 The New Vision .............................................................................................................................. 2 Financial Services ........................................................................................................................... 3 Summary of Recommendations: Financial Services .................................................................. 3 Action Plan: Financial Services .................................................................................................. 6 Estimated Loan Revenues......................................................................................................... 14 Real Estate Services...................................................................................................................... 16 Summary of Recommendations: Real Estate Services ............................................................. 16 Action Plan: Real Estate Services............................................................................................. 19 Estimated Finances of Select ICA Real Estate Programs......................................................... 21 Federal and Other Contract Procuring .......................................................................................... 24 Summary of Recommendations: Federal and Other Contract Procuring ................................. 24 Action Plan: Federal and Other Contract Procuring ................................................................. 25 Employee Provisioning................................................................................................................. 26 General ICA-related Recommendations ................................................................................... 26 Additional Revenue-Generating Opportunities ............................................................................ 27 Restructuring of Job Placements............................................................................................... 27 Fundraising Activities............................................................................................................... 29 Reference A: The Urban Entrepreneur Partnership ......................................................................R1 Reference B: SBA 7(a) Loans.......................................................................................................R2 SBA 7(a) loan guaranty ............................................................................................................R2 Loan Prequalification ...............................................................................................................R5 Reference C: SBA Certified Development Company (CDC) program ........................................R6 Reference D: LAUL Microloan Fund...........................................................................................R7 Reference E: Venture Capital .......................................................................................................R8 New Market Venture Capital (SBA)..........................................................................................R8 Reference F: Venture Philanthropies ............................................................................................R9 Calvert Investment Foundation.................................................................................................R9 Partners for Common Good....................................................................................................R10 New Profit Inc. ........................................................................................................................R10 Reference G: Recommendations for obtaining, financing, and using property..........................R12 Obtaining Property .................................................................................................................R12 Overview.............................................................................................................................R12 Ownership ...........................................................................................................................R12 Donation or discounted sale ...........................................................................................R12 Custody ...........................................................................................................................R13 Priority bidding...............................................................................................................R13 Co-ownership and co-development.................................................................................R13 Remainder interests ........................................................................................................R13 Non-ownership....................................................................................................................R13 Conservation easement ...................................................................................................R13 Leasing............................................................................................................................R14 Private sector purchases, discounts, and donations.......................................................R14 Conclusion ..........................................................................................................................R14 Financing of Property Acquisitions and Development...........................................................R14 i
Overview.............................................................................................................................R14 Private donations ............................................................................................................R14 Property Uses..........................................................................................................................R15 Overview.............................................................................................................................R15 Commercial.........................................................................................................................R15 Incubation centers...........................................................................................................R15 Strip Malls.......................................................................................................................R16 Wholesalers and manufacturers .....................................................................................R16 Single-store Facilities .....................................................................................................R16 Reference H: Real Estate Development Grants ..........................................................................R17 Community Development Block Grant (CDBG).....................................................................R17 Brownfields Economic Development Initiative (BEDI), , .......................................................R18 Reference I: Real Estate Development Loans ............................................................................R20 Section 108 loan......................................................................................................................R20 Los Angeles County Community Development Commission (LACCDC) ...............................R21 Reference J: Tax Subsidies .........................................................................................................R23 Community Renewal Initiative................................................................................................R23 Enterprise Zone Program, ......................................................................................................R24 Reference K: Business Incubators in Los Angeles .....................................................................R26 Athens Westmont Business Center ..........................................................................................R26 Business Enterprise Center.....................................................................................................R26 Business Technology Center of Los Angeles County..............................................................R26 Central Valley Business Incubator .........................................................................................R26 CHARO Community Development Corporation.....................................................................R27 FAME Renaissance.................................................................................................................R28 Reference L: Detailed Financial Estimates.................................................................................R30 Loans.......................................................................................................................................R30 Year 1, sample ICA real estate development ..........................................................................R30 First Year ICA Business Incubation Center............................................................................R31 Five Year Finances of ICA Incubation Center .......................................................................R31 Reference M: Contacts................................................................................................................R32 Appendix A: Residential Real Estate Services ............................................................................ A1 Residential................................................................................................................................ A1 Property Uses ....................................................................................................................... A1 Grants................................................................................................................................... A1 Government and corporate sponsorships and partnerships.................................................. A3 Appendix B: Unsuccessful Pursuits............................................................................................. A8 SBA 7(m) Microloans............................................................................................................... A8 California State Guaranty Program ........................................................................................ A9 The Entheos Company ........................................................................................................... A10
Tables
Table 1. SBA LowDoc..................................................................................................................R3 Table 2. SBAExpress ....................................................................................................................R4 Table 3. SBA Community Express...............................................................................................R4 ii
Table 4. LAUL Microloan Fund...................................................................................................R7 Table 5. List of Some Eligible and Ineligible Activities for CDBG Funds ................................R18 Table 6. Section 108 Case Studies..............................................................................................R20 Table 7. Renewal Community Benefits, .....................................................................................R23 Table 8. Empowerment Zone Benefits .......................................................................................R24 Table 9. Enterprise Zone Tax Credits and Benefits....................................................................R24 Table 10. Los Angeles Revitalization Zone Program Benefits...................................................R25 Table 11. CHARO Operating Divisions .....................................................................................R27 Table 12. Adjusted HOME Income Limits in Los Angeles as of February 2005 ....................... A2 Table 13. Adjusted HOME Rent Limits in Los Angeles as of February 2005............................ A3 Table 14. Wells Fargo Housing Foundation Funding Restrictions ............................................. A4 Table 15. Wells Fargo California Grant Proposal Checklist and Required Documents for Sponsorship............................................................................................................................ A5 Table 16. Bank of America Foundation Success Stories............................................................. A6 Table 17. California State Guaranty Program............................................................................ A10
Figures
Figure 1. Proposed services for fully developed Inner City Angels Financal Services.................. 3 Figure 2. SBA Loan Guaranty Success Story................................................................................. 5 Figure 3. Calvert Investment Notes Success Story......................................................................... 5 Figure 4. Microloan Success Story: Creating an Alter Ego.......................................................... 10 Figure 5. Angel Investor Success Story: Minority Angel Investor............................................... 12 Figure 6. Estimated Loan Revenue Projections............................................................................ 14 Figure 7. Weighted Proportion of Estimated Revenue Per Loan.................................................. 15 Figure 8. Proposed services for fully developed Inner City Angels Real Estate Services ........... 16 Figure 9. Cascade Plaza ................................................................................................................ 17 Figure 10. Vermont Slauson Shopping Center ............................................................................. 18 Figure 11. First Year Estimated Finances of ICA Real Estate Development.............................. 21 Figure 12. Estimated First Year Finances of ICA Business Incubation Center............................ 22 Figure 13. Estimated First 5 Year Finances of ICA Business Incubation Center........................ 23 Figure 14. 8(a) Success Story: Rodney Hunt................................................................................ 24 Figure 15. Job Placement Example: Project HIRED .................................................................... 28
iii
Introduction
“
To enable African Americans and other minorities to secure economic selfreliance, parity, power and civil rights through the advocacy activities and the provision of programs and services in our uniquely diversified city and region
--LAUL Mission Statement
”
Throughout its 82 year long history, the purpose of the Los Angles Urban League (LAUL) has been to secure economic opportunities and improve the quality of life of African Americans and other disadvantaged individuals in Los Angeles County and surrounding communities. To accomplish this mission, the LAUL has served over 100,000 individuals annually. However, the changing landscape of the nonprofit industry has raised many challenges to the successful operation of the LAUL. Most grants, from both the public and private sectors, do not adequately cover administrative costs and impose restrictions on their use, reducing efficiency. In most cases, such grants may not be used for intangible overhead such as long-term planning and operational improvements. These investments are critically important to growth and expansion, as demonstrated by the substantial capital that profit-oriented firms devote to them.1 Additionally, the demand for these funds outpaces their availability. As social entrepreneur and co-founder of AOL Steve Case describes, “The competition for philanthropic dollars is rising faster than the dollars themselves [ …] being trapped in perpetual supplicant mode, talented nonprofit leaders spend more and more of their time chasing money instead of changing the world.”2
The challenge lies in overcoming these obstacles while simultaneously furthering the mission of the LAUL.
In order to overcome this challenge, this report recommends diversifying the LAUL’s services by taking advantage of existing opportunities to implement a community wealth building initiative. This initiative would create wealth rather than merely redistribute it, providing
1 2
Bill Shore, Doing good by doing well. The McKinsey Quarterly, 2001 Nonprofit Anthology Steve Case, Purpose and profit go together. The Wall Street Journal, May 10, 2005.
1
sustainable improvements in the quality of life of urban Los Angelenos, while concurrently generating new, sustainable revenue sources for the LAUL’s operations. This will be a giant step for the LAUL in furthering its mission by more directly creating opportunities and securing economic self-reliance for its constituents.
The New Vision
The LAUL will form the nexus of a comprehensive community development center for urban Los Angeles, “Inner City Angels” (ICA). ICA will consist of a combination of angel investors, business and technical counseling, microloans as well as larger loans and loan services, business incubators, commercial real estate development and services, federal and other contract procurement, and employee training and human capital. These complementary services feed off and feed into each other, thereby maximizing the potential success of ICA businesses. ICA will create viable, self-sustaining businesses and individuals with livable wages and satisfying careers. This will greatly further LAUL’s mission, by more directly securing economic self-reliance for African Americans and other minorities in L.A. In the long term, the outcome will be revitalization of inner city L.A. The LAUL is the right organizer for this task. It has experience from decades of distinguished service and trusting relationships with its constituents; expertise in counseling and working closely with small business clients and employees; prestige and integrity; inner city know-how, influence, and knowledge; the support of community leaders and knowledgeable citizens, some of whom are part of the LAUL; and extensive contacts and influence, which will be crucial when pulling resources together to organize this task. ICA’s goal will be attained by leveraging this core competency and bringing together a variety of existing resources, as described in detail in this report.
In order to be successful, all the above pieces must be fully developed and utilized together. Initially when all the resources have not yet been assembled to provide the full extent of these services, ICA should partner with other institutions that provide complementary services.
2
Financial Services
Inner City Angels Business Financial Services
LAUL
Microloans Other loans Business Incubation Angel Investment Technical Assistance
Inner City Angels
Board
Managers
Business Finance
Complements Commercial Real Estate | Employment Services | Procurement Assistance Specialized Services and Benefits
•LAUL
microloans short term
• Favorable
• Low interest, •
Complimentary business counseling review
relationships with private lenders for 7(a) loans interest 504 loans
• Office space • Technical
equipment
• High-level
mentorship
initial investment
• Loan
review
packaging
• Low rate, fixed • State- and
• Receptionist • Other shared
facilities
• Continuous • Profit-sharing • Risk-sharing
• Business plan • Individual
counseling education
• Business plan • Loan prequalification
SBA-guaranteed loans
• Financing • Counseling
• Financial • Mentorship • Employee •Tax and
accounting
and technical assistance
management
Figure 1. Proposed services for fully developed Inner City Angels Financal Services
Recommendations: Financial Services
Establish angel investment program by identifying angel investors and start-up businesses. Provide comprehensive business and technical advice, through angel investors and other successful local businesspeople, facilitated by having on-site staff from agencies such as SCORE and MBDA, and forming working relationships with agencies such as Operation Hope, SBDCs and MBDCs. According to phone conversations with several microlenders, technical assistance is crucial for reducing loan default rates to as low as 5%. Seek out successful local entrepreneurs and other community businesspeople that could be engaged to help out new entrepreneurs. Implement web-based virtual community to access valuable advice and help through LAUL Board members and YPs. Apply with the SBA to become a pre-qualification intermediary. 3
Apply for Community Development Financial Institution certification with the U.S. Department of the Treasury. Apply for community development—oriented grants and loans from banks, charitable organizations, and government sources. Funds can be used to establish the revolving-fund loan, purchase real estate, train employees, give technical assistance, etc., depending on individual fund restrictions. Other microlenders started their programs with similar funds. Partner with local banks that offer 7(a) loans to refer clients to them. Banks pay a fee for referral of pre-screened clients and LAUL’s continuous business counseling for these clients. Initial candidate banks would include those that have existing relationships with the LAUL, such as banks that are represented on the LAUL Board of Directors. This serves to give the LAUL indirect lending experience in a low-risk environment, as the LAUL is not lending out its own money. Establish a LAUL microloan fund, consisting of general funds (from grants, loans, etc.) that can be given out in microloan portions of less than $35,000. In conjunction with the loans, the LAUL must offer pre- and post-loan business counseling to borrowers to minimize the risk of default. Apply lending experience gained by working with 7(a) lenders to these microloans. Apply to become a Certified Development Company, in order to offer 504 loans from the SBA. Establish business incubator program after obtaining appropriate commercial real estate and information technology equipment, developing lending experience, and offering business counseling. All specific sub-programs must be successful and merge effectively to form a viable business incubator program. If demand for business services is high (i.e. a lot of new small businesses are forming and becoming successful), consider going into venture capital through SBA’s New Market Venture Capital program. Obtain starting funds from investors like Calvert and private banks.
4
SBA-guarantied loan through PACE helps a small business grow
In 1996, A. L. founded a company devoted to the design and manufacture of high-end women's apparel. Her clients were mainly celebrities and models. When she first came to PACE BDC, her company's average sales were approximately $150,000, with 2 full time employees. Her main problem was that she did not have enough cash flow to purchase the raw materials she needed to manufacture her products. To rectify this problem, two PACE Business Development Center business counselors packaged and placed a $55,000 SBA-guarantied loan for working capital and to purchase inventory. Within one year, her company tripled its sales volume, and her products have been featured in national fashion magazines such as Vogue, Cosmopolitan, Los Angeles Times Magazine, Glamour, and Seventeen. Her celebrity clients include Ellen Barkin, Meg Ryan, Liv Tyler, Tori Spelling, Sigourney Weaver and Winona Ryder. With the proceeds from the SBA loan, the company was able to extend the lines of her products to include fashion accessories as well as her famous apparel designs. She now employs 12 full and part-time employees and her company is averaging sales of $550,000/yr.
Figure 2. SBA Loan Guaranty Success Story3
Calvert notes help an inner city nonprofit in New York develop a community wealth building enterprise
With the help of Calvert Foundation’s below-market-rate fixed loans, the Greyston Foundation was able to secure the funds to fully construct a bakery in a blighted section of town. The Greyston bakery now serves as a profitable venture for the Greyston Foundation, while serving the community by providing jobs to disadvantaged and chronically unemployed residents of the area.
Figure 3. Calvert Investment Notes Success Story4
3 4
http://www.pacela.org/bdc/success_stories.shtml http://www.calvertfoundation.org/profile.cgi?sfProfileId=17;sfProfileType=story;storyid=218
5
Action Plan: Financial Services
Please see “Reference M” for complete contact information of agencies and programs listed here. I. Acquire loan-related and business-related talent for the LAUL through training existing employees or hiring new employees. a. Train existing employees with business backgrounds, such as alumni of the Ron Brown Business Center, in small business lending practices. i. Obtain training through Association for Enterprise Opportunity, which offers literature and conferences on microenterprise development. ii. Explore training opportunities through SBA-related facilities, such as the Small Business Development Center. Contact the local SBA for opportunities. iii. Explore training opportunities through banks, especially 7(a) partner banks (see section III.a below). iv. Explore training opportunities funded by CDFI Technical Assistance grants (see II.a.ii below). b. Hire new employees with experience in small business lending. Best candidates would have extensive background in: i. Microloans (SBA and other) ii. Giving technical assistance to small businesses (examples of technical assistance given in section V below) iii. Working with banks on small business loans II. Offer microlending services (less than $35,000) to small businesses through LAUL's own microloan fund. a. Seed money to establish microloan fund and provide necessary technical assistance can be obtained through a competitive application process from a variety of agencies. i. Contact National Urban League (NUL) office to look into becoming a one-stop economic empowerment center under the Urban Entrepreneur Partnership (UEP), which gives LAUL access to the Stonehenge Capital/ National Urban League (NUL) $127.5 million Empowerment Fund. (See Reference A for details of this program). ii. Apply for Community Development Financial Institution (CDFI) certification with the U.S. Department of Treasury. The application can be found online, and must be submitted by U.S. mail.5 CDFI certification will make it easier for LAUL to obtain funds from all sources. The CDFI Fund itself offers a variety of funds, the most pertinent of which are
5
http://www.cdfifund.gov/programs/programs.asp?programID=6
6
Technical Assistance (TA) grants of roughly $50,000, which can be used for training employees in lending practices. Applications for TA grants are accepted annually in January, and can be found on the CDFI website. CDFI certification can only be obtained if LAUL satisfies the following criteria: One of its primary missions is community development. It is a financing entity. It has a target market. It provides development services (e.g. loan counseling) along with financing services. 5. It maintains accountability to its target market. 6. It is not a government entity and it is not controlled by any government entities. iii. Venture philanthropies and charitable foundations 1. Contact Calvert Foundation a. Prepare audited financial statements of past three years b. Send letter of inquiry with detailed description of fund usage (e.g. real estate development, loan programs, etc.) to Calvert Foundation 2. Contact Partners for Common Good a. Prepare audited financial statements of past three years b. Send letter of inquiry with detailed description of loan usage (e.g. for development of new job restructuring, real estate development, loan program development, etc.) to PCG. 3. Contact F.B Heron Foundation a. Write a 1-2 page letter of inquiry to the Foundation, including the following information: i. Background information on the LAUL (mission, contact information, governance, nonprofit status) ii. Information about LAUL’s services, clients, accomplishments, and future objectives iii. Financial information, such as organizational budget, other grants, and the details of the requested funding (how much, for how long, grant or investment) b. F.B. Heron staff will be in contact within a week to notify LAUL if application will be further reviewed or declined. Program managers will continuously be in contact, and 7 1. 2. 3. 4.
final decisions will be made within 4 months of application receipt. 4. Contact New Profit Inc. a. Application can be found online.6 i. Prepare same information as required by F.B. Heron Foundation’s application ii. Prepare information on how LAUL/ICA is effective in: 1. Providing high social impact 2. Social entrepreneurship 3. Demonstrating previous performance 4. Capacity for growth 5. New Profit “Fit” (see Reference F) iv. Many banks give grants or low-interest loans to nonprofits for the purpose of community development. Some examples follow; however, LAUL should continuously search for other similar bank programs. Once again, it may be best to start with banks that are represented on the LAUL Board of Directors. 1. Wells Fargo offers grants for a variety of purposes, one of which is community revitalization and stabilization. It is recommended that applications be submitted early in the year, but there are no formal deadlines. Complete applications should address the following, and be submitted by mail: a. How will the grant help the low- and moderate-income population? What percentage of this population will be served? b. In less than five pages, explain what the LAUL does, whom it serves, what its history is, and what its major accomplishments are. Also, describe the specific program (e.g. microlending) that the grant would be used for, how much is requested, and the expected outcomes. Include all contact information. c. Include proof of nonprofit status and Federal Tax I.D. number. d. Annual operating budget. e. Most recent financial statement. f. Projected budget of project (e.g. microlending) g. List of Board of Directors. h. List of major funding sources and funding level of support.
6
http://www.newprofit.com/documents/NewProfitStatementOfInterestForm.pdf
8
2. Although Washington Mutual specifies that it supports financial lending intermediaries that target low and moderate income communities, specific terms of this support is not directly available. It is suggested that the LAUL approach Washington Mutual directly through the Board of Directors or high level managers. 3. US Bancorp offers grants and other support for nonprofits that promote the creation of economic opportunity. The grant application can be found online, and must be submitted to a regional office.7 Deadline was May 16 in 2005. 4. Union Bank of California makes grants to support nonprofits in providing technical assistance and business counseling, but does not provide general operational assistance. Applications are turned into the local office, and should include: a. b. c. d. e. f. Mission statement Description of programs to accomplish mission List of Board of Directors Current budget and previous budgets Audited financial statement List of current contributors and giving levels
5. Bank of America offers funding through low-interest loans to CDFIs and grants to support community development. LAUL must first complete and online quiz before applying.8 v. Specific recommended terms of borrowing, including loan amounts, interest rates, loan terms, are listed in “Reference D.” vi. LAUL should provide technical assistance and business counseling to borrowers to maximize the borrowers' rate of success and minimize the chance of loan defaulting. Suggested services are described in section V.
7 8
http://www.usbank.com/about/community_relations/pdf/May2005USBancorpGrantApplication.pdf
http://www.cybergrants.com/cybergrants/plsql/ao_gs_user.form?x_gm_id=1499&x_section_id=4509&x_quiz_surve y_id=2142
9
Creating an Alter Ego
Marlene Ramirez was a Colombian refugee trying to support herself by working several menial jobs. Three years ago, the skilled seamstress developed an idea for creating a clothing alterations business, and looked for small business loans from several banks. Because of her short employment history and low credit rating, all banks turned down her loan application. However, she was able to receive a microloan of $5,200 from Accion USA, a nonprofit organization that provides small business loans to economically disadvantaged persons. With these initial funds, Marlene purchased necessary supplies and sewing machines to start her business, Alter Ego. Alter Ego has now been in operation in Coral Gables, Florida, since late 2004, improving people’s self-confidence through clothing alterations. Marlene explains, “A customer will come in and say, ‘I feel a little fat,’ and I'll tell them, ‘We'll just bring your dress in here, lengthen it there and you'll look great.’ I've always thought this job is about helping people transform.”
Figure 4. Microloan Success Story: Creating an Alter Ego9
III.
Offer other lending services (greater than $35,000) to small businesses a. SBA 7(a) loans / loan prequalification i. Apply with the local SBA office to become a prequalification intermediary for 7(a) loans. ii. Determine local partner banks for 7(a) loans. Candidate banks must already offer 7(a) loans. It may be best to start with banks that have existing relationships with the LAUL, such as those represented on the LAUL Board of Directors. This includes: 1. 2. 3. 4. 5. Wells Fargo Union Bank of California US Bank California Bank of America Washington Mutual
iii. Work out partnership details with partner banks:
9
http://www.accionusa.org/inthenews.asp
10
1. LAUL will offer loan prequalification services (loan packaging, review, etc) before loan closing, and regular business counseling plus technical assistance after loan closing to the borrower. 2. LAUL will refer SBA prequalified borrowers to partner banks for 7(a) loans. 3. Partner banks will pay fees in exchange for LAUL referring prequalified borrowers and providing technical assistance to borrowers, which minimizes risk of loan default. b. Certified Development Company (504 loans) i. Apply with the local SBA office to become a Certified Development Company in order to give out SBA 504 loans. It is important to highlight how LAUL’s services are not redundant with those of existing CDCs in the Los Angeles area, especially in that it focuses on minorities in the inner city. Requirements to become a CDC include: 1. Operating budget must be approved by CDC’s Board of Directors. 2. CDC must not specialize in an industry, but maintain a diverse business portfolio. 3. A public notice must be submitted to a general circulation newspaper announcing the application, giving the public at least 30 days to respond. Notice must include CDC’s name and location, purpose and Area of Operations, and contact information for its directors. A copy must be sent to the local SBA office. ii. CDC must satisfy requirements regarding membership, staff, and Board of Directors (See Reference C). IV. Angel investment a. Identify potential angel investors and encourage them to invest in start-up small businesses. It may be good to start within the LAUL-YP, and expand from that. The ideal angel investor would have extensive capital, business and leadership experience, specific inner city business experience, and a desire for mentoring start-ups, thereby contributing to microenterprise in the inner city. b. Angel investors would provide funding for the businesses they support, in return for a stake in the business. They would also provide extensive mentorship for the business. Angel investors will not only receive monetary returns for their investment, but will also be able to enjoy personal satisfaction for helping inner city businesses become successful. c. ICA would help with general business counseling and technical assistance. Where applicable, it may also assist in locating real estate and referring employees for the business.
11
Minority Angel Investor
William Mays, successful businessman and founder of the Mays Chemical Company, invests in minority-owned businesses in Indiana. He sees angel investment as more than just a source of capital, pointing to the importance of new minority entrepreneurs learning from the experience of established minority entrepreneurs. Anticipating that some clients may feel intimidated during meetings, he sometimes holds meetings in the sauna. He explains, “I want them to relax so they feel comfortable telling me the bad news.”
Figure 5. Angel Investor Success Story: Minority Angel Investor10
V.
Mentorship, business counseling, and technical assistance a. The LAUL will provide technical advice in association with its other business lending and incubation programs. Similar services were provided by current LAUL employees while staffed at the Ron Brown Business Center. Specific examples include: i. ii. iii. iv. v. vi. Tax and accounting counseling Working capital calculation Human resources assistance Pricing Business plan drafting Loan packaging and review
b. Additionally, angel investors or the LAUL staff will provide mentoring and counseling tailored to the particular business, such as how to navigate a specific industry or motivational and moral support. VI. Venture capital a. Venture capital is different from angel investment in that a slew of organizations, not individuals, will invest in a venture capital fund, which in turn heavily invests in start-ups which are already off the ground (as opposed to angel investing, which has more altruistic elements to it). SBA, banks, and charitable organizations like F.B. Heron are the most promising source of funds for venture capital. b. Enter venture capital if the need arises. (E.g., ICA becomes too profitable to remain a nonprofit).
10
http://www.businesspartners.com/index.cfm?action=free&drill=angel_story&profID=0
12
c. Apply to become a SBA New Market Venture Capital Company after applications are accepted again (check with the SBA).
13
Estimated Loan Revenues
The following chart displays the revenue that can be generated from loans, either through fees or accrued interest. As a loan intermediary, ICA can help generate revenue through these loans to help cover operational costs of this and other programs. The average amounts per loan and the calculations of the per loan revenues are given at the end of this section. Figure 6. Estimated Loan Revenue Projections (see Reference L)
Revenue Generated per Loan*
$2,000 $300 $700 $500 $750 $1,694 7(a) Loan Low Doc SBA Express Community Express CA State Loan LAUL Microloan 504 Loan
$19,107
*Note that although the 504 loan will generate more revenue per loan by a substantial amount compared to other loans, there will be far fewer of these loans given out per year due to their larger amount.
14
Figure 7. Weighted Proportion of Estimated Revenue Per Loan (see Reference L)
Proportionate Revenue per Loan (weighted)
19%
8%
4% 4% 3% 7% 7(a) Loan Low Doc SBA Express Community Express CA State Loan LAUL Microloan 504 Loan
55%
To take into account the fact that smaller loan amounts will be made much more frequently than the larger ones, the above pie chart weights each loan amount by the expected frequency with which they will be given out.
15
Real Estate Services
Inner City Angels Real Estate Services
Strip Malls Incubation Centers Single Storefronts Wholesale Manufacturing Core Services ▪ Mentorship ▪ Periodic evaluations Specialized Services and Benefits
LAUL
Inner City Angels
Board
Managers
Commercial Real Estate
▪ Flexible financing
▪ Technical training
• attraction of
large groups as a public area scale in advertisement and utilities
• economies of
• waiting area • receptionist • lobby • conference
room
• affiliate at
to-own
satellite location
• affiliate at
to-own
satellite location
• affiliate at
to-own
satellite location
• potential rent-
• potential rentto major roads
• potential rentto major roads
• close proximity • close proximity
• Business plan
application and review compliance
• Guidelines
• Internet • telephone • fax • kitchen • copiers • printers • computer lab
Figure 8. Proposed services for fully developed Inner City Angels Real Estate Services
Recommendations: Real Estate Services
Open a dialogue with high-ranking City officials with regards to obtaining − property in areas of urban blight, particularly foreclosed properties, for free or at very low costs; − a portion of the L.A. City CDBG allotment for development of commercial centers; − and Section 108 loans and BEDI grants. Respond to the call from the L.A. City Attorney’s office for developers in its American Dream Program to rehabilitate distressed properties Respond to the call from L.A. Housing Department to participate in the City Surplus Property Program Apply for community revitalization grants from commercial entities and their subsidiaries, such as the Bank of America Charitable Foundation and the Wells Fargo Foundation for the Los Angeles Metro Region 16
Form partnerships with developers and construction firms interested in community development or who are new or struggling businesses with whom cooperation would be mutually beneficial, such as ICA client construction firms With the support of City officials, develop and solidify plans for incubation centers and strip malls in underserved neighborhoods Appoint culturally- and economically-aware managers to oversee the development of businesses operating within ICA-owned properties Obtain and fund property through Federal, City, and private programs (see Reference G: Recommendations for obtaining, financing, and using property) Utilize property to maximize benefits for starting and struggling businesses as well as for the community (see Reference G: Recommendations for obtaining, financing, and using property) Obtain donations of goods and services from corporations and organizations aligned with the goals of the LAUL11
Cascade Plaza
Oregon Association of Minority Entrepreneurs (OAME)
Begun as a donated warehouse and rehabilitated through the aid of construction firms aided in the past by the OAME, the 40,000 sq. ft. Cascade Plaza demonstrates the potential success of a business incubator. Operating at 75% capacity, Cascade Plaza provides competitive rent, a number of conference rooms, a restaurant which also provides catering, secretarial and administrative services, and onsite data and communications services and equipment.
Figure 9. Cascade Plaza12
11
“In-Kind Donations for Nonprofits.” McKinsey Quarterly, 2003 Number 4
17
Vermont Slauson Shopping Center
The ability of a nonprofit organization to plan, construct, and manage a large commercial development is successfully demonstrated by the Vermont Slauson Shopping Center (VSSC)). The VSSC is a 175,000 square foot shopping center developed in 1981 on a 10.5-acre site. This project was a joint venture between VSEDC and a private developer, with funding from private lenders, UDAG and CDBG funds, and EDA monies, among others. It created 450 permanent jobs for lowincome residents and career opportunities for the community it serves, as the VSEDC had each major tenant sign a First Source Hiring Agreement. While the facilities are located in the middle of the 1992 civil disturbance area, it was untouched during that time period.
Figure 10. Vermont Slauson Shopping Center13
12 13
http://www.oame.org/oame%20cascade%20plaza.htm http://www.vsedc.org/CD.htm
18
Action Plan: Real Estate Services
1. Lobby with City officials to acquire foreclosed, seized, nuisance, and surplus properties. 2. Apply to the following programs a. LAHD City Surplus Property Program; contact Sergio Tejadilla for more information (see Reference M: Contacts)14, 15 b. American Dream Program. i. The program will be officially open again for Request For Qualifications (RFQ) in a few months, but an application could be made at any time.16, 17 What needs to be communicated in the RFQ is a statement of purpose for obtaining the property, the relevance of experience of principal staff, financial capability and demonstrated experience. ii. The ADP is currently looking at 50-100 parcels of land in L.A. County, mostly centered around South-East L.A. The land will not be obtained for free. A price will have to be negotiated with the current owners, and the nuisance abatement liens could be reduced or waived. (See Reference M: Contacts for Veronica Perez at the City Attorney’s Office).18 c. CDBG (L.A. City), Section 108 loans, BEDI grants i. Contact high-ranking City officials and those in charge of CDBG. Depending on how much political leverage the LAUL has with the various levels of City government, it should contact one or more of the following: 1. Mayor Villaraigosa 2. Clifford W. Graves, General Manager (LACDD) 3. Laura Ito, Director of Administrative Services and Neighborhood Development (LACDD) 4. Greg Woo, Grants Administration Supervisor of Grants Administration/Neighbor 5. Cliff Weiss, Deputy Director of Economic Development (LACDD) II. Apply for private grants and loans a. Bank of America Charitable Foundation i. Communicate that ICA will be based and serve communities in the areas where Bank of America currently does business in the United States ii. Complete the eligibility quiz19 b. Wells Fargo, California
14 15
Referred by Veronica Perez, Managing City Attorney, American Dream Program Ibid. 16 Phone conversation with Veronica Perez, referred to by Justin Sanders-President of LAUL-YP 17 The RFQ can be found at http://www.ci.la.ca.us/atty/atyrf1.htm 18 Referred to by Justin Sanders, President of LAUL-YP 19 The Eligibility Quiz may be found at http://www.bankofamerica.com/foundation/index.cfm?template=fd_grant_application_bofa
19
See details on Financial Services Action Plan III. Form partnerships with developers and construction firms a. Utilize connections and seek potential partnerships with firms that i. wish to help community revitalization at reduced cost ii. are new or struggling businesses from which cooperation would be mutually beneficial, such as ICA client construction firms Develop incubation centers in underserved neighborhoods a. Hire managers to oversee development of new and struggling businesses b. Lease office spaces to businesses in the area c. Provide office facilities (e.g., conference room, communications equipment) d. Provide office services (e.g., general receptionist, high-speed Internet access) e. Provide counseling i. Financial ii. Legal iii. Strategic f. Perform periodic financial evaluations of businesses Develop strip malls in underserved neighborhoods a. Lease spaces to retailers, restaurants, and service providers in the area b. Provide flexible financing i. Standard rent ii. Equity stake in the business
IV.
V.
20
Estimated Finances of Select ICA Real Estate Programs
The following chart describes the costs and revenues associated with the first year of a sample ICA commercial real estate project. Suppose ICA can secure a $300,000 loan from one of the various seed money sources described in the report, e.g., CDBG Grants, Calvert Investment Loans, or Section 108 Loans. Properties in Los Angeles can be purchased at an average of $2/sq. ft and developed at an average cost of $30/sq. ft. Suppose a 7500 sq. ft. lot is purchased. Once the property is established, a business, (e.g., a small retail store), can rent the property at $3/month/sq ft. (or larger). The loan is paid back along with the interest (a rate of say 4%). This leaves ICA with positive net assets in the first year. The finances of subsequent years would include calculations of property maintenance but exclude costs of property acquisition and development, thus making the net revenue larger. Figure 11. First Year Estimated Finances of ICA Real Estate Development (see Reference L)
First Year Finances of ICA Real Estate Development
350000 300000 250000 200000 $ 150000 100000 50000 0 $23,500 `
nt
pi ta l
m en t
t io n
Re
en t
es t
er
Re pa ym
Ca
si
ar ly
lo p
Ac qu i
In t
ev e
Lo an
tin
Ye
St ar
y
D
ICA Business Incubation Centers
Suppose ICA can secure a $300,000 loan from one of the various money sources described in the report, e.g., CDBG Grants, Calvert Investment Loans, or Section 108 Loans. Properties in Los Angeles can be purchased at an average of $2/sq. ft and developed at an average cost of $30/sq. ft. Suppose a 6000 sq. ft. lot is purchased. Once the property is established, numerous start up businesses can enter and use the facilities. Cubicles and suites will be rented out at different rates. Participating businesses will also pay membership costs for services and consulting. Monthly workshops will also be held for businesses both in and out of the incubation program. The loan is paid back along with the interest (a rate of say 4%). The finances of subsequent years would not include payments for land development and positive net assets should therefore be achievable (see next example). 21
Pr o
La nd
pe
Lo an
rt
N
et R
g
ev
en
ue
Figure 12. Estimated First Year Finances of ICA Business Incubation Center (see Reference L)
First Year ICA Business Incubation Center
$350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 ($50,000) Land Development Total rent from cubicles Membership costs Total rent from suites Loan Repayment Workshops Starting Capital Loan Interest Payments Property Acquisition First Year Loss -45800 $
Despite an estimated net loss, note that the major cost in the first year comes from land development, which is fixed, and will not be incurred every year.
22
The following chart describes the projected financial details of the first five years of a small sample ICA Business Incubation Center. Also note that the incubation center modeled in this example and the previous one started with a small 6000 sq. ft. unit. The center certainly can grow much larger as ICA’s business mentorship capabilities grow and evolve. Figure 13. Estimated First 5 Year Finances of ICA Business Incubation Center (see Reference L)
First 5 Years of ICA Business Incubation Center
$700,000 $600,000 $500,000 $400,000 $ $300,000 $200,000 $100,000 $0
bi cl tf es ro M m em su be ite rs s hi p co st W s or ks Lo ho an Lo ps an Re pa In te ym re Fi en st ve t Pa Ye ym ar en Ne ts tR ev en ue pi ta l n is iti o m en t
$306,500
Ca
qu
op en
g
t in
Ac
tf ro m
De v
ar
y
el
St
Pr op e
nd
La
Note, these calculations assume that all of the costs of property acquisition and development are funded by a loan. However, CDBG, bank, and charitable foundation grants can be used to cover some developmental costs, greatly reducing these first year costs.
To ta
To ta
lr
lr
en
rt
cu
23
Federal and Other Contract Procuring
Recommendations: Federal and Other Contract Procuring
ICA will provide information to its clients on applying for HUBZone20 certification, help prepare HUBZone Certification applications, and help with marketing their products and services to the appropriate federal agencies working with the appropriate Procurement Center Representatives.21 ICA will work with clients to help them enter the SBA’s 8(a) Business Development Program which helps socially and economically disadvantaged businesses gain access to federal and other contracts22 Become an SBA 7(j) grantee to provide technical and management assistance to SBA 8(a) certified small businesses
It is noted that it is possible for a small business to be certified both as a HUBZone and an 8(a) business and receive benefits from both programs.23
8(a) certification leads to a spectacular success story
Rodney Hunt’s Virginia based company, RSIS, started out with a $5000 SBA 8(a) contract in 1992. RSIS graduated from 8(a) status in 2002, and was making $260 million dollars in annual revenue and employing over 2000 people by 2003.
Figure 14. 8(a) Success Story: Rodney Hunt
20 21
http://www.sba.gov/hubzone/ http://www.sba.gov/hotlist/procure.html 22 http://www.sba.gov/8abd/ 23 https://eweb1.sba.gov/hubzone/internet/general/faqs.cfm
24
Action Plan: Federal and Other Contract Procuring
I. Seek 7(j) grants to help disadvantaged businesses secure federal contract opportunities. a. To begin the process for applying for a 7(j) grant: i. ICA should have a specific business in mind when applying for a grant. This business must be an SBA certified 8(a) small, disadvantaged business. ii. The LAUL and business must propose to bid for a federal government contract that is available on http://www.fedbizopps.gov, an online list of current federal contract opportunities. 1. If the LAUL and the target business wish to make a bid for an unsolicited proposal (i.e., a proposal not on advertised on the fedbizopps.gov website), an unsolicited award proposal must be submitted for approval.24 2. Applications for unsolicited 7(j) grants must include:25 a. Basic information—name, telephone numbers, etc. b. A cost proposal found on the website c. A technical proposal which consists of: i. Project objectives ii. Project methodology iii. Management plan b. Once a business and project is identified, contact the local SBA district office for grant submission. (See Reference M: Contacts for SBA Los Angeles District Office).
24 25
Unsolicited proposal guidelines, http://www.sba.gov/gcbd/7j.html#UnsolicitedProposal See http://www.sba.gov/gcbd/7j.html for more application details
25
Employee Provisioning
JOB CORP and other ICA trained employees for ICA’s businesses will be provided through LAUL’s restructured Job Placement program.
General ICA-related Recommendations
We recommend the implementation of Inner City Angels, a wholly owned, nonprofit 501(c)(3) subsidiary26 of LAUL, to provide focus, circumvent the problem of providing financial records of net increasing assets, and be more attractive to investors. 27 Encourage businesses to invest in the community. For example, Dollar General, a low-end retail chain, has in-store literacy programs.28 To facilitate the growth of these programs, we recommend that the LAUL work with the City of Los Angeles and the LAPD to serve as a central figure in safety and neighborhood planning once ICA is operating successfully.29 Apply to become the L.A. Job Corp Center Operator, which will provide a steady stream of skilled employees for ICA businesses and for the restructured job placement program.30 We do not recommend the provision of residential real estate services in Los Angeles at the present time (see Appendix A). We are of the opinion that it would be a distraction to the operation of ICA, which would more directly provide economic self-reliance to constituents in line with the mission of the LAUL. We feel that jobs come first in the quest for economic self-reliance. For example, empowered with a livable wage job an individual could afford a regular mortgage or afford to renovate his/her own home, instead of receiving special mortgages or subsidies. Help businesses utilize the variety of economic incentives and tax credits offered by EC/EZ zones, LARZ zones, and Community Renewal Zones (See Reference J: Tax Subsidies)
26 27
http://www.t-tlaw.com/bus-04.htm According to a Calvert Foundation representative, one of the key selection criteria for entering Calvert Portfolio Investments is having positive net financial assets in recent years. If the LAUL cannot apply for Calvert loans for this reason, ICA as an independent subsidiary may be able to secure those loans a couple of years later by having positive net assets itself, even if the LAUL continues to run negative net assets. 28 As described by Prof. McAfee, whose wife worked for Dollar General. 29 We note the feasibility of this given the recent appointment of Mr. John Mack as the head of the Police Commission 30 http://www.doleta.gov/jobcorps/RFP_center.cfm?center=167
26
Additional Revenue-Generating Opportunities
Independent of ICA, we also recommend the restructuring of the job placement program as an immediately available and more direct means for an additional source of revenue for the LAUL and to redefine and increase the value provided by the LAUL to the private sector.
Restructuring of Job Placements
The LAUL currently places over 1000 individuals in jobs every year through its three WorkSource Centers and the Employment Services Division. Employers receive tremendous value from this program: They are assured reliable employees; pre-screened, counseled, assessed, and in some cases trained by the LAUL. Their hiring process is streamlined. They receive several large and overlapping tax credits for around 50% of the employees they hire through the LAUL. 31 (See Reference G for more details) By providing jobs to socially and economically disadvantaged individuals they satisfy corporate social responsibility, public image needs, and internal diversity requirements. Given the tremendous value they receive and the need for immediate additional revenue sources for continued effective operations of the LAUL, we recommend restructuring this program in order to receive revenue from the corporate employers, while at the same time providing even more value to them(as described later). The introduction of referral fees poses some challenges: 1. Some of the current corporate employers make donations to the LAUL in appreciation of the service they receive. They may prefer this to paying per-employee referral fees, since they receive tax deductions on the donations (as opposed to the referral fees) and also promote their public image through the donations. 2. The LAUL will then be competing with other fee-based Job Placement agencies. To address (2) we recommend starting off with modest fees, to see what the market can bear. However, we do not anticipate a mass exodus of employers to competitors, since the LAUL provides value that the competitors cannot match-the ability to work very closely with their constituent clients. To circumvent (1) we recommend the following restructuring: Per-employee referral fees will be charged only to the employers that make minor donations/hire few employees. The major donators/employers will pay a sponsorship fee (indistinguishable from a donation for all intents and purposes) to enter into the program. The fee to enter the program, instead of being rigidly structured, would be worked out by discussions with the LAUL. In return, in addition to unlimited and priority access to the program (as opposed to the
31
Interviews with staff at LAUL WorkSource Centers
27
small employers who pay per-employee referral fees) they will be appointed to the Board or receive membership to a body that will govern the job placement program. This will give the large employers/large donors the ability to tailor the selection and/or training of employees to satisfy their needs. Employers that fall in between these ranges could be charged larger referral fees to incentivize them to become a program sponsor. They could also be encouraged to sponsor individual training programs which will afford them brand advertisement (similar to the Toyota Auto Training Center). It appears possible to implement this restructuring at the WorkSource centers. A new accounting procedure known as “leveraged resources” requires reporting of any revenue generated from the centers. However, apart from this reporting, it appears that there will not be any issues with the Department of Labor that provides the grant and contract for operating these centers.32 In addition, this could be implemented at the independent LAUL Employment Services Division. Apply to become the L.A. Job Corp Center operator when the contract renews on April 30, 2008. This would greatly enhance this program, by providing a steady stream of job-ready applicants for placement. Before that time, apply to subcontract with the YWCA, the current operator.
Project HIRED
Project Hired is a nonprofit organization that performs job placements for people with disabilities. The organization screens, trains, and retains the people they serve. The corporations pay them directly and they pay the employees, while charging a 35% markup. That is, the average salary paid to one of their employees is $10.50/hr, but the employer will pay Project HIRED $15/hr, they keep $4.50/hr and pay the employee $10.50/hr. Some companies prefer to make donations instead of paying a marked up salary, but Project HIRED circumvents this by selling themselves as an employment service provider rather than a nonprofit. Some companies make donations and also pay the marked up salaries.
Figure 15. Job Placement Example: Project HIRED33
32 33
As informed by a senior management official at LAUL Phone interview with Project HIRED employee
28
Fundraising Activities
We recommend that the LAUL implement a user-friendly online donation service. A simple interface that allows a web user to insert his or her name and credit card information can be useful in increasing the LAUL’s donation receiving capabilities. We recommend the use of Network for Good online donations, which is used by the Houston UL.34 Large member gatherings at different times of the year may provide the LAUL with new revenue streams. For example, the LAUL has plans to revitalize the Golf Classic, removing its cannibalism with the Whitney Young Dinner. Membership drives and fundraising campaigns have the dual effect of increasing the LAUL presence in the L.A. community as well as providing another opportunity for members and outside philanthropists to donate money. One activity that seems particularly successful in other large nonprofits is the silent auction. We recommend the use of cMarket auction services for this purpose.35 Corporations and small businesses who wish to contribute to the LAUL’s efforts can provide items to be sold in auctions—gift certificates, restaurant coupons, and corporate products are popular such items.36 The incentives for businesses to participate are corporate social responsibility, public relations, and for employees to take satisfaction in working for a good cause. From our research of other organizations’ successful fundraising activities, it seems that an important aspect of all of these activities is that the solicitation of as much corporate sponsorship is an integral part of maintaining their effectiveness in fund generation. The LAUL should develop and advertise membership benefits. Some possibilities include discounts at Magic Johnson’s Starbucks and other corporate sponsors’ stores, discounts at the Whitney Young Dinner, and priority access to Inner City Angels’ services. The LAUL should provide its members with a quarterly newsletter. The LAUL can derive great value and utility from a newsletter: ad-space can be sold to corporations who wish to support the LAUL, members can be made aware of the LAUL’s activities and reminded when the LAUL gatherings and fundraisers are coming up, and issues can be distributed to non-LAUL members who may then become members themselves. The newsletters can also be a tool to educate corporations and businesses of the LAUL’s activities so as to attract their sponsorship. During the production of this report, the LAUL has begun providing some planned giving services. Examples of such services include Charitable Gift Annuities (CGAs) and Charitable Remainder Trusts (CRTs). CGAs and CRTs work similarly in that a philanthropist donates a specified amount to the LAUL and receives a percentage of it back every year until he or she passes away. The LAUL would then keep what is left of the annuity or trust for its own use. While the CGA trust money can be spent immediately, the money left by a CRT is only available once the donor passes away. Some of the LAUL’s older and more affluent members would be excellent candidates for such donations.
34 35
http://www.networkforgood.org/npo/ http://www.cmarket.com/partner/nfg/?s=nfg&q=website 36 Phone interviews with other Urban Leagues.
29
Hosting an inaugural ICA kickoff fundraising event presents another opportunity for generating seed money. A kickoff event would help to promote the LAUL’s new entrepreneurial vision and educate members about ICA programs. The event also serves to generate publicity among ICA sponsors, sparking new relationships and strengthening old ones.
30
Reference A: The Urban Entrepreneur Partnership
As evidenced by websites and phone conversations, very few Urban Leagues currently offer lending services to small businesses. The UEP is a federal initiative that brings together the National Urban League (NUL), Small Business Administration (SBA), the Minority Business Development Agency (MBDA), the Business Roundtable, and the Marion Kauffman Foundation for the establishment of one-stop economic empowerment centers at UL affiliates. Centers will provide comprehensive business services, including business training, mentoring, financing, and procurement opportunities. Financing will be funded through the Stonehenge Capital/National Urban League $127.5 million Empowerment Fund. The first of these centers was opened in the Kansas City UL in July 2005. Atlanta, Cincinnati, Cleveland and Jacksonville UL's are designated to open centers next, and the agencies hope to have 15 UL's participate by end of next year. Milwaukee and Baltimore are being explored.37
37
http://www.kauffman.org/items.cfm?itemID=628
R1
Reference B: SBA 7(a) Loans
The most prominent source of larger loans for small businesses is the Small Business Administration (SBA), which offers a variety of loans targeted towards different levels of a business’s financing needs. In some cases, funds may not come directly from the SBA, but from commercial lenders; the SBA simply guarantees a large percentage of the loan to lower the lender’s risk, and the commercial lender and the intermediary community nonprofit may collect a service fee. To qualify as a small business, wholesale businesses must have fewer than 100 employees, and manufacturing businesses must have fewer than 500 employees. Alternatively, retail and service businesses must have average annual sales of less than $6 million - $29 million, and construction businesses must have average annual sales of less than $12 million to $28.5 million; the exact amount depends on the specific type of business.38 Though specific loan applications differ depending on the loan program and lender, general requirements include a business profile, a formal loan request, collateral, and business and personal financial statements.39
SBA 7(a) loan guaranty40
The 7(a) loan program is the SBA’s primary loan program for general small businesses, and is especially attractive because loans can be used for a variety of expenses. It is administered directly by private lenders. SBA and the private lender share the risk of payment default; in the case of default, SBA’s guaranty states that the lender will be paid the percentage of SBA’s guaranty. The maximum loan amount is $2 million, but the SBA only offers a maximum of $1.5 million guaranty. Specifically, the SBA offers a maximum guaranty of 85% on loan amounts of $150,000 and less, and 75% on more than $150,000. Maximum loan maturity is 25 years for equipment and real estate, and 7 years for working capital. Maximum interest rates depend on the loan amount and maturity and are pegged to the Prime Rate, but specific rates are ultimately negotiated between lender and borrower. “Interest rates may be fixed or variable. Fixed rate loans of $50,000 or more must not exceed Prime Plus 2.25 percent if the maturity is less than 7 years, and Prime Plus 2.75 percent if the maturity is 7 years or more. For loans between $25,000 and $50,000, maximum rates must not exceed Prime Plus 3.25 percent if the maturity is less than 7 years, and Prime Plus 3.75 percent if the maturity is 7 years or more. For loans of $25,000 or less, the maximum interest rate must not exceed Prime Plus 4.25 percent if the maturity is less than 7 years, and Prime Plus 4.75 percent, if the maturity is 7 years or more.”41 Lenders are charged a guaranty fee and a service fee by the SBA, the former of which can be charged to the borrower. “For loans of $150,000 or less, a 2 percent guaranty fee will be
38 39
http://www.sba.gov/financing/preparation/eligibility.html http://www.sba.gov/financing/preparation/requirements.html 40 http://www.sba.gov/financing/sbaloan/7a.html 41 http://www.sba.gov/financing/subfiles/7a_interest_rates.html
R2
charged. Lenders are again permitted to retain 25 percent of the up-front guaranty fee on loans with a gross amount of $150,000 or less. For loans more than $150,000 but up to and including $700,000, a 3 percent guaranty fee will be charged. For loans greater than $700,000, a 3.5 percent guaranty fee will be charged. For loans greater than $1,000,000, an additional .25 percent guaranty fee will be charged for that portion greater than $1,000,000. The portion of $1,000,000 or less would be charged a 3.5 percent guaranty fee. The portion greater than $1,000,000 would be charged at 3.75 percent.”42 In addition to the general 7(a) loan described above, individual 7(a) lenders can choose to offer a variety of specific SBA loans, as outlined below. For example, while Bank of America only offers the SBAExpress loan as part of its SBA 7(a) program, Wells Fargo offers the general 7(a) loan, SBAExpress, and SBA LowDoc.4344 Similarly, the Valley Economic Development Center, a nonprofit corporation that encourages small business development in Los Angeles County, offers a plethora of SBA-related and independent loans.45 LowDoc46 For borrowers seeking a fast turn-around time and lower loan amounts, the SBA LowDoc program may be an attractive option administered by the 7(a) lender. It carries a maximum loan amount of $150,000 and has a 36 hour response time on the application. Table 1. SBA LowDoc47
Issue: Loan Limit: Maximum SBA Guaranty %: Guaranty Fee: Eligibility Decision: Turnaround Time: Collateral: Credit Decision: SBALowDoc $150,000 85% 2 percent of the guaranteed portion. Lender is permitted to retain 25 percent of this fee. Relies heavily on lender checklist but SBA still reviews 100% within 36 hours Follows 7(a) Policy - Lack of available collateral will not be the sole basis for decline of any loan By SBA with credit scoring
SBAExpress48 Similar to the LowDoc program, 7(a) lenders may also offer SBAExpress loans, with 36 hour response times and a maximum loan amount of $350,000. The SBA can only offer a maximum 50% guaranty in this case, as opposed to 85% in the case of LowDoc.
42 43
http://www.sba.gov/financing/subfiles/sba_7a_fees.html http://www.bankofamerica.com/smallbusiness/loans-lines-leasing/index.cfm?template=sba_ov.cfm 44 http://www.wellsfargo.com/biz/products/credit/sba/compchart/compchart.jhtml 45 http://www.vedc.org/ 46 http://www.sba.gov/financing/lendinvest/lowdoc.html 47 Ibid. 48 http://www.sba.gov/financing/lendinvest/sbaexpress.html
R3
Table 2. SBAExpress49
Issue: Maximum Loan Amount: Maximum SBA Guaranty %: SBAExpress $350,000 50% Lenders and borrowers can negotiate the interest rate. Rates are tied to the prime rate (as published in the Wall Street Journal) and may be fixed or variable, but they may not exceed SBA maximums: Lenders may charge up to 6.5 percent over prime rate for loans of $50,000 or less and up to 4.5 percent over the prime rate for loans over $50,000 By SBA, qualified lenders may be granted authorization to make eligibility determinations Within 36 hours Lender uses mostly own forms and procedures Lenders are not required to take collateral for loans up to $25,000. Lenders may use their existing collateral policy for loans over $25,000 up to $150,000. For Loans greater than $150,000, follows SBA's general collateral policy By lender
Interest Rate:
Eligibility Decision: Turnaround Time: Forms:
Collateral:
Credit Decision:
Community Express50 SBA started Community Express loans to target SBAExpress-like loans to businesses in low-moderate income areas and new markets. Due to the nature of these loans, lenders must provide ongoing technical and management assistance to borrowers to ensure their success. Table 3. SBA Community Express51
Issue: Maximum Loan Amount: Maximum SBA Guaranty %: Interest Rate: Eligibility Decision: Turnaround Time: Forms: Collateral: SBA Community Express $250,000 Follows standard SBA guaranty percent CommunityExpress loans are subject to the same maximum interest rate as all SBA loans By SBA Mostly within 36 hours Lender uses mostly own forms and procedures Lenders are not required to take collateral for loans up to $25,000. Lenders may use their existing collateral policy for loans over $25,000 up to $150,000.
49 50
http://www.sba.gov/financing/lendinvest/sbaexpress.html http://www.sba.gov/financing/lendinvest/comexpress.html 51 Ibid.
R4
Credit Decision: Technical Assistance:
For loans greater than $150,000, follows SBA's general collateral policy By lender Arranged or provided by lender
Loan Prequalification52
Nonprofits help assemble and revise loan applications for 7(a) loans from disadvantaged business owners, and provide assistance in related matters (e.g. drafting the business plan). Applications are sent to the SBA, which writes a prequalification letter indicating a willingness to guarantee a loan, so that private lenders will offer loans more willingly to the borrower. For-profit organizations generally charge a fee for this service, but existing Small Business Development Centers do it for free. It is recommended that the LAUL does not charge borrowers for this service, especially since the LAUL would get referral fees from the 7(a) banks. Maximum loan amount is $250,000; other rules follow 7(a) program.
.
52
http://www.sba.gov/financing/sbaloan/prequalification.html
R5
Reference C: SBA Certified Development Company (CDC) program
Certified Development Companies (CDC) offer SBA 504 loans, which are attractive because of long term maturity and fixed interest rates on the CDC portion of the loan. A private lender is the senior lien of the loan (50%), the CDC is the junior lien (40% - backed by a 100% SBAguaranteed debenture), and the borrower must contribute 10% of the loan. Average loan amounts are $1 million and range from $50,000- $2 million. Loans are generally made to established businesses with healthy cash flow. New businesses may be financed if the borrower contributes 15-20% of the loan, while the CDC contributes 30-35%. Maximum SBA debenture is $1.5 million for meeting job creation goal, $2 million for meeting public policy goal (e.g. expansion of minority business development), and $4 million for Small Manufacturers. Loans are restricted to purchasing real estate and long-term equipment, so most businesses use them for expansion. Specific steps to becoming a CDC are listed on the CDC website. CDCs must give out two 504 loans per fiscal year, and create at least one job opportunity for every $35,000 of 504 funding. There are currently three official CDCs serving Los Angeles County. 53, 54
53 54
http://www.sba.gov/financing/sbaloan/cdc504.html http://www.sba.gov/financing/sbapartner/becomecdc.html
R6
Reference D: LAUL Microloan Fund
The terms of borrowing of the LAUL’s own microloans should follow existing models used by other microlenders, as evidenced by information on their websites. It is recommended that the LAUL use the following guidelines: Table 4. LAUL Microloan Fund
Issue: Maximum Loan Amount: Interest Rate: Maturity: Collateral: LAUL Microloan $35,000 7-10%, fixed 3-5 years Business equipment and other assets, personal guaranties
Fees
$50-100 annual maintenance fee and/or 0.75%-2% one-time processing fee
R7
Reference E: Venture Capital
New Market Venture Capital (SBA)55
NMVC is a program administered by the SBA that encourages investment in small businesses in poor and disadvantaged neighborhoods. For-profit NMVC Companies give equity investments or operational assistance grants to small businesses to encourage job creation and economic rehabilitation in SBA-designated low income areas. Most NMVC Companies have venture capital funds of $10-20 million, and invest $100,000 to $1 million in sponsored companies.56 The current six NMVC Companies do not serve California, and the SBA is not currently accepting applications for new NMVC Companies.
55 56
http://www.sba.gov/INV/NMVC/index.html http://www.sba.gov/INV/NMVC/companies.html
R8
Reference F: Venture Philanthropies
A relatively new source of financial and managerial resources for nonprofits has sprung up over the past few years. Traditional sources of funding have come from grants and public subsidies. However, many nonprofits have recognized the value of diversified revenue sources as a method to improve self-sufficiency and sustainability. Bands of grantmakers, managers, and educators have come together to provide helpful resources for nonprofits—a part of the social phenomenon known as the social enterprise movement.57 The LAUL can tap into many of the rich financial resources available to help fund its current activities as well as its new enterprises and ventures. We researched some of the more applicable organizations that had the most potential.
Calvert Investment Foundation
The mission of the Calvert Foundation is to help end poverty through investment. The foundation serves as a conduit for investors to place capital to help finance affordable homes, fund small and micro businesses, and make available essential community services. Achieving such goals would help fulfill the LAUL’s own mission statement. The Foundation partners with many nonprofits across the globe and breaks down its investments into various money moving vehicles. The ones that would interest the LAUL the most are its Calvert Investment Notes. The social returns aimed to be achieved through these investments include “Affordable Housing, Small Businesses, Microcredit and Community Development.”58 As for the financial returns, the investors themselves would receive a fixed below-market rate of interest, ranging from 0 to 3 percent on time scales from 2 to 10 years. The Calvert Investment Notes can provide the LAUL with an initial principal to help pay for any of its activities, e.g. fundraisers, housing projects, etc. Given a set period of time, the LAUL would make monthly payments of interest (around 4-5%) until the end of the period at which point the principal would be paid back. If the LAUL would like to begin the process of starting to participate as one of the benefiting nonprofits in Calvert’s portfolios, last year’s audited financial statement should be sent in to the Calvert Foundation. The Foundation would then asses the LAUL’s mission statement and activities to make sure it fell in accordance with the aim of the Foundation’s visions. The Foundation would also analyze the LAUL’s capability to be financially secure. The LAUL satisfies most of the key selection criteria, which include a focus on low-income communities, promotion of work-related opportunities, involvement in diverse communities in urban areas, and a three year track record of $500,000 in total assets. However, the Calvert Foundation also uses a 2-year track record of positive change in net assets as another key selection point. We believe that once acquainted with the LAUL’s history and background, the Calvert Foundation may still loan funds even if the LAUL cannot meet the last criterion. (See Reference M for contact information for the Calvert Foundation).
57 58
Caltech Consulting Club Summer 2005 Team, Inner City Angels: A New Vision for Inner City Revitalization http://www.calvertfoundation.com/individual/investment/investmentnotes-cci.html?source=
R9
Partners for Common Good
The Partners for Common Good essentially provide the same service as the Calvert Foundation. The PCG aims to meet the financial needs of nonprofits that serve underprivileged and economically disadvantaged communities. The main uses of the PCG’s funds are to “(1) develop or improve community facilities; (2) expand programmatic activites, (3) enable nonprofits to meet specific short-term and permanent working capital needs.”59 The PCG supplies flexible working capital for nonprofits that present to the PCG a specific organizational operating need. This differs from the Calvert Foundation’s Investment notes, which allows funds to be used more generally. Loan amounts can vary from $50,000 to $390,00 depending on the size of the particular need. Loan terms can vary between from one to five years, with an average term of 48 months. Loans with terms one year or less have interest rates that follow the Wall Street Journal Rate plus up to 3% while loans with terms longer than one year follow the current U.S. Treasury Five-Year note plus up to 3%. To begin the process of applying for these loans, the LAUL would have to prepare a couple of things for the PCG, namely the last 3 years’ financial statements and a detailed plan of the project or goal. Some recommendations for the projects are included in this report, e.g. small business loan lender, affordable housing developer. The URL to the loan application page is provided as a footnote.60 An example of a successful PCG borrower is the Neighborhood of Affordable Housing (NOAH) in East Boston, MA. The NOAH received a loan of $250,000 to begin the rebuilding of deteriorated and foreclosed buildings to make into affordable housing. Their beneficiaries are low to moderate-income first time homebuyers who otherwise would not have been able to afford a home of their own. NOAH’s success would not have been achieved without PCG’s flexible working capital, which allowed them to purchase most of the dilapidated properties. The LAUL may be able to provide the same kind community revitalization in Los Angeles with PCG’s support.
New Profit Inc.
The New Profit organization presented itself as another possible resource for financial support for the LAUL. New Profit approach to philanthropy is much more involved than PCG’s or Calvert Foundation’s. New Profit provides much more comprehensive resources for nonprofit organizations. Not only do they provide financial resources but they also provide strategic visions for benefiting organizations. The New Profit model unites (1) individual investors who provide business wisdom and creatvitiy, (2) Social Entrepreneurs who act as visionaries, rallying human and financial resources to a social cause, and (3) partners and staff who provide portfolio organizations that help plan and execute managerial tasks. New Profit achieves this unity through the close working together of its staff with each organizations’ own managers and representatives.
59 60
http://www.pcg21.org/main.cfm?page=40 http://www.pcg21.org/main.cfm?page=57 (Loan application process for PCG)
R10
New Profit has close ties with various organizations that provide many of the managerial knowledge and resources that they provide for its portfolio members. The Monitor Consulting corporation has provided New Profit portfolio organizations with teams and coaches to help nonprofits achieve their goals and carry out their activities with great effectiveness. The Monitor group helps to develop strategy creation, funding generation, and network building. Goodwin Proctor LLP provides pro-bono legal services as well as volunteer activities. The Parthenon Capital group supports New Profit by volunteering time to help carry out due diligence processes. All these groups act together with great synergy to bring the highest quality of service to portfolio members. New Profit has been very selective with whom they have partnered. Some of these organizations include College Summit which provides low-income high school students with confidence and skills for college, Jumpstart which recruits college students to provide mentoring for underprivileged pre-school age children, and Working Today which provides workers with a social safety net consisting of affordable healthcare and workplace rights. Helping disadvantaged youth seems to be a theme in their portfolio selection. The key selection conditions for New Profit organizations include High Social Impact, Social Entrepreneurialism, Previous Performance, Capacity for growth, and an openness to work with New Profit. We believe that the LAUL does an outstanding job in satisfying this list of criteria. It is our hope and recommendation that the LAUL be a part of New Profits highly exclusive portfolio.
R11
Reference G: Recommendations for obtaining, financing, and using property
Obtaining Property Overview
There are a number of systems under which the LAUL could manage property, ranging from simple volunteer rehabilitation of another’s property to complete ownership. For reasons of efficiency and increased flexibility of options, obtaining complete ownership is clearly the most desirable option under most circumstances. Doing so would permit the LAUL to exclude unwanted elements such as liquor stores and adult entertainment facilities as well as generate income through property rentals, sales, and co-ownership. However, while ownership would be the preferred system under which property is obtained, it seems likely that other means of obtaining land rights will be necessary, given the need to own contiguous properties. A 2002 report by The Urban Land Trust Task Force, which focuses on developing public areas such as parks, describes a number of methods for obtaining property, many of which are listed below.61 It should likewise be noted that suggestions are not necessarily exclusive of one another, and under some circumstances it may be more desirable to combine two or more methods.
Ownership
One means of achieving ownership would be through the City of Los Angeles itself, which possesses surplus, abandoned, seized, and nuisance properties. Given the goals of the proposed urban rehabilitation program, these properties are ideal for the LAUL due to their low cost and the fact that developing such properties would generally add more value to their communities than already valuable properties. Obtaining these properties would likely require lobbying City officials to make these properties more easily accessible to the LAUL. In fact, as recent as August 2005, the City Attorney’s Office initiated its American Dream Program by eliciting bids from developers to rehabilitate distressed properties within a specific timeframe in exchange for a waiver or reduction of the lien.62 Furthermore, the Attorney’s Office will continue to accept bids for the near future. The City is currently dealing with 50 to 100 parcels of land, all located within the City of L.A., but largely concentrated in South East L.A. It seems reasonable that the City would be open to a wellplanned, substantive effort by a nonprofit organization to rehabilitate other distressed properties in exchange for ownership rights or reduction of fees. Donation or discounted sale Under the most ideal circumstances, the City could simply waive all or most fees for properties that it offers exclusively to Inner City Angels. However, the difficulty in obtaining exclusive rights to a City property, let alone the discounted or waived fee, could make this system infeasible. Nevertheless, given the political influence of the
61 62
http://www.environmentaldefense.org/documents/2256_WalkingParkReport.pdf http://www.lacity.org/atty/rfpsrfqs/attyrfpsrfqs64730473_06172005.pdf
R12
LAUL, such an avenue towards ownership should still be heavily pursued. Successful lobbying of this idea would require communication among high level personnel in both the LAUL and the Office of the City, as well as proper conveyance of the level of determination of Inner City Angels in its role in property management. Custody Perhaps just as attractive as a donation from the financial perspective of starting up would be a custodial system under which Inner City Angels would obtain the property free of charge for a duration of time with the agreement that the property be returned to the City at the end of the custody period in exchange for compensation equal to the change in the market value of the property. Similarly, at the end of the custody period, Inner City Angels could also be given the opportunity to purchase the property at the initial market price prior to development or forfeit ownership. Priority bidding Another valuable option that the City could make available to Inner City Angels, particularly if a discount is commercially infeasible, is to offer priority bidding. In doing so, Inner City Angels could obtain high demand properties at guaranteed prices that they otherwise could not due to higher prices resulting from competitive bidding. Co-ownership and co-development Inner City Angels may also find it desirable to enter into agreements with other entities to share in ownership or development costs for a property, in much the same way as the Johnson Development Corporation.63 Doing so could permit a greater degree of development as well as allow Inner City Angels to acquire property that it might not otherwise have access to. Remainder interests In the long term, Inner City Angels should also consider looking toward obtaining remainder interests—that is, properties promised to a beneficiary in a will—which are not uncommonly granted to conservation groups. While it could be difficult to discretely yet effectively campaign for such promises of land, even obtaining a handful of large properties in this manner would be valuable to Inner City Angels. Such campaigns should seek large City property owners as potential participants. This could be accomplished through the creation of a pamphlet that outlines the various means by which donations can be made to the LAUL, including through remainder interests, while also emphasizing the benefits of doing so, such as tax breaks. In particular, the pamphlet could be included as part of a general package of brochures for members and sponsors.
Non-ownership
Conservation easement For properties where ownership is financially prohibitive or otherwise impractical due to external restraints, Inner City Angels could seek to procure development rights to a property in the form of a conservation easement. A conservation easement does not
63
http://www.johnsondevelopmentcorp.com/overview.html
R13
generally provide ownership but rather grants development rights to a property for a specific purpose. While such a proposal could or could not directly benefit the Inner City Angel, depending on the stipulations of the agreement, such a system could provide them with desired property at a much lower cost than if they had simply purchased the land. Leasing Additionally, for properties where ownership is financially prohibitive or otherwise impractical due to external restraints, it might be necessary for Inner City Angels to lease property when the property is of particular importance to the success of a project. However, this option is generally undesirable due to limitations that the lessor may place on uses of the property and the necessity of lease renewal and potential eviction in the future. Private sector purchases, discounts, and donations For logistical reasons, it may be necessary from time to time for Inner City Angels to obtain land from the private sector. As with the government, acquiring private property includes full market price purchases and discounted or donated offerings in addition to the many above listed systems of land rights.
Conclusion
It is highly recommended that property be obtained from the City itself, due to the benefit it gains from successful commercial development over its own personal development or sale. While Inner City Angels may find it necessary or desirable to purchase real estate from small property owners, it can be assumed that such properties would be offered at market value and therefore such owners should be approached only when a specific property is desired. Alternately, Inner City Angels may wish to seek land from corporations and individuals with large land holdings within the City and who are amicable to donations of properties as a form of charity.
Financing of Property Acquisitions and Development Overview
As both a nonprofit entity and a political force, the LAUL has access to a number of financial resources for obtaining and developing property. Furthermore, Inner City Angels could also obtain donations of goods and services from large corporations involved in real estate, financing, or development. Private donations Given the nature and scope of the proposal, the LAUL may find it worthwhile to host a one-time fundraising event to inaugurate this program. The purpose of this event would be to spread the word about the program’s goals and the LAUL’s level of commitment, in addition to obtaining guarantees of funds and resources from high-ranking Los Angelenos. The LAUL might also wish to run smaller, long-term donation drives targeted towards middle class Los Angelenos.
R14
Property Uses Overview
By operating a series of property developments, the LAUL could provide jobs as well as have a means of obtaining funds through leases and by providing services either on a prorated basis or as a packaged deal. Likewise, Inner City Angels should work to ensure that each business is provided the opportunity to reach its full potential by providing it with individually catered financial packages and deals to allow them maximum financial freedom, yet at a low risk to Inner City Angels. These individual financial packages would largely involve payment on a schedule convenient for the business as well as, potentially, various forms of rent payment or payment based on LAUL co-ownership of the business or cash flow into the business. All of Inner City Angels’ properties should operate with the understanding that the majority of businesses are in need of financial or technical assistance. Thus, mentorship at some level should be supplied and encouraged to businesses operating on Inner City Angel properties. Furthermore, Inner City Angels should examine the business plans of potential tenants for soundness of design; this cannot be stressed enough, as most small businesses fail, and will largely depend on the expertise of the management to select and aid new businesses. 64, 65
Commercial
Incubation centers Given the need to not only provide spaces for businesses but also foster their development and provide financial resources and flexibility in their infancy, it seems clear that Inner City Angels should perform these functions through the development of incubations centers. Business incubators provide entrepreneurial services to small businesses during the start-up period with affordable space, shared support services and business development services such as financing, marketing and management. Businesses may either operate as tenants within the premises, or as affiliates, which operate in offices outside of the incubation center but have access to incubation center resources. In general, each business applying for space within an incubation center should be assessed on its benefit to the community and ability to succeed. Thus a small local business that only employs an outside staff may be less beneficial than a large organization which employs many locals. A few Urban Leagues already provide business incubator services, such as in Jacksonville66 and Minneapolis.67 They provide office space, access to technology, and business counseling to start-up businesses. NonUL business incubators in the Los Angeles area offer some loan and financing programs on top of that.68 The Los Angeles County’s Community Development Commission operates a few incubation centers and might be receptive to partnering with Inner City Angels to open additional ones.69
64 65
http://www.finetuning.com/articles/337-why-most-small-businesses-fail.html http://www.sideroad.com/Entrepreneur/why-business-fail.html 66 http://www.jaxul.org/economic.htm 67 http://www.mul.org/75th%20Anniversary%20Capital%20Campaign%20Final%20Report.pdf 68 http://www.famerenaissance.org/2004/2K4_programs/2K4_programs.html 69 http://www.lacdc.org/economic/incubators/index.shtm
R15
Strip Malls While incubation centers would largely house service-oriented businesses, strip malls would serve the role of accommodating product-oriented businesses, such as restaurants, retail stores, and childcare service providers. Furthermore, strip malls have the added benefit to its tenants of potentially drawing larger crowds than would be possible with a single-store facility. Nevertheless the role of Inner City Angels in strip malls should be much like its role in incubation centers: to provide financial and technical assistance to starting and struggling businesses. Managers of strip malls should have a good understanding of local dynamics and be able to assess the business potential of an applicant in the particular climate in which they are applying. Wholesalers and manufacturers Inner City Angels may also find a market for wholesalers and manufacturers in need of large warehouses, given Los Angeles’ proximity to major roads. Many of these properties would likely be industrial and therefore might also qualify for BEDI grants. However, it is uncertain what type of demand there would be for such properties, given the amount of investment required by the lessee as well as the recent slowed growth of the manufacturing industry.70 Single-store Facilities While strip malls are more desirable for a number of reasons, Inner City Angels may find it necessary to operate single-store facilities, either due to very low costs for the property, or simply as a starting point for a larger buildup of property in a neighborhood. Under these circumstances, single-store facilities should be given special consideration for financing and, if possible, managers should require greater qualifications to ensure the success of the business. Furthermore, the business should be treated as an affiliate by being given access to either a nearby incubation center’s facilities or a nearby strip mall’s, and periodic visits should be made by the manager to ensure the business’ needs are being met.
70
http://www.labusinessjournal.com/article.asp?aID=6652632.1521925.1191086.4056472.5763746.708&aID2=91613
R16
Reference H: Real Estate Development Grants
Community Development Block Grant (CDBG)71
The CDBG is a program operated by the U.S. Department of Housing and Urban Development (HUD) which provides funds to entitlement communities—large metropolitan areas—for the purpose of developing “viable urban communities by providing decent housing and a suitable living environment, and by expanding economic opportunities, principally for low- and moderate-income persons”. Among other activities, funds from this program can be used to acquire real property and rehabilitate existing structures. (A list of eligible and ineligible activities appears below in Table 5. List of Some Eligible and Ineligible Activities for CDBG Funds). In fiscal year 2004, every dollar of CDBG funding resulted in approximately $2.79 in private funding.72 Access to these funds would require the LAUL to lobby the local entitlement community for Los Angeles for its aid in obtaining and rehabilitating real estate. In particular, the Los Angeles entitlement community would have to develop and submit its Consolidated Plan,73 which identifies the goals of the proposal, certifies that at least 70% of CDBG funds will be used for activities benefiting low- and moderate-income persons.74 However, it should be cautioned that much of the CDBG funds for Los Angeles City is already earmarked for existing initiatives and programs.75 Nevertheless, it is recommended that the LAUL work closely with the Los Angeles CDBG towards developing a comprehensive plan for CDBG funds; and for this reason, it is further recommended that the LAUL request a member of Los Angeles office to serve as direct liaison to the LAUL in these matters in order to improve communication. While the LAUL may or may not obtain ownership of the property, the requirements of the CDBG that funded improvements benefit low- and moderate-income individuals are in accordance with the suggested goals of the LAUL in real estate. In fiscal year 1998, the Business Technology Center (described below) received approximately $3.5 million of the $82.8 million of CDBG funds made available to Los Angeles.76, 77 If the LAUL selects this option, it could also pursue the Section 108 loans and Brownfields Economic Development Initiative (BEDI) grants listed below. It should be noted, however, that the CDBG may be phased out by the end of fiscal year 2005 to be replaced by the Strengthening America’s Communities Initiative, which would replace 18 existing federal community and economic development programs.78, 79 There is a considerable amount of disagreement regarding this Initiative. Some argue that the methodology used would unfairly bias underserved areas, while others counter that this Initiative would streamline the application process by creating a central agency to handle all funding for these communities.
71 72
http://www.hud.gov/offices/cpd/communitydevelopment/programs/entitlement/index.cfm http://www.citymayors.com/economics/cdbg_cut.html 73 http://www.hud.gov/offices/cpd/about/conplan/index.cfm 74 http://www.hud.gov/offices/cpd/communitydevelopment/programs/entitlement/index.cfm#requirements 75 http://www.lacity.org/cup/30thHCDCPbudget.htm 76 http://www.hud.gov/local/ca/news/pr2004-09-13.cfm 77 http://www.hud.gov/offices/cpd/communitydevelopment/budget/index.cfm 78 http://www.nado.org/saci/faq.html 79 http://www.commerce.gov/SACI/
R17
Table 5. List of Some Eligible and Ineligible Activities for CDBG Funds80
Eligible Activities acquisition of real property relocation and demolition rehabilitation of residential and nonresidential structures construction of public facilities and improvements, such as water and sewer facilities, streets, neighborhood centers, and the conversion of school buildings for eligible purposes public services, within certain limits activities relating to energy conservation and renewable energy resources provision of assistance to profit-motivated businesses to carry out economic development and job creation/retention activities Ineligible Activities acquisition, construction, or reconstruction of buildings for the general conduct of government political activities certain income payments construction of new housing by units of general local government.
Brownfields Economic Development Initiative (BEDI)81, 82, 83
The BEDI is a grant program administered by HUD and designed to “assist cities with the redevelopment of abandoned, idled and underused industrial and commercial facilities where expansion and redevelopment is burdened by real or potential environmental contamination.” Funds from the grant are targeted toward the redevelopment of brownfield sites—abandoned idled, or underused real property where expansion or redevelopment is complicated by the presence or potential presence of environmental contamination84—in economic development projects as well as the increase of economic opportunities for lowand moderate-income persons as part of the creation or retention of businesses, jobs, and increases in the local tax base. These sites must have well-quantified contamination or potential contamination85. With some exceptions, pollutants and contaminants are
any element, substance, compound, or mixture, including disease-causing agents, which after release into the environment and upon exposure, ingestion, inhalation, or assimilation into any organism, either directly from the environment or indirectly by ingestion through food chains, will or may reasonably be anticipated to cause death, disease, behavioral abnormalities, cancer, genetic mutation, physiological malfunctions (including malfunctions in reproduction) or physical deformations, in such organisms or their offspring86
Financially, BEDI funds are intended to enhance the security or improve the viability of a project financed with a new Section 108 guaranteed loan commitment and must increase economic opportunity for persons of low- and moderate-income or stimulate and retain businesses and jobs that lead to economic revitalization. As with the CDBG program, BEDI grants are only available to entitlement communities and their equivalents. Inner City Angels would thus have to work with the Los Angeles office to develop a plan for filing for a BEDI grant. The grant application must also be accompanied by a request for a new Section 108
80 81
http://www.hud.gov/offices/cpd/communitydevelopment/programs/entitlement/index.cfm http://www.hud.gov/offices/cpd/economicdevelopment/programs/bedi/index.cfm 82 http://www.hud.gov/offices/cpd/economicdevelopment/programs/bedi/bedifacts.cfm 83 http://www.hud.gov/offices/cpd/economicdevelopment/programs/rc/index.cfm 84 http://www.hud.gov/offices/cpd/economicdevelopment/programs/bedi/bfieldsdefinition.cfm 85 http://www.villageofdolton.com/business/incentives5.htm 86 http://www4.law.cornell.edu/uscode/html/uscode42/usc_sec_42_00009601----000-.html
R18
loan guaranty authority for use in the same economic development project. The project itself must meet the objective of benefiting low and moderate income persons, preventing or eliminating slums or blight, or addressing imminent threats and urgent community needs. The funds may be used for land writedowns, site remediation costs, funding reserves, overcollateralization of the Section 108 loan, direct enhancement of the security of the Section 108 loan, and provisions of financing to for-profit businesses at a below market interest rate. BEDI funds are awarded on an annual basis and are capped at $2 million per BEDI award. In 2004, applications were due on July 15. BEDI application kits and a guidebook to all HUD programs can be obtained from the SuperNOFA Information Center at 1-800-HUD8929. Questions regarding the BEDI program may be directed to Frank McNally (see Reference M: Contacts).
R19
Reference I: Real Estate Development Loans
Section 108 loan87
Section 108 is the loan guaranty provision of the CDBG program which allows local governments to convert a portion of their CDBG funds to federally guaranteed loans. Section 108 loans are large enough to finance revitalization projects for entire neighborhoods. However, the risk with Section 108 loans is that they are borrowed against current and future CDBG funds provided to the grantee as well as other security requirements as determined on a case-by-case basis. These loans commitments are frequently paired with BEDI grants (listed above), which can be used to finance predevelopment costs of a Section 108-funded project, as a loan loss reserve in place of CDBG funds, to write-down interest rates, or establish a debt service reserve. Section 108 loans carry a maximum repayment period of 20 years and can be structured to match the needs of the project and borrower, with individual interest rates associated with each annual principal amount. Interest rates on interim borrowing are priced at the 3-month London Interbank Offered Rate—between 2.7 and 3.7% in 2005 88—plus 20 basis points (0.2%). Permanent financing is pegged to yields on U.S. Treasury obligations of similar maturity to the principal amount, and, based on maturity, a small additional basis point spread is added to the Treasury yield to determine the actual rate. Section 108 loans may be up to five times the entitlement community’s latest approved CDBG entitlement amount, minus any outstanding Section 108 commitments or principal balances of Section 108 loans. Funds from these grants can be used for economic development, housing rehabilitation, public facilities, and large-scale physical development projects. As with the CDBG program, Section 108 loans are only made available to entitlement communities and their equivalents; thus, Inner City Angels would have to work with the Los Angeles office to develop a plan for Section 108 financing. Section 108 funds are available annually on a noncompetitive basis. Table 6. Section 108 Case Studies89
Alhambra, California Type of Project: Abandoned Retail Redevelopment Number of full-time jobs created: 200 Project Description: Fremont Plaza represents a new and aggressive strategy in economic development for the City of Alhambra. The project is centered around a renovated former Sears retail building. The closing of the Sears store created an immediate loss of over 200 jobs and $180,000 in sales tax revenue from the City general fund. Initially the Alhambra Redevelopment Agency approached commercial developers, offering traditional subsidy, to redevelop the site. These developers declined to participate, and the Agency made a decision to develop the site itself using Section 108 financing.
87 88
http://www.hud.gov/offices/cpd/communitydevelopment/programs/108/index.cfm http://www.hsh.com/indices/libor00s.html 89 http://www.hud.gov/offices/cpd/communitydevelopment/programs/108/casestudies.cfm
R20
Wichita, Kansas Type of Project: Neighborhood Revitalization Project Description: The City of Wichita and Cessna Aircraft Company acquired a large site in a troubled neighborhood to undertake a two-phase project. The first phase included the construction of the Cessna Learning Work Complex, including a light assembly facility and a learning/day care facility to be used by Cessna trainees living in the neighborhood. Since construction, the 21st Street Corridor has seen substantial investment, including a new bank, senior center, police substation, Boys and Girls Club, library, and affordable housing complexes. Jacksonville, Florida Type of Project: Micro-enterprise Development and Finance Number of full-time jobs created: 702 Project Description: The City of Jacksonville used five Section 108 loans to finance development projects with five for-profit developers. The city used 108 financing in lieu of CDBG funds in order to keep those CDBG funds free for other low- and moderate-income uses, such as provision of services. The goal of the five projects is to create a total of 1,130 new jobs for the Jacksonville community. Worcestor, Massachusetts Type of Project: Business Development Number of full-time jobs retained: 135 Project Description: The City of Worcestor has used Section 108 funds to provide gap financing as a credit enhancement for local business and industry to start-up or expand. The city only draws down the Section 108 funds as it uses them on a project-by-project basis, and therefore incurs no interest costs. Greenville, South Carolina Type of Project: Neighborhood Revitalization Number of full-time jobs created: 25 Project Description: The City of Greenville and the West End Neighborhood Association combined efforts to construct a "public market" as an anchor attraction in the area. Local residents and businesses are provided with a public area to exchange commerce, and 16 businesses, five of them created after the construction of the market, utilize the facility. Associated development that has occurred in the area has produced countless new job opportunities as well as reduced blighted conditions. Portsmouth, New Hampshire Type of Project: Affordable Housing Construction Project Description: Portsmouth's Mariner's Village apartment complex was a substandard, 600unit complex, of which only 220 units were still occupied. Through a partnership of local and federal government, as well as state and local housing agencies and the private sector, the complex was replaced with a mixed-use development designed to stabilize the neighborhood. A zoning change allowed the construction of 329 rental townhomes, half of which were affordable. Families not wishing to remain the area were relocated to other standard, affordable housing.
Los Angeles County Community Development Commission (LACCDC)90
The LACCDC runs the County Business Loan Program (CBLP) which provides financing to businesses for expansion and development. Loans from this program, which range from $25,000 to $1 million with a current interest rate of 5%, may be used property acquisition,
90
http://www.lacdc.org/economic/business/index.shtm
R21
equipment purchases, and working capital.91 Generally, working capital may be financed for 5 to 7 years, equipment and machinery for 7 to 10 years, and real estate for 15 to 20 years, with the actual terms based on the useful life of the assets. Applicants must be small or medium-sized businesses located within the County and provide evidence of a need for CBLP financing and may be expected to inject 10% of the total project cost as well as a pledge of collateral. Interested parties should contact Kermit Hathcoat.
91
http://www.lacdc.org/economic/business/business.shtm
R22
Reference J: Tax Subsidies
Community Renewal Initiative92
The HUD’s Initiative for Renewal Communities and urban Empowerment Zones (RC/EZ) is a multi-billion dollar HUD project that provides opportunities and resources to residents and businesses to stimulate job growth, promote economic development and create affordable housing.93 In 2001, Los Angeles was designated one of the 40 urban and rural RCs eligible for the $17 billion in tax incentives and deductions, such as wage credits and work opportunity credits (see Table 7 for a more complete list of benefits). While these funds are only directly available to the localities they serve, funds can be redistributed to nonprofits to achieve the aims of the initiative. Thus, Inner City Angels may find it worthwhile to work with the City mayor’s office to obtain funds for achieving their mutual goals. Table 7. Renewal Community Benefits94, 95
Tax Credits Wage credits are especially attractive to businesses looking to grow. These businesses are able to hire and retain RC residents and apply the credits against their federal tax liability. Businesses operating in the new Renewal Community will enjoy up to a $1,500 credit for every newly hired or existing employee who lives and works in the RC. Work Opportunity Credits provide businesses in Renewal Communities with up to $2,400 against their Federal tax liability for each employee hired from groups with traditionally high unemployment rates or other special employment needs, including youth who live in the RC. Welfare to Work Credits offer businesses a credit of up to $3,500 (in the first year of employment) and $5,000 (in the second year) for each newly hired long-term welfare recipient. Tax Deductions Commercial Revitalization Deductions permit a State with one or more RCs to deduct $12 million per RC per year, up to $10 million per project for commercial or industrial buildings developed in the RCs. A business can deduct up to $5 million in the year the building is placed in service or deduct the full amount of eligible expenditures pro rata over 10 years. Section 179 Deductions under the tax code allow a qualified Renewal Community business to expense up to $35,000 of additional qualified property such as equipment and machinery acquired each year during the period of the RC designation, 2002 through 2009. Environmental Cleanup Cost Deductions allow businesses to deduct qualified cleanup costs in Brownfields. Capital Gains Exclusions Zero Percent Capital Gains Rate applies to an interest in, or property of, certain businesses operating in a Renewal Community, if the asset is acquired during the period of the RC designation and held for at least 5 years. Bond Financing Qualified Zone Academy Bonds allow state and local governments to match no-interest loans with private funding sources to finance public school renovations and programs. In addition to the incentives described above, HUD will provide technical assistance to these
92 93
http://www.hud.gov/offices/cpd/economicdevelopment/programs/rc/index.cfm http://www.hud.gov/news/release.cfm?content=pr02-013los.cfm 94 Ibid. 95 http://www.hud.gov/offices/cpd/economicdevelopment/library/taxincentivesqa.pdf
R23
communities to help make businesses fully aware of the many opportunities available to them. To make certain the Renewal Communities are successful in the initial stages of their designations, HUD will host an Implementation Conference in the spring of 2002 where the newly designated RCs will meet to hear from experts in the fields of business, taxes and economic development.
Table 8. Empowerment Zone Benefits96
Wage credits (up to $3,000 yearly per EZ resident employed) Work opportunity tax credits (up to $2,400 per 18-24 year-old EZ resident hired.) Low-cost loans through EZ facility bonds Increased Section 179 tax deductions Partial-exclusions of capital gains on the sale of assets
Enterprise Zone Program97, 98
The Enterprise Zone Program of California encourages business investment and promotes the creation of new jobs in economically distressed areas by providing tax incentives to businesses and allowing private sector market forces to revive the local economy. All businesses located within an Enterprise Zone are eligible for program benefits including state tax credits, net interest deductions for its lenders, and preference points on state contracts (see Table 9 for a more comprehensive list). Enterprise Zones last 15 years from the original date of inception, and Targeted Employment Areas allow Enterprise Zone businesses substantial hiring credits for employing residents of designated low-income areas. While this program seems to primarily target larger businesses, it could be worthwhile for Inner City Angels to identify its incubation centers as located within these Enterprise Zones for start-ups that would benefit from this program. Participation in this program would require contacting local offices (see Reference J: Contacts for “California Association of Enterprise Zones,” “Economic Development Incentive Program,” and “HCD Enterprise Zone/LAMBRA”). Table 9. Enterprise Zone Tax Credits and Benefits99
Up to 100% Net Operating Loss (NOL) carry-forward. NOL may be carried forward 15 years (suspended for tax years 2002 and 2003); Firms can earn $31,544 or more in state tax credits for each qualified employee hired; Corporations can earn sales tax credits on purchases of $20 million per year of qualified machinery and machinery parts; Up-front expensing of certain depreciable property. Lenders to Zone businesses may receive a net interest deduction; Unused tax credits can be applied to future tax years, stretching out the benefit of the initial investment; Enterprise Zone companies can earn preference points on state contracts.
Los Angeles Revitalization Zone Program (LARZ)100
The Los Angeles Revitalization Zone (LARZ) was established to stimulate economic growth, create jobs, and rebuild business within portions of Los Angeles County that suffered physical and economic damage as a result of the civil disturbances that occurred in 1992.
96 97
http://www.hud.gov/offices/cpd/economicdevelopment/library/taxincentivesqa.pdf http://www.hcd.ca.gov/fa/cdbg/ez/ 98 http://www.caez.org/ 99 http://www.hcd.ca.gov/fa/cdbg/ez/ 100 http://www.hcd.ca.gov/fa/cdbg/ez/larz/index.html
R24
Like the Enterprise Zone Program, LARZ provides tax incentives to companies located within these zones, such as credits for hiring qualified construction employees and business expense deductions for the cost of qualified property (see Table 10 for a more comprehensive list). As with the Enterprise Zone program, potential participants in the program should contact the local LARZ office for details regarding this program. Table 10. Los Angeles Revitalization Zone Program Benefits101
Credit for hiring qualified construction employees. Credit for sales and use tax paid on qualified property and building materials. Business expense deduction for the cost of qualified property. Up to 100% Net Operating Loss carry-forward. Firms can earn $21,000 or more in state tax credits for each qualified employee hired over a five year period. Lenders to Zone businesses may receive a net interest deduction. Unused tax credits can be applied to future tax years, stretching out the benefit of the initial investment.
101
http://www.hcd.ca.gov/fa/cdbg/ez/larz/index.html
R25
Reference K: Business Incubators in Los Angeles
Athens Westmont Business Center102
The Athens Westmont Business Center (AWBC) is a 16,000-square-foot facility located in southwest L.A. County with 54 individual offices ranging from 88 to 850 square feet, which may be leased individually or in blocks. AWBC tenants receive below market rent, access to a CDC loan program for start-up businesses, office equipment and support services, a computer laboratory, conference rooms, a kitchen, business library, telephones, copy machines, mail and fax services, a receptionist, 24 hour security, and consulting.
Business Enterprise Center103
The Business Enterprise Center (BEC) is a micro-business incubator operated by the Vermont Slauson Economic Development Corporation and funded in part with a grant from the OCS. The Center provides space and services for about 30 start up and fledgling businesses within the community. Services, in particular, include shared clerical support, a computer lab, access to office equipment, and conference space. Additionally, the Center provides technical assistance, such as in marketing and financing; entrepreneurial training; loans; computer training; and monthly seminars.
Business Technology Center of Los Angeles County104
The Business Technology Center of Los Angeles County (BTC) is the self-proclaimed largest technology incubator in California with the mission of “assisting start-up and early stage technology firms grow and prosper.” The main services it provides are access to capital, business consulting, and mentoring from and Advisory Committee that has a wide range of skills, experience, and contacts in Southern California. The BTC is a 40,000 square foot facility opened in 1998 and located in Altadena, California, two miles away from the Jet Propulsion Laboratory. The building consists of 63 individual offices ranging in size from 125 to 590 square feet. The offices can be leased individually or in blocks. The BTC is also located within a state Enterprise Zone, which offers significant sate tax credits to businesses. Companies eligible for tenant status at the BTC must be start-up or early stage high technology firms and submit an application and attach a business plan for admission consideration. Tenants are charged a monthly fee based on the amount of space leased and the services used, including utilities, receptionist services, use of copiers and other office machines, access to the building's communication infrastructure, use of conference rooms and mentoring services. Lease terms are negotiated upon acceptance, and include either a small warrant position or royalty agreement. Firms located within the BTC have raised over $75 million from angel and venture capital investors.
Central Valley Business Incubator105
102 103
http://www.lacdc.org/economic/incubators/awbc.shtm http://www.vsedc.org/bizdev.htm 104 http://www.labtc.org/ 105 http://www.cvbi.org/
R26
The Central Valley Business Incubator is designed to stimulate economic growth and create jobs for the Central Valley. CVBI offers business development services and physical resources to ensure the success of local start-up companies. CVBI businesses tap into an array of professional services and gain access to consulting, professional office equipment, workshops, training and networking opportunities designed to grow their services. The CVBI has created over 1400 new jobs and over $10 million worth of capital has been infused into the Central Valley community.
CHARO Community Development Corporation106
The CHARO Community Development Corporation is a 501(c)(3) community-based nonprofit established in 1967 with the mission to be “an economic advocate and catalyst to the community; to provide community empowerment opportunities; to provide quality services and to contribute toward the economic and social improvement of [its] minority community.” The CHARO programs are designed with three primary goals in mind to create access to capital, to create jobs, and harness resources and economic opportunities for the low-income communities they serve. All services are provided in a bilingual/bicultural environment. CHARO operates a number of divisions including 36,000 square foot business incubation center that houses approximately 40 businesses with approximately 20 spaces currently available (see Table 11. CHARO Operating Divisions for a list of all divisions). While the constituencies differ slightly, the CHARO’s goals of economic empowerment and minority homeownership are quite similar with those proposed for the LAUL. Table 11. CHARO Operating Divisions107
CHARO Business & Financial Center The CHARO BFC offers fully integrated multifaceted solutions to new business owners, entrepreneurs, corporations and the community. The BFC is one of the leading SBA-certified intermediaries successfully packaging bank loans for Southern California business owners. CHARO Business Incubator The CHARO Business Incubator is a 36,000 sq. ft. shared services facility that promotes business enterprise development within our community by helping young firms survive and grow during the startup period. The Business Incubator will house approximately 40 businesses, including build to suit spaces. 20 spaces are available now. CHARO-SBA Women’s Center The Women’s Business Center, launched in October 2003, offers training and counseling on financial, management and marketing issues to assist and benefit small business concerns owned and controlled by women. The Center also provides information on how to start and grow a business, apply for federal and commercial loans, provide access to capital, develop Internet skills, and opportunities to partner with successful business mentors. Other services provided by the Women’s Business Center include technical assistance, loan packaging, postloan technical assistance and access to a Computer Resource Center. All services are offered in English and Spanish. Inland Empire Minority Business Development Center The Inland Empire MBDC, located in Riverside, is a Federally Funded Program by the Minority Business Development Agency U.S. Department of Commerce. The Inland Empire MBDC (Minority Business Development Center) serves as an economic catalyst, providing
106 107
http://www.charocorp.com/ http://www.charocorp.com/about.htm
R27
quality technical assistance, training and loan packaging services to high growth minority business owners in the Inland Empire, Orange County and San Diego areas. All services are provided in a bilingual/bicultural environment. California Institute of Business Management Offers skilled business professionals the NxLevel Entrepreneur Training Program. The Program is offered in both English and Spanish. Small business owners learn to prepare a business plan, develop a marketing plan, and complete a financial plan. Two courses are available, one for startup entrepreneurs and an advanced course for entrepreneurs in business 5 or more years. CHARO Child Development Centers The Child Development Centers are committed to providing quality childcare for all children, regardless of socioeconomic background or ethnicity. All staff is qualified according to state law, and have education and experience in Early Childhood Education and Child Development. The Whittier facility is licensed for 186 children, ages 2-5, from working and low-income families. Staff is bilingual English/Spanish. CHARO Research & Development Institute Serves as a resource bank for CHARO’s operating divisions and CHARO’s small business clients, with emphasis on the minority business sector. It was created to study economics and demographics of the local business community, and to develop successful methodologies for economic solutions and formulas to enhance business growth. CHARO Mortgage Center Launched Spring 2003, the Mortgage Center offers loan packaging assistance to individuals seeking to buy a home, refinance an existing mortgage or in need of a home equity line of credit. Services are offered in both English and Spanish. The Center also coordinates a series of Home Ownership Expos en Español, especially designed for first time home buyers with a focus on financial literacy. CHARO Environmental Services CES, in collaboration with the Department of Water and Power and the Neighborhood Bill Reduction Service, provides products and services to the community to help conserve water and energy. Facilities Management Division Established in 2002, FMD is responsible for facility operations, including rent collections and tenant improvements for the Business Incubator. CHARO Career Center Weekly, the Center receives over 1,000 new job listings with salaries ranging to $110,000. Jobseekers may access the high-speed Internet computers, fax and copier through the Business Technology lab.
FAME Renaissance108
FAME Renaissance Center is an incubation center located in South Central L.A. and funded by the FAME Assistance Corporation (FAC), a California nonprofit 501(c)(3) corporation, and an affiliate of First AME Church of Los Angeles. The focus of the Center is to serve as a “hub for South Central Los Angeles’ multimedia, entertainment technology and related businesses, by supporting fledgling new media companies as they advance through the various stages of business development.” In particular, they seek tenants in the markets of post production services, film & TV production, print media, educational media, interactive media, animation, computer related services, corporate communications, as well as other
108
http://www.famerenaissance.org/
R28
business support services. The Center provides shared resources, business mentoring, network opportunities, loans, an executive suite environment offering central reception, meeting rooms, and marketing support and training.109, 110
109 110
http://www.famerenaissance.org/2004/2K4_loans/2K4_loans.html http://www.famerenaissance.org/2004/2K4_about/2K4_about_center.html
R29
Reference L: Detailed Financial Estimates
Loans
Loan Name 7(a) Loan Low Doc SBAExpress Community Express Average Amount $1,000,000 150,000 350,000 250,000 Per Loan Revenue $2,000 300 700 500
Calculated by multiplying average loan times 4/5 (SBA's guaranty) times .02 (2% fee) divided by 4 (3/4ths of the fee goes back to the SBA.) divided by 2 (1/2 of the fee goes to lending bank)
CA State Loan
$200,000
$750
Calculated by multiplying average loan amount by 3/4 (75% state guaranty) times 2% loan fee divide by 4 (3/4ths of the fee goes back to the bank).
LAUL Microloan
$10,000
$1,649
ICA charges 8% interest rate to the borrower while paying an estimated 2% to various seed money sources.
504 Loan
$500,000
$19,107
Calculated by multiplying the average loan amount by 40% (CDC guaranteed) first, then summing monthly interest at 6% while paying 5% to the lender.
Year 1, sample ICA real estate development
Starting Capital Property Acquisition Land Development Yearly Rent Loan Interest Net Revenue $300,000 ($15000) ($225,000) $270,000 ($18,000) $23,500
Property Acquisition: $2/sq. ft times 7500 ft. lot111 Land Development: $30/sq. ft times 7500 ft. lot112 Yearly Rent: $3/sq.ft times 7500 ft. lot times 12 months Loan Interest: 4% of $300,000 loan (upper bound of SBA Sec 108 loans)
111 112
http://stlouis.missouri.org/government/ConsPlan/ConPlan5yr/chapIVe.html http://www.kohner.com/koh_in_news/aff%20hous%20fin/aff_hous_fin.htm
R30
First Year ICA Business Incubation Center
Starting Capital Property Acquisition Land Development Total rent from cubicles Total rent from suites Membership costs Workshops Loan Repayment Loan Interest Payments Net Revenue Current $300,000 ($12,000) ($120,000) $24,000 $36,000 $11,000 $30,000 ($300,000) ($14,800) ($45800)
Five Year Finances of ICA Incubation Center
Starting Capital Property Acquisition Land Development Total rent from cubicles Total rent from suites Membership costs Workshops Loan Repayment Loan Interest Payments Net Revenue Current $300,000 ($12,000) ($180,000) $120,000 $180,000 $55,000 $150,000 ($300,000) ($6,500) $306,500
Property Acquisition: $2/sq. ft times 6000 ft. lot113 Land Development: $30/sq. ft times 6000 ft. lot114 Rent from Cubicles (100 sq. ft): $100/month/cubicle times 20 cubicles Rent from Suites (500 sq. ft): $500/month/suite times 6 suites Membership: 20 members for 250/year and 6 members for $1000/year115 Workshops: 12 workshops (one per month) at $500 each attended by 5 businesses per workshop
113 114
Property Acquisition and Land Development Costs same as before Ibid. 115 Values for rent on cubicles and suites and membership rates given by Central Valley Business Incubator (see Reference M: Contacts).
R31
Reference M: Contacts
1601 North Kent Street Suite 1101 Arlington, Virginia 22209 Phone: 703-841-7760 Fax: 703-841-7748 E-mail: aeo@assoceo.org http://www.microenterpriseworks.org
Association for Enterprise Opportunity
Lonii Prevost Athens Westmont Business Center (AWBC) Email: Lonii.prevost@lacdc.org Phone: (323)242-6899 Fax: (323)777-2817 BEDI116 Frank McNally Office of Economic Development, HUD Phone: (202) 708-0614 ext. 7100 Email: Francis_P._Mcnally@hud.gov Business Technology Center 2400 N Lincoln Ave Altadena, California 91001 Phone: (626) 296-6300 Fax: (626) 296-6301 Email: info@labtc.org California Association of Enterprise Zones 550 Bercut Drive, Suite G Sacramento, CA 95814 Phone: 1-877-930-CAEZ Email: lwammack@ci.porterville.ca.us 7315 Wisconsin Ave., Bethesda MD 20814 800-248-0337 foundation@calvert.com
Business Technology Center117
California Association of Enterprise Zones118
Calvert Foundation
116 117
http://www.hud.gov/offices/cpd/economicdevelopment/programs/bedi/bedifacts.cfm http://www.labtc.org/ 118 http://www.caez.org/contact.htm
R32
Central Valley Business Incubator
2555 Clovis Ave. Clovis, CA 93612 Phone: (559) 292-9033 Email: info@cvbi.org California Lisa Vergolini, Chief State of California Department of Community Affairs 2710 Gateway Oaks Dr. North Bldg., Suite 190 Sacramento, CA 95833 Phone: (916) 263-0467 Fax: (916) 263-0489 Email: cbeaver@ci.alameda.ca.us Website: http://www.hcd.ca.gov/ Los Angeles Laura Ito, Director of Adminstration Support/Neighborhood Development (LACDD) Phone: (213) 744-9021 Website: http://www.lacity.org/ Greg Woo, Grants Administration Supervisor of Grants Administration/Neighborhood Development (LACDD) Phone: (213) 744-9021 Cliff Weiss, Deputy Director of Economic Development (LACDD) Phone: (213) 744-9364
CDBG, California119
CDFI Certification
Grants Management and Compliance Awards Manager 601 13th Street, NW, Suite 200, South, Washington, DC 20005 URL: http://www.cdfifund.gov URL (CDFI certification application): http://www.cdfifund.gov/docs/certification/cdfi/CertificationApplication.pdf CDFI Fund Grants Manager, TA Component, Bureau of Public Debt, 200 Third Street, Room 10, Parkersburg, WV 26101. (304) 480-5450 TA application: http://www.cdfifund.gov/docs/ta/2005/TA2005application.pdf CHARO Community Development Corporation 4301 E. Valley Blvd. Los Angeles, CA 90032 Telephone: (323) 269-0751 Fax: (323) 266-4326 Information Request: http://www.charocorp.com/information.htm
CDFI TA Assistance
CHARO Community Development Corporation120
119 120
http://www.hud.gov/local/ca/community/cdbg/index.cfm http://www.charocorp.com/index.htm
R33
City Attorney’s Office
Veronica Perez Managing City Attorney, American Dream Program Office of Los Angeles City Attorney Rocky Delgadillo 800 City Hall East 200 North Main Street Los Angeles, California 90012 Telephone: (213) 978-7199 Fax: (213-) 978-8787 Email: VPEREZ@atty.lacity.org Los Angeles County Craig Johnson Los Angeles County CDC, 2 Coral Circle Monterey Park, CA 91755-7432 Phone: (323) 890-7107 Fax: (323) 890-8575 Email: craig.johnson@lacdc.org Los Angeles, Eastside Monica Walters City of Los Angeles 215 W. 6th St., 3rd Floor Los Angeles, CA 90014 Phone: (213) 744-9363 Fax: (213) 847-0890 Email: mwalters@cdd.lacity.org Los Angeles, Central City Bob Biller City of Los Angeles 215 W. 6th St., 3rd Flr. Los Angeles, CA 90014 Phone: (213) 744-9336 Fax: (213) 847-0890 Email: rbiller@cdd.lacity.org Los Angeles, Northeast valley Alice DeCastro City of Los Angeles 215 W. 6th St., 3rd Flr. Los Angeles, CA 90014 Phone: (213) 744-9339 Fax: (213) 847-0890 Email: adecastro@cdd.lacity.org Los Angeles, Harbor Area Robert Valdez City of Los Angeles 215 W. 6th St., 3rd Flr. Los Angeles, CA 90014 Phone: (213) 744-9362 Fax: (213) 847-0890 Email: rvaldez@cdd.lacity.org Los Angeles, Mid-Alameda Corridor Olivia Segura City of Huntington Park 6550 Miles Ave., Room 134 Huntington Park, CA 90255 Phone: (323) 582-6254 Fax: (323) 584-6249+ Email: bchow@huntingtonpark.org Margarita Calderon City of Los Angeles 215 W. 6th St., 3rd Flr. Los Angeles, CA 90014 Phone: (213) 744-9338 Fax: (213) 847-0890 Email: mcaldero@cdd.lacity.org Sandra Rodriguez City of South Gate 8650 California Ave. South Gate, CA, 90280 Phone: (323) 563-9529 Fax: (323) 567-0725 Email: slefever@sogate.org
Economic Development Incentive Program (Enterprise Zone Contacts)121
121
http://www.caez.org/about_caez/members.htm
R34
F.B Heron
Mary Jo Mullan Vice President, Programs The F.B. Heron Foundation 100 Broadway, 17th Floor New York, NY 10005 Fax: 212-404-1805 http://www.fbheron.org/ Phone: (916) 263-0485
HCD Enterprise Zone/LAMBRA122 HUD, Los Angeles123
Dept. of Housing and Urban Development AT&T Building 611 West Sixth Street, Suite 800 Los Angeles, CA 90017 Theresa Camiling, Field Office Director Email: Pennie_Acevedo@hud.gov Phone: (213) 894-8000 Fax: (213) 894-8096
LAHD City Surplus Property Program Los Angeles124
Sergio Tejadilla Email: STejadilla@lahd.lacity.org Kermit Hathcoat Phone: (323) 890-7041 Fax: (323) 890-8575 Email: kermit.hathcoat@lacdc.org
122 123
http://www.hcd.ca.gov/fa/cdbg/ez/ http://www.hud.gov/local/index.cfm?state=ca&topic=offices#la 124 Ibid.
R35
Los Angeles Revitalization Zone125
Compton (310) 605-5580 Hawthorne (310) 970-7939 Huntington Park (323) 584-6270 Inglewood (310) 412-5290 Lawndale (310) 970-2130, ext. 134 Long Beach (562) 570-3821 Los Angeles (213) 485-1022
Lynwood (310) 603-0220, ext. 253 Pomona (909) 620-2034 Signal Hill (310) 989-7328 Unincorporated Areas of Los Angeles County (323) 890-7107 Department of Housing and Community Development (916) 263-0485. Franchise Tax Board (916) 845-3464
Multifamily Housing Program126 New Profit
Anne Gilroy (916) 323-3178 New Profit Inc. 2 Canal Park Cambridge, Massachusetts 02141 Phone: (617) 252-3220 Fax: (617) 252-2100 Info@newprofit.com http://www.newprofit.com/documents/NewProfitStatementOfInterestForm.pdf Suite M-100 Washington, DC 20006 (202)689-8935 Application: http://www.pcg21.org/pdf/Borrower_Loan_Application.doc PCG Lending Department at (202) 689-8937 pcg@pcgloanfund.org 330 North Brand, Suite 1200 Glendale, CA 91203 (818) 552-3215 Established Contact: Lorenzo J. Flores Acting Deputy District Director (818) 552-3290 http://www.sba.gov/ca/la/
Partners for Common Good
SBA – Los Angeles District Office
125 126
http://www.hcd.ca.gov/fa/cdbg/ez/larz/index.html http://www.hcd.ca.gov/fa/mhp/
R36
Union Bank of California Susana Lopez, Foundation Officer 445 S. Figueroa Street, 4th Floor (Mail Code G04-110) Los Angeles, CA 90071 Grant guidelines: http://www.uboc.com/about/main/0,,2485_3917,00.html US Bancorp Karen A. Clark U.S. Bank LM-CA-T29A 633 West Fifth Street, 29th Floor Los Angeles, CA 90071 (213) 615-6405 Office Application: http://www.usbank.com/about/community_relations/pdf/May2005USBancorpGrantA pplication.pdf Grant guidelines: http://www.usbank.com/cgi_w/cfm/about/community_relations/grant_guidelines.cfm
Wells Fargo Foundation, Jonathan Weedman, Regional Vice President Wells Fargo Foundation Los Angeles Metro 333 South Grand Avenue, MAC E2064-200 Region127 Los Angeles, CA 90071 (213) 253-7118 Email: weedmanj@wellsfargo.com Wells Fargo Housing Foundation128 Avni Pandya, Foundation Assistant Wells Fargo Housing Foundation, MAC N9305-192 90 South 7th Street, Minneapolis, MN 55479 Phone: (612) 667-5131 CPDC YouthBuild 3774 Budlong Avenue, Suite A Los Angeles,CA 90007 (213)280-0298 LA CAUSA YouthBuild 1117 Goodrich Boulevard Los Angeles,CA 90022 (323) 887-2500 Los Angeles Conservation Corps P.O. Box 15868 Los Angeles,CA 90015 (213) 747-1872 PACE/SIPA YouthBuild 1501 Wilshire Blvd., Suite 100 Los Angeles,CA 90017 (213) 353-1700 Watts LCAC 10950 South Central Avenue Los Angeles,CA 90059 (323) 563-4708
YouthBuild, Los Angeles129
127 128
http://www.wellsfargo.com/about/charitable/ca_apply http://www.wellsfargo.com/about/wfhf/guidelines 129 http://www.ybwebsta.org/closest/closestsite.cfm
R37
Appendix A: Residential Real Estate Services
Residential Property Uses
Single-family units In order to promote home ownership, a rent-to-own program is advisable for Inner City Angels to implement on single-family unit properties it owns. While doing so would not necessarily provide long-term funds, it would provide a mechanism for low- and moderate-income families to achieve homeownership and thereby obtain a sense of ownership in the community, a key component to the success of a neighborhood under rehabilitation. Multiple-family units In contrast, many families may find it more desirable to occupy multiple-family units given the lower monthly costs as well as decreased attachment to the living space, particularly if the multiple-family unit is simply serving as transitional housing. These properties are of particular value to Inner City Angels in that they provide a generally steady cash flow as well as permit much greater concentrations of individuals to live nearby economic centers and, ideally, generate a sense of community among nearby residents.
Grants
HOME Program/Community Housing Development Organization (CHDO)130, 131 The HOME program, which is also operated by HUD, provides grants to participating jurisdictions (PJs)—state and local governments designated by HUD to administer HOME program grants—to fund activities that “build, buy, and/or rehabilitate affordable housing for rent or homeownership or provide direct rental assistance to low-income people.” Funds may be used to provide home purchase or rehabilitation financing assistance to eligible homeowners and new homebuyers; build or rehabilitate housing for rent or ownership; or for “other reasonable and necessary expenses related to the development of non-luxury housing,” including site acquisition or improvement, demolition of dilapidated housing to make way for HOME-assisted development, and payment of relocation expenses. For rental housing and rental assistance, at least 90% of benefiting families must have incomes that are no more than 60% of the HUD-adjusted median family income for the area. In rental projects with five or more assisted units, at least 20% of the units must be occupied by families with incomes that do not exceed 50% of the HUD-adjusted median. The incomes of households receiving HUD assistance must not exceed 80% of the area median. Furthermore, HOME-assisted rental housing must comply with certain rent limitations, such as maximum per unit subsidy limits and
130 131
http://www.hud.gov/offices/cpd/affordablehousing/programs/home/index.cfm http://www.hud.gov/offices/cpd/affordablehousing/programs/home/topical/chdo.cfm
A1
maximum purchase-price limits. HOME income limits and rent limits are published annually by HUD (see Table 12. Adjusted HOME Income Limits in Los Angeles as of February 2005 and Table 13. Adjusted HOME Rent Limits in Los Angeles as of February 2005 for limits). In fiscal year 2004, the City of Los Angeles had nearly 1600 open activities, with minimum, average, and maximum budgets of $120, over $200,000, and $16.7 million, respectively.132 In fiscal year 2005, Los Angeles received nearly $43 million in HOME funds from the HUD.133 As with the CDBG, the LAUL would have to work with the Los Angeles entitlement community to access these funds directly or indirectly (see Reference M: Contacts for the Los Angeles HUD office). However, another source of funds made available directly to nonprofits through the HOME program is the Community Housing Development Organization (CHDO) program. To be eligible to become a certified CHDO, an organization must be incorporated under state or local law, must have a provision of decent housing that is affordable to low and moderate income people among its purposes, benefit no individual, have a clearly defined geographic service area, and be a 501(c) nonprofit.134, 135 At least one-third of a CHDO’s board must also consist of representatives of the low-income community served by the CHDO; no more than one-third of the organization’s board may be representatives of the public sector; and they must demonstrate a history of serving the community (at least one year of experience for either the parent organization or the entity itself).136, 137 CHDOs may serve as owners, developers, and sponsors of projects undertaken with funds derived from the 15% set-aside by a PJ for CHDOs. They may also receive special assistance, such as predevelopment loans, technical assistance, or operating funds, from a PJ that is not available to other types of organizations; perform certain services as contractors to PJs; and contract with PJs in the same ways as other nonprofit subrecipients.138 At the discretion of the PJ, certified CHDOs may also receive pre-development assistance in the form of loans made available to ensure access to funds for upfront, eligible project expenditures; receive funds to cover general operating expenses; be authorized to retain some or all of the proceeds generated from an activity; and receive funds to build the capacity of the CHDO itself.139 In order to become a CHDO, an organization must petition the PJ in its area for certification as well as meet all necessary criteria.140
Table 12. Adjusted HOME Income Limits in Los Angeles as of February 2005141
Program 30% Limit Very
132 133
1 Person $13,750 22,950
2 Person $15,700 26,200
3 Person $17,700 29,500
4 Person $19,650 32,750
5 Person $21,200 35,350
6 Person $22,800 38,000
7 Person $24,350 40,600
8 Person $25,950 43,250
http://www.hud.gov/offices/cpd/affordablehousing/reports/open/ca/index.cfm http://www.hud.gov/offices/cpd/communitydevelopment/budget/index.cfm 134 http://www.hud.gov/offices/cpd/affordablehousing/training/chdo/characteristics/legal/index.cfm 135 http://www.hud.gov/offices/cpd/affordablehousing/training/chdo/characteristics/chdochec.pdf 136 http://www.hud.gov/offices/cpd/affordablehousing/training/chdo/characteristics/orgstructure/index.cfm 137 http://www.hud.gov/offices/cpd/affordablehousing/training/chdo/characteristics/experience/index.cfm 138 http://www.hud.gov/offices/cpd/affordablehousing/training/chdo/roles/index.cfm 139 http://www.hud.gov/offices/cpd/affordablehousing/training/chdo/assistance/index.cfm 140 http://www.hud.gov/offices/cpd/affordablehousing/library/building/ch08.pdf 141 http://www.hud.gov/offices/cpd/affordablehousing/programs/home/limits/income/2005/california.pdf
A2
Low Income 60% Limit Low Income
27,540 36,700
31,440 41,900
35,400 47,150
39,300 52,400
42,420 56,600
45,600 60,800
48,720 65,000
51,900 69,150
Table 13. Adjusted HOME Rent Limits in Los Angeles as of February 2005142
Program Low HOME Rent Limit High HOME Rent Limit Fair Market Rent 50% Rent Limit 65% Rent Limit Efficiency 573 725 746 573 725 1 Bedroom $614 778 900 614 778 2 Bedroom $737 936 1,124 737 936 3 Bedroom $851 1,074 1,510 851 1,074 4 Bedroom $950 1,178 1,816 950 1,178 5 Bedroom $1,048 1,281 2,088 1,048 1,281 6 Bedroom $1,146 1,385 2,361 1,146 1,385
Government and corporate sponsorships and partnerships
Home Depot 143, 144 The Home Depot Foundation (HDF) is the community service arm of the Home Depot Corporation whose mission is to “build affordable, efficient and healthy homes while promoting sustainability by supporting nonprofit organizations with funding and volunteers.” HDF makes quarterly grants ranging from $10,000 to $50,000 available to organizations and programs meeting its eligibility test and who successfully apply for a grant. On a more local level, each Home Depot store or facility has a Team Depot volunteer program which donates volunteer work, expertise, product donations, and monetary grants145. While this program largely targets transitional housing and housing for low to moderate income families in addition to environmental protection and disaster preparedness, they could also be open to large community rehabilitation projects. Receiving such involvement from the Home Depot Corporation would require contacting local Home Depot stores. Inner City Angels could also seek a partnership with Home Depot, though most of its partnerships appear to be geared toward athletic and environmental programs.146 Lowe’s147 Like Home Depot, Lowe’s has a history of community and housing involvement. The Lowe’s Charitable and Educational Foundation (LCEF) has donated more than $3 million annually to areas where Lowe’s operates stores and distribution centers. While the majority of funds have targeted schools and community green spaces, there appears to be at least a few projects geared toward community revitalization and citywide cleanups.148 To receive funds, a successful applicant must be a 501(c)(3) tax-exempt nonprofit
142 143
http://www.hud.gov/offices/cpd/affordablehousing/programs/home/limits/rent/2005/california.pdf http://www.homedepotfoundation.org/ 144 http://www.homedepot.com/HDUS/EN_US/corporate/corp_respon/corp_respon.shtml 145 http://www.homedepot.com/HDUS/EN_US/corporate/corp_respon/hd_community.shtml 146 http://www.homedepotproposals.com/ 147 http://www.lowes.com/lowes/lkn?action=pg&p=AboutLowes/Community 148 http://www.lowes.com/lowes/lkn?action=pg&p=AboutLowes/LCEFChart.html
A3
organization or public agency as well as pass an eligibility test.149 Grants range from $5,000 to $25,000. Like Home Depot, local Lowe’s stores have the ability to help community rehabilitation projects by providing expertise and product donations or discounts, as well as, potentially, volunteer work and monetary. Wells Fargo150 Within California, Wells Fargo offers grants to organizations that help people and communities of low and moderate income in the areas of affordable housing, training people to find and retain jobs, and community revitalization and stabilization.151 To apply for a grant, applicants must complete and submit the grant proposal checklist (see Table 14. Wells Fargo Housing Foundation Funding Restrictions). While there is no firm deadline, it is recommended that submissions are made as early in the year as possible. Additionally, Wells Fargo often sponsors events, such as fundraising walks and community fairs, or purchases tables at such events. In order to be considered for such funding, an organization must provide a set of documents at least 60 days prior to the event (see Table 15). Completed proposals should be sent via U.S. mail (only) to the Wells Fargo Foundation for the Los Angeles Metro Region. Table 14. Wells Fargo Housing Foundation Funding Restrictions152
The Foundation does not fund: Organizations not exempt under IRS Code 501(c)(3) Organizations that have not completed at least two audit cycles Organizations designed primarily for lobbying Religious organizations for religious purposes Endowment campaigns Video or film production Individuals Political campaigns Fundraising dinners Purchase of advertising Recreation programs Club memberships
149 150
http://www.lowes.com/lowes/lkn?action=frameSet&url=apps.bridgetree.com/funding/default.asp http://www.wellsfargo.com/about/wfhf/guidelines 151 http://www.wellsfargo.com/about/charitable/ca_guidelines 152 http://www.wellsfargo.com/about/wfhf/guidelines
A4
Table 15. Wells Fargo California Grant Proposal Checklist and Required Documents for Sponsorship153
Grant Proposal Checklist A statement describing how the funds requested will serve a low- or moderate-income population, and what percentage of that population will be served. A description of what your organization does, whom you serve, your history, and major accomplishments. Please provide a detailed description of the program you wish Wells Fargo to consider funding, the amount of funding you are requesting, and the expected outcomes. Include contact, mailing, and telephone information. The entire document should be no longer than five pages. A copy of your organization's current IRS letter or nonprofit designation as a governmental or tribal entity and the Federal Tax ID number. Your IRS status must be current and include the Federal Tax ID number. Your organization must have its own tax-exempt status—IRS 501(C)(3) or IRS 501(C)(6)—or must be a qualified governmental or tribal entity. Your organization's current annual operating budget. Your organization's most recent financial statement. A project budget if you are applying for a specific project. A list of your Board of Directors. A list of your major funding sources (other corporations, etc.) and funding level of support. Required Documents for Sponsorship Event invitation or brochure Current IRS 501(c)(3) or 501(c)(6) letter with Federal Tax ID number Event budget, including a list of other funders
Bank of America154 Part of Bank of America’s mission in the community is to offer “lending and investment products that serve low- and moderate-income individuals and families, improve underserved low- and moderate-income communities, and create sustainable practices for the long haul.”155 To obtain these goals, Bank of America operates a number of projects, including the oldest and largest bank-owned community development corporation (CDC) in the nation, which works with nonprofit community-based CDCs to restore home ownership in targeted neighborhoods, help develop multifamily affordable housing, create public housing development partnerships, and help fund retail, commercial and mixed-use developments in targeted neighborhoods.156 Bank of America also invests in venture funds that provide intermediary financing to businesses that have historically not been able to readily access the capital markets. These funds largely consist of investments in women- or ethnic minority-owned, managed, or targeted companies, funds that focus on low- and moderate-income individuals and geographies or that promote other economic development initiatives, and funds that have been licensed as Small Business Investment Companies (SBICs).157 Bank of America Charitable Foundation158 The Bank of America accepts grant applications through the Bank of America Charitable Foundation. Organizations seeking these grants must be 501(c)(3)
153 154
http://www.wellsfargo.com/about/charitable/ca_apply http://www.bankofamerica.com/community/ 155 http://www.bankofamerica.com/community/index.cfm?template=cdb_comm_impact 156 http://www.bankofamerica.com/community/index.cfm?template=cdb_commdevcorp 157 http://www.bankofamerica.com/community/index.cfm?template=cdb_venturefunds 158 http://www.bankofamerica.com/foundation/index.cfm?template=fd_grant_application_bofa
A5
nonprofits as well as pass their eligibility quiz. Examples of past successful community revitalization programs are listed below in Table 16. Neighborhood Excellence Initiative159 The Neighborhood Excellence Initiative provides funds in two categories of relevance to Inner City Angels. The first category, Neighborhood Builders, provides $200,000 in general operating support and provides leadership training over two years to two nonprofit organizations working to create vibrant neighborhoods. The second category, Local Heroes, recognizes five community heroes and directs a $5,000 contribution to the nonprofit of their choice. Applicants to the Neighborhood Builders category must be 501(c)(3) nonprofits whose focus closely reflects local neighborhood priorities and who have demonstrated a record of success. Applications should also discuss how grant funding and leadership development opportunities will help your organization realize its mission more fully and enhance the impact of its work in the community. Nominations for the Local Heroes categories must demonstrate that the nominee has made a special and significant impact on individuals, families or the community at large, inspired others to community service, or been a catalyst for new visions, understanding and change in a community. The next round of applications for both categories will begin in first quarter 2006 and can be submitted online.160, 161 America—Block by Block162 America—Block by Block is a Bank of America initiative to invest in and make loans for community development efforts and target neighborhood revitalization efforts.163 The program currently operates in only four cities, Los Angeles being one of them. The Inner City Angels should leverage its contacts within Bank of America in order to learn more about obtaining investments and loans through this program. Table 16. Bank of America Foundation Success Stories164
Nationally, Goodwill Industries International's Retention Through Technology launched a pilot project to support new workforce retention. The project highlighted intensive computer skills training, resulting in a studentbuilt "virtual" community of supportive mentors, caseworkers and employers. The Web-based community included an online portal to a distance-learning curriculum that focused on retention, advancement and life skills. In Florida, a variety of neighborhood-based organizations received grants to support a five-year East Tampa neighborhood revitalization program called America-Block by Block. Contributions supported a community early childhood development center, grassroots community revitalization efforts and improvement to local parks and playgrounds. In Texas, more than 175 rural and urban community development
159 160
https://www.bankofamerica.com/foundation/index.cfm?template=fd_neighborexcell http://www.cybergrants.com/boa/neighborhoodbuilders 161 http://www.cybergrants.com/boa/localheroes 162 http://www.bankofamerica.com/foundation/index.cfm?template=fd_progrelinvest 163 http://www.bankofamerica.com/foundation/index.cfm?template=fd_americablock 164 https://www.bankofamerica.com/foundation/index.cfm?template=fd_success
A6
organizations received intern assistance, in-depth training workshops and technical help to improve their management, fundraising and development capabilities through the Catalyst Program.
A7
Appendix B: Unsuccessful Pursuits
SBA 7(m) Microloans
The SBA microloan program has been in danger of being cut for several years now, and it is not in the FY 2006 budget. Therefore, we do not propose that the LAUL become a microloan intermediary; however, the details below are provided for general background information on this program in case it is revived in the future. Microloans of up to $35,000 are made to for-profit small businesses and nonprofit childcare centers by nonprofit intermediary lenders. Loans are not guaranteed by the SBA, and the maximum loan term is 6 years. Funds can be used for working capital and acquisition of materials, supplies, furniture, fixtures, and equipment. Start-ups are accepted. Potential lenders must accumulate 1 year of microlending experience and technical assistance before qualifying to become an intermediary. Lenders must provide business and technical training to borrowers. For every loan the intermediary makes, it must contribute 15% of the amount from non-Federal sources, and the funds cannot come from a loan. Intermediary can also receive a grant from the SBA of no more than 25% of its outstanding balance of SBA loans to the intermediary, but it must contribute 25% of that grant on its own from non-federal sources. Intermediary is charged interest equal to 5 year U.S. Treasury rate, minus 1.25%. Money in the MRF and LLRF (described below), plus notes receivable, can be seized as the SBA has a first lien position on these funds. “The Microloan Revolving Fund (“MRF”) is an interest-bearing Deposit Account into which an Intermediary must deposit the proceeds from SBA loans, its contributions from nonFederal sources, and payments from its Microloan borrowers. An Intermediary may only withdraw from this account the money needed to establish the Loan Loss Reserve Fund, proceeds for each Microloan it makes, and any payments to be made to SBA. The Loan Loss Reserve Fund (“LLRF”) is an interest-bearing Deposit Account which an Intermediary must establish to pay any shortage in the MRF caused by delinquencies or losses on Microloans. An Intermediary must maintain the LLRF until it has repaid all obligations it owes SBA. Until it is in the Microloan program for at least five years, an Intermediary must maintain a balance on deposit in its LLRF equal to 15 percent of the outstanding balance of the notes receivable owed to it by its Microloan borrowers (“Portfolio”).”165 In case the SBA microloan is revived, the LAUL can take the following steps to become an intermediary: i. After establishing at least 1 year of non-SBA microlending experience with loans of less than $35,000 and 1 year of providing technical assistance to borrowers, apply with the local SBA office to become an SBA microloan intermediary.
165
http://www.sba.gov/financing/sbapartner/microloan.html
A8
ii.
Complete application should address following points: 1. What kinds of businesses did the LAUL lend to in the past? What kinds of businesses will the LAUL most likely lend to in the future? 2. How large was the average loan amount? How large will the average loan amount be? 3. Will the LAUL offer microloans to small businesses in rural areas? To what extent? 4. Which specific geographic area will the LAUL serve with microloans? What are the area’s economic and demographic characteristics? 5. How easy and affordable is it for small businesses to get credit in this area? 6. How is the LAUL qualified and experienced in giving assistance to small businesses, in the form of marketing, management, and technical assistance? 7. Will the LAUL take advantage of other agencies, such as SBDC (Small Business Development Center) or SCORE (Service Corps of Retired Executives), to assist its microloan borrowers?
iii.
During the first year as an intermediary, a maximum of $750,000 may be borrowed from SBA. The intermediary does not have to pay back any amount within the first year, but interest accumulates as soon as the loan is given out by the SBA. Establish Microloan Revolving Fund (MRF). Establish Loan Loss Reserve Fund (LLRF). Apply for non-federal grants to cover 15% of loans received from SBA. Possible sources include Community Development Block Grants, bank grants and state/local government grants. Apply for SBA microloan program grant to provide microloan borrowers with technical assistance. It is important to highlight specifics about how many jobs have been created through these microloans. Be aware of how to become a Specialized Intermediary, which carries additional benefits. Specialized Intermediaries are designated at the end of the first year of lending and reviewed annually. They must have given out microloans averaging less than $7,500. Specialized Intermediaries are eligible for lower interest loans from the SBA, and more technical assistance grants.
iv. v. vi.
vii.
viii.
California State Guaranty Program166
Local nonprofit lending corporations offers guaranty on an otherwise unattractive loan on behalf of the state. Borrowers that may not be able to receive loans otherwise are now more
166
http://www.sfvfdc.org/guaranty.htm
A9
attractive to potential lenders. This loan is currently administered by eleven Financial Development Corporations (FDCs)in California, six of which are in Southern California. According to Small Business Financial Assistance Program Manager Glenn Stober, there are no current plans to expand this program to include more FDCs in Southern California. Table 17. California State Guaranty Program167
Eligible Applicants Eligible Use of Proceeds Include any small business as defined by the Federal Small Business Administration (SBA). Must be for any standard business purpose beneficial to the applicant’s business, such as expansion into new facilities, working capital, debt refinance or for the purchase of new equipment. Term Loans, Lines of Credit and Letters of Credit $350,000, or up to 90% of the loan amount, whichever is less. The guaranty’s percentage may vary and is subject to negotiation between the SFV-SBDC and the lender. May extend up to seven years. The loans are typically fullyamortized, but up to a 25-year amortization is allowed for owner occupied real estate. Negotiated between the borrower and the lender. SFV – FDC charges a guaranty fee of 2% of the amount guaranteed, plus a documentation fee of $250. Required, if available, but each transaction is tailored to meet the borrower’s financial situation. NONE – Lenders use their own packaging procedures and documents in processing and closing loans.
Loan Types Maximum Guaranty Amount Term of the Guaranty Interest Rates and Fees Collateral Lender Requirements
The Entheos Company168
The Entheos Company attempted to launch an innovative partnership between the private sector and nonprofit organizations. Residential phone customers would use Entheos as their long distance provider, and a portion of their monthly phone bill would be donated to participating nonprofit partners of the customers’ choice. Entheos, in return, would benefit from low-cost marketing, as the customers and nonprofits would be performing the bulk of the marketing. After sampling various partner nonprofits listed on Entheos’ website, it was clear that the contributions to nonprofits were insignificant. After interviewing a sample from the list of partner nonprofits, it became clear that the contributions to them were insignificant. We then interviewed the founder of Entheos, Thorsten Hoins, who confirmed that the company was not launched successfully.
167 168
http://www.sfvfdc.org/guarantee.htm https://weredoinggood.com/
A10