Small Business Closures Factors Big in Manhattan Borough President Debate -

Small Business Closures Factors Big in Manhattan Borough President Debate -

Small Business Closures Factors Big in Manhattan Borough President Debate -

Posted: 10 Oct 2020 01:00 PM PDT

New York, NY—New York State Comptroller Thomas DiNapoli recently issued a report that as many as half of New York City's restaurants could close indefinitely over the next year because of the coronavirus pandemic. On top of that, recent surveys indicate that the city may lose one-third of its small businesses. The five candidates running to be the next Manhattan Borough President explained recently during a debate their ideas and solutions to prop up small business during the pandemic.

N.Y. State Sen. Brad Hoylman (D-Manhattan) first said that the statistic of one out of three small businesses never returning is so alarming that it'll require government to jump start the city's brick-and-mortar businesses.

That's why he's introduced a bill with Assembly Member Harvey Epstein (D-Manhattan) that would allow small businesses that have suffered demonstrable loss in income resulting from state mandated closures or state-imposed restrictions to receive support.

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"These businesses were forced to close due to no reason of their own and we need government to step up and provide support," said Hoylman.

He'll also advocate for cutting red tape and reducing city fines and violations that don't pertain to health or safety.

For example, he wants to restore the NYC Awning and Accessory Sign Amnesty Program because in some cases businesses can accrue fines of up $25,000 for awning violations.

In addition, he wants to leverage and utilize the city's public and private legal expertise to assist small businesses.

"The borough president's office, a bully pulpit, a legislative office in part can tap into private entities and experts willing to offer pro-bono services. I want to work with the New York City Bar Association to create a pro-bono legal clinic for small business as they try to navigate these difficult issues, including their leases," Hoylman said.

Council Member Ben Kallos (D-Manhattan) said that if he's lucky enough to be Manhattan's next borough president he would work with the business community to stabilize commercial rents, eliminate the commercial rent tax in Manhattan and create incentives for landlords to keep their retail spaces active.

"We can and must work together in a public/private partnership to rebuild this city for all of us," said Kallos.

Council Member Mark Levine (D-Manhattan) noted that small businesses are indeed facing an existential threat which requires urgent action on the city and state level.

For example, he's supporting legislation on the city level by Council Members Brad Lander (D-Brooklyn) and Keith Powers (D-Manhattan) and the state level by Sen. Brian Kavanagh (D-Brooklyn) and Assemblywoman Yuh-Line Niou (D-Manhattan) to give landlords tax breaks if they provide more lenient leases.

He also pointed to recent legislation that passed in the Council that expands a program providing free attorneys to low-income entrepreneurs that will defend them against evictions, renegotiate leases and help them with the difficult application for government funding and assistance.

Before beginning his public office career, Levine founded a credit union in Washington Heights that ultimately provided $25 million in small loans to low-income families and small businesses. He wants to leverage that experience by creating New York City's first public bank. 

"This is something I've worked on in my career through my work in starting a credit union uptown, and it's something that I want to supercharge for New York City by creating a public bank that would invest in the kinds of community-based lenders that can make credit readily available to entrepreneurs who need it, who will put it to good use to grow their businesses, to grow our economy," said Levine.

"This is going to be a major priority for me in this campaign, and certainly will be if I'm lucky enough to be the next borough president."

Meanwhile, Kimberly Watkins, who is married to a small business owner and is a business owner herself, highlighted the many years she has spent in executive positions, having had experience hiring and managing dozens of people at a time, up to hundreds of people at time.

"We need to think of a long game of a decade or two out of what small businesses are going to be like," said Watkins.

And Elizabeth Caputo, who works at the World Economic Forum and was previously the Chair of Community Board 7, said that she would work to ensure that small business has a voice in local government.

"I think that business owners feel that they, in terms of my conversations with them, don't have a voice in our local government. And one of the things we need to do is leverage the convening power of the borough president to bring small business owners together with government," began Caputo.

"I did that when I was chair of Community Board 7 where I established a business to business networking session every quarter on the Upper West Side. It led to great relations with different communities and it expanded our outreach throughout the borough and throughout all the different neighborhoods on the Upper West Side. I believe strongly that this is something that could be expanded throughout the borough."

New York State Small Business Fund Shows Promise Reaching the Unreachable - Next City

Posted: 06 Oct 2020 03:01 AM PDT

Until the COVID-19 pandemic hit, Denise Gaines had never taken out a loan for GG Bakes. After years of talking about starting a baking business together, Gaines, her sister and their mother launched GG Bakes in 2013. In Rochester, New York, they converted the first floor unit of their duplex into a certified commercial kitchen, buying used commercial baking equipment off Craigslist.

Neither had Kate Fryer ever taken out a loan for A Bead Just So, the full-service beading storefront she opened in 2013, just south of Saratoga Springs, New York. You can walk in with zero jewelry-making experience and walk out with something you just learned how to make. "I scrimped and saved, had an office job at the time and saved a ton of vacation time, cashed that out at the end and borrowed some money from my parents," says Fryer.

Looking for help to make it through the COVID-19 recession, both owners looked at the Small Business Administration's Paycheck Protection Program, but the loans weren't a good fit. The program requires that at least 75 percent of each loan be spent on payroll expenses in order for the loans to be forgiven — leaving out many of the smallest businesses like both of them. Payroll just isn't that high a percentage of operating costs, and like many other owners, Fryer had already let employees go. Meanwhile, at least 440 publicly traded companies received more than a billion dollars from the program.

GG Bakes and A Bead Just So instead turned to the $100 million New York Forward Loan Fund, partnership between New York State and an array of private funders and lenders.

Fryer used some of her loan proceeds on new inventory and pivoting into online sales, and the rest on paying rent for the storefront. Gaines used her loan proceeds on supplies to kickstart the business after a few months of almost no orders — their biggest client has been Rochester Institute of Technology, which came back this fall semester and doubled its usual pre-pandemic weekly order size.

"Ninety percent of our business was gone," says Gaines. "Thank goodness for this loan, it made it possible to get back to where we are today. I think we will make it through the year at least."

The New York Forward Loan Fund has focused on those small businesses that other programs haven't. Seventy-four percent of the businesses funded so far are owned by women or people of color, and 86 percent have five or fewer employees. It's also an example of how smaller amounts of public sector dollars can make larger sums of credit available for such businesses — in this case, $20 million from New York State made $100 million available in loans.

Still, the roll out of the fund has been slower than expected — out of more than 11,000 applications, just 228 loans have gone out, totaling just $10 million so far, an average of $44,000. Loan sizes have ranged from $2,300 to the program maximum of $100,000.

The fund is using a loan participation model to work. In a loan participation, one organization approves and originates a loan, and one or more other organizations supply part of the borrowed amount behind the scenes. Loan participations are common between private lenders, but it's rarer for a public sector initiative or partnership to use loan participations.

In its case, the New York Forward Loan Fund is supplying 95 percent of the borrowed amount. The five percent that comes from the originating lender is meant to ensure it has an incentive to approve loans only to businesses it has confidence will be able to pay it all back. With 95 percent coming from somewhere else, the idea is for the originating lender to be able to approve more loans than it would have the capacity to approve based on its own balance sheet limitations.

There is one particularly shining example of how the public sector can use loan participations to support local lending on an ongoing basis, not just during emergencies. The century-old Bank of North Dakota, the nation's only state-owned depository institution, does the vast majority of its lending through participating in loans originated by community banks and credit unions around the state. It is a big reason why community banks have a larger market share in North Dakota than any other state.

In Minneapolis, the city's Two-Percent Loan Program also uses a loan participation model to support low-cost loans to small businesses for purchasing equipment or buildings.

The Federal Reserve is now using a loan participation model for its Main Street Lending Program — which is having its own challenges rolling out. So far, out of $600 billion in lending capacity, that program put out just $1.1 billion in loans to just 118 businesses as of August 31, the most recent available data from the Federal Reserve.

CornerSquare Community Capital, a new initiative launched as a result of the merger between BB&T and SunTrust banks, also recently announced it will be using a loan participation model to support lending to "racially and ethnically diverse small business owners, women, and individuals in low- and moderate-income communities, with a focus on African American-owned small businesses."

One key strategic question for anyone using a loan participation model is who will serve as the originating lenders. A hundred years ago, when North Dakota legislators created their state-owned bank, they prohibited it from competing with the private sector — so it has always partnered with local financial institutions to make most of its loans.

To originate its loans, the New York Forward Loan Fund specifically brought in five community development financial institutions, or CDFIs — organizations with federal certification for having a primary mission of serving low-to-moderate income communities.

CDFIs don't use algorithms to process applications, and they have experience serving the kinds of communities and borrowers that were largely left out of the Paycheck Protection Program — especially businesses that didn't have a pre-existing lending relationship with a bank, such as GG Bakes or A Bead Just So. Having a business bank account doesn't necessarily mean having a relationship with the small business lending arm of a bank.

As with all their loans, each CDFI is also able to offer additional guidance and advisory services for borrowers, such as assistance with setting up for online sales. Under loan participations, the originating lender handles all the interactions with borrowers before and after making a loan, while the participating lender stays behind the scenes.

The New York Forward Loan Fund incorporated a trust as a special-purpose vehicle to do the loan participations with CDFIs. The trust secured $20 million in state funds, half from the state economic development agency, and half from the state's affordable housing agency. It's using that $20 million as a loan loss reserve to enable $100 million in borrowing from 11 foundations and large financial institutions.

Like many state or local emergency loan or grant programs during the COVID-19 pandemic, the New York Forward Loan Fund created a single portal for its application process. One of the five CDFIs takes the lead on originating a loan based on size or sector or other factors. GG Bakes got its loan from Accion East; A Bead Just So got its loan from Pursuit.

Building the New York Forward Loan Fund required no fewer than 21 funders, agencies, foundations and lenders to agree on a fund structure, uniform loan terms, funder terms servicing agreements and impact reporting procedures. The nonprofit investment firm Calvert Impact Capital took the lead on structuring the fund and working with all parties to finalize details. The firm is hoping to use this fund as a model for others during the pandemic and beyond.

"I feel like all the parties involved including the foundations, CDFIs, national parties, felt very motivated by the severity of the moment and just wanted to do whatever we could as quickly as possible to get something done," says Beth Bafford at Calvert Impact Capital. "I'm curious as we look to do this in other places will that attitude be maintained."

There's still the challenge of originating more loans. It's just five CDFIs that are originating loans under the New York Forward Loan Fund. There are 83 CDFIs in New York, although they don't all do small business loans. Bafford says the fund started out working with CDFIs that can serve all of New York State. But that leaves out other CDFIs like Renaissance Economic Development Corporation or Business Center for New Americans, which have been working with small businesses in some of the hardest hit neighborhoods in New York City.

Empire State Development, which took the lead in selecting CDFIs to partner with the fund, was not able to comment by publication time for this piece.

The fund did make one recent change that may boost its numbers. At launch, it specifically sought to make loans only to businesses that did not receive a Paycheck Protection Program loan. The idea at the time was to make sure the fund would serve borrowers that weren't able to get assistance from that program. At the end of September the program partners re-evaluated the situation and removed that restriction. It became clear that the duration of the pandemic has meant even the small percentage of businesses that did get a Paycheck Protection Program loan have exhausted those funds or soon will. About 900 additional applications came since announcing the change on September 24.

Bafford says the scale of the challenge nationwide, to preserve what small businesses are hanging on, is still something that requires the involvement of the federal government to really meet. But the Paycheck Protection Program, as many millions of small businesses it did reach, also showed the limitations of current federal approaches to support for small business, which rely heavily on traditional banks.

"The financial system has been pulling away from these communities for decades now with bank consolidation and the cost of doing business," says Bafford. "There needs to be a fresh look at how do you build the financial system that is built to serve communities being overlooked or left out."

Oscar is Next City's senior economics correspondent. He previously served as Next City's editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.

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