Last week, I participated in a conference sponsored by the National Association of Development Organization’s (NADO) Economic Development Finance Service (EDFS). EDFS is a coalition of organizations that manage federally-backed business loan funds, generally capitalized with money from the Small Business Administration, the Department of Agriculture, the Economic Development Adminstration, or the Community Development Block Grant program.
Most of these loan funds were created years ago, some as far back as the 1970s. They tend to operate in smaller communities and rural regions. The typical loan fund might manage anywhere from several hundred thousand dollars to millions. While individual funds tend to be small, they collectively amount for several billions of potential investment dollars. Yet, as a recent EDFS study found, much of this money is sitting on the shelf because arcane federal rules complicate or block new investments or because the loan funds lack personnel to market and underwrite loans.
At a time when small businesses are begging for new sources of credit, these funds need to be better utilized. Many different approaches make sense. NADO and other advocates have been pushing to “defederalize” older funds so that arcane rules and regulations are removed are loosened. Other states and localities are taking things into their own hands. In West Central Wisconsin, the Regional Businesss Fund has led an effort to consolidate 31 small community loan funds into a single operation that has invested in 251 local businesses, including 111 start-ups. Thanks to consolidated and talented loan fund team, this money is being put to work. A similar effort is now underway in Michigan, under the auspices of the Michigan Strategic Fund Board. These kinds of initiatives are real no-brainers—the dollars were budgeted years ago and are not being used. Why not tap into these funds as a way to help ease the credit crunch facing small businesses, especially those in hard-hit rural areas? What’s needed now is clear guidance from federal agencies that they are ready, willing, and able to be flexible about the use of previously-appropriated funds.