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Financing Local Businesses

While chain retailers and other large corporations have access to financing through the capital markets (which many of us help fund through our retirement plans and other investments), independent businesses have a much more challenging time securing financing.

Below we have assembled examples of the kinds of institutions and policies that are essential to financing new and expanding local businesses. We propose to:
  • Strengthen and expand local community banks, which play an out-sized role in providing credit to small businesses.
  • Develop Local Business Financing Initiatives, modeled on the successful Pennsylvania Fresh Food Financing Initiative, to finance the creation of a new generation of locally owned neighborhood and downtown businesses to provide essential goods and services.

Rules

Community-Owned Stores

  • Local
  • State
    • powell_mercantile.jpg
    There are two ways that residents of a community can jointly capitalize a new local business. One is to start a cooperative, a business that is owned by its member-customers, who provide the necessary capital in the form of member dues, govern the business democratically, and receive a share of any surplus or profits. Another approach is to create a community-owned store that is structured as a local stock corporation. More

    Community Development Financial Institutions

  • Federal

    • Community Development Financial Institutions (CDFIs) are mission-driven financial institutions that invest in businesses and community development in low-wealth areas. More

    Community Banks

  • State
  • Federal
    • Small local and regional banks (under $10 billion in assets) provide the majority of loans for small businesses. Although small and mid-sized banks control only 22 percent of all bank assets, they account for 54 percent of small business lending. The largest 20 banks, meanwhile, command fully 57 percent of all bank assets, but account for only 28 percent of small business lending. (See our graphs for more detail.) More

    Pennsylvania Fresh Food Financing Initiative

  • State
    • foodcoop-philadelphia.jpg
    Since it was created 2004, the Pennsylvania Fresh Food Financing Initiative (FFFI) has financed 84 grocery stores in underserved urban and rural communities across the state.  Almost all of these stores are independent, locally owned businesses. They range from small greengrocers to natural foods cooperatives to large, full-service supermarkets. More

    SBA Loan Guarantees

  • Federal
    • The U.S. Small Business Administration guarantees the value of loans made by banks to small businesses that fall just shy of qualifying for conventional loans. These guarantees allow banks to absorb more risk and thus to make loans to a much larger number of small businesses than they would otherwise be able to. While SBA-backed loans constitute only about 8 percent of overall small business lending, they account for 40 percent of long-term loans and thereby provide a critically important source of patient capital for growing small businesses. More

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