Part 2: Identify Funding Sources
Part Two in a Four-Part Series*
Often local and regional economic development agencies lack funding programs to support small-scale manufacturing businesses. Lenders, both public and private, may not be familiar with businesses that manage supply chains and product delivery, or micro-enterprises with small margins. Community development corporations may not be familiar with how to finance coworking facilities for multiple small manufacturing businesses.
Local governments can create programs that connect small producers to micro-lending and invest in buildings that provide low-cost space for local producers or a product-based incubator or accelerator. Local and national banks’ small business banking sectors can also be valuable partners. These partners can work together to create a series of funding programs:
- Create or repurpose a municipal revolving loan program to offer small businesses low-cost loan terms that they may not receive with a short credit history. Alternatively, create a municipal investment fund targeted at high-growth businesses owned by under-represented groups, such as the Prosper Portland Inclusive Startup Fund.
- Leverage federal community development block grants (CDBG) to fill financing gaps in shared production facilities or startup training programs that benefit under-represented populations. Indianapolis invested CDBG funds in the rehabilitation of vacant industrial property near downtown to stabilize the neighborhood and renovate the building for multi-tenant small manufacturing.
- Build a network of local banks that are committed to local small business growth and connect successful small-scale manufacturing businesses to this group. See the example from Lowell below.
- Initiate an entrepreneur loan fund targeted to minority- and women-owned production businesses, potentially in partnership with business training or financial literacy programs where needed. The Latino Economic Development Center in Washington D.C. provides technical assistance and micro-loans (from $500-$500,000) to regional small business owners, including production businesses.
- Employ U.S. Department of Agriculture programs in small towns to fund food business incubators and makerspaces. Consider programs such as the Value-Added Producer Grant or other Rural Development program funding sources.
- Utilize the U.S. Economic Development Administration Public Works and Economic Adjustment Assistance Program to fund infrastructure improvements, site acquisition, rehabilitation and equipment for small manufacturing. These funds have been used to fund “Made In” branding programs, business incubators, and commercial kitchens. The Made in Baltimore program, including staffing, program launch, and the new business certification program was funded through this EDA program in partnership with the City of Baltimore.
- Provide Tax Increment Financing (TIF) or Payment in Lieu Of Taxes (PILOT) awards for a development’s commitment to below market lease rates for small manufacturing businesses in target locations. Washington, D.C. worked with the development company, Bozzuto, to integrate new low-cost, ground floor, micro-retail space for local producers as part of the community benefits package for a mixed-use development at a transit station.
- Help to connect Community Development Finance Institutions (CDFIs) with small-scale manufacturers. CDFIs have experience funding unconventional borrowers to help small businesses meet their goals. Northeastern University partnered with LISC Small Business and LISC Boston to launch an Impact Lending Program with loans from $1,000 to $1,000,000 and lending rates from 0-7 percent.
Case study – Lowell, Massachusetts
While local banks are often interested in funding local small businesses, they are not always able to do so. The City of Lowell, MA brought several local banks together to create the Lowell Development & Financial Corporation (LDFC). The structure of the LDFC allows local banks to reduce their risk by pooling funds to support local businesses, including small-scale manufacturers. Companies are only considered for LDFC funding once they graduate from the University of Massachusetts Lowell’s iHUB accelerator or the EforAll small business training program in order to provide the banks with a vetted pool of businesses.
Did you miss Part 1 in this series? Check it out here: Find, connect, and support small-scale manufacturers.
* Reprinted from MADE in Place, with permission from Smart Growth America. Text in italics and all links are newly added at the discretion of the author.