While the Northwest Side Community Development Corp.
and Legacy Redevelopment Corp.
plan to eventually grow the Edward Bryant Fund to $15 million, an initial $5 million loan from Northwestern Mutual will allow the two organizations to begin making additional investments in the community.
The NML investment, announced earlier this month
, will be used to provide loans to minority-led businesses and those located in underserved communities. As community development financial institutions, NWSCDC and LRC provide loans to businesses that fall short of lending standards for traditional banks.
Terese Caro, president and chief executive officer of LRC, described her organization as an interim financing source.
“We're not predatory lenders but we're not a traditional bank or credit union,” she said. “We do have decent rates, but you can most definitely get a more favorable rate at a bank or credit union, so the goal is to get our borrowers to a point where they can go to any bank or credit union and be able to get some financial assistance without issue.”
LRC provides loans from $5,000 up to $250,000 or $300,000 while NWSCDC provides $250,000 to $1 million loans. The organization's plan is to set up an online tool for prospective borrows to supply their information and then be referred to the appropriate organization, said Willie Smith, executive director of NWSCDC.
He acknowledged that some might see the loans as going to inexperienced businesses and said he agrees with that view. In addition to lending money to entrepreneurs, CDFIs also provide technical assistance and training on best practices, tracking financials and other elements of operating a business.
The goal is for the borrower to eventually be able to refinance the loan with a bank or other institution at a lower rate and better terms, Smith said.
“We have a ridiculous pipeline of small businesses we’re currently working with,” he said, noting many attempted to work with banks or other organizations but capital is not available in a certain lending range.
Many of the businesses have been in business a few years, are known in the community and have a product people like, Smith said. The companies have reached a point where they are looking to buy or improve their building, expand, open another location, invest in equipment or generally take advantage of opportunities.
“For a lot of these businesses, if they don’t grow they ultimately die,” Smith said, envisioning a hypothetical business that’s working with a group of clients, building relationships and generally doing well.
“What happens when you reach the point to where they need something that you can't produce, either because you don't have the capital to support the staff or the capital for the equipment or the systems in place to effectively handle it, they end up losing those contracts,” Smith said. “Why would the business, the third party who is acquiring these products or services from them, why would they want to deal with two companies when they could deal with one that's providing everything that they need.”
Caro said the makeup of businesses that LRC works with is similar. Potential borrowers might have tight cash flows, credit blemishes on their record or a need to better understand their finances.
She said LRC has always had demand from borrowers but struggled in recent years to identify investors and lending and grant sources. The increased attention on racial inequities following the death of George Floyd in 2020 made more programs available and opened doors to conversations about the needs in minority communities, Caro said.
"Dollars most definitely are needed because prior to these dollars we have not had any big insertions of lending capital into our organization, so we most definitely will be able to utilize these funds,” she said.
Caro said the two organizations had a candid conversation with Vincent Rice, former vice president of sector strategy development at Wisconsin Economic Development Corp., about the challenges in finding lending capital, operating funding and being able to grow their staff and Rice was able to take those concerns to others at WEDC.
Smith credited WEDC, which is also providing a grant to cover operating costs and loan loss reserves, with kickstarting conversations about the $15 million fund. He said other lenders have been part of the discussions and are still at the table. For various reasons, it was going to take more time for those lenders to be able to provide funding and Northwestern Mutual was in a position to provide capital. The initial funding will put money to work in the community and support building the infrastructure needed as additional funding becomes available, Smith said.