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An Indianapolis partnership to provide loans when traditional banks won’t

Editor's Note:

This case study is part of the Spotlight on Local Recovery Efforts series, a feature of the COVID-19 Metro Recovery Watch.

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Summary

Prior to the COVID-19 pandemic, Rick Proctor, executive director of the Indy Chamber’s Entrepreneur Services and Business Ownership Initiative, cited access to capital as the primary barrier to growth for small businesses in Indianapolis. The economic consequences of the pandemic haven’t made matters any better, as small businesses have lost a significant portion of their regular revenue due to stay-at-home orders.

To address this small business crisis, the Indy Chamber launched a Rapid Response Loan Fund in mid-March to offer an immediate, affordable loan option for small businesses ranging from $1,000 to $25,000. With flexible eligibility requirements, a 3.75% interest rate, and no application fee, loans provide short-term working capital that can be used for payroll support, paid sick or medical leave, insurance premiums, mortgage payments, and any other debt obligations. They can also be used as a bridge loan until additional funding kicks in from a business’s bank or from the U.S. Small Business Administration (SBA).

By the end of April, the Indy Chamber’s Rapid Response Team also began processing federal Paycheck Protection Program (PPP) loans of up to $75,000 for Marion County businesses. Accepted loans will be guaranteed by the SBA and are forgivable when employees are retained for at least eight weeks and when used for payroll, rent, mortgage interest, or utilities.

Execution

The Indy Chamber’s Rapid Response Loans are administered by the Business Ownership Initiative (BOI) in partnership with Bankable, a local nonprofit lender. As the umbrella organization for the Indy Chamber’s Entrepreneurship Division, BOI is a recently certified community development financial institution (CDFI) that provides emergency assistance for small businesses affected by COVID-19 via free one-on-one business coaching and access to lending capital. Bankable is also a CDFI that seeks to create opportunities for all entrepreneurs in Indiana by providing access to capital, financial education, and economic resources to build healthy small businesses.

Combining Bankable’s ability to process forgivable PPP loans with the Indy Chamber’s network of businesses and lending capital, this novel partnership between CDFIs and a chamber allows COVID-19 relief efforts to uniquely reach businesses that may be unable to typically qualify for funds under the guidelines of traditional financial institutions. The response fund delivers responsible and affordable loans to minority- and women-owned business enterprises (MWBEs), ultimately infusing capital into marginalized communities that have historically been left behind by mainstream finance. In order to disburse the loans, the Chamber redeployed its staff during the spring and expanded its staff in order to support this new push.

Cost and timeframe 

When the Rapid Response Loan Fund was announced, there was an initial investment of over $3 million committed to the fund, and the Indy Chamber issued a call to the private and philanthropic sectors to meet a $10 million goal. While still stretching to meet that goal, initial and subsequent sources of funding include:

  • Government
    • $1.5 million from the city of Indianapolis
    • $1 million from the Capital Improvement Board (CIB) reserved for small businesses in the food and beverage industry
  • Corporate
    • $1 million from Indianapolis-based health benefits company Anthem
    • $500,000 from the Indianapolis Local Public Improvement Bond Bank
    • $100,000 from Fifth Third Bank
    • $250,000 from First Internet Bank reserved for businesses owned by people of color and members of marginalized communities in either Marion or Hamilton counties
  • Nonprofit/Philanthropic
    • $1 million from the Dean & Barbara White Family Foundation
    • $300,000 from the Indy Chamber
    • $250,000 from IMPACT Central Indiana (in partnership with the Central Indiana Community Foundation, the Indianapolis Foundation, and the Hamilton County Community Foundation) reserved for businesses owned by people of color and members of marginalized communities in either Marion or Hamilton counties
    • $75,000 from LISC Indianapolis

To fund PPP loans, the Indianapolis’ City-County Council unanimously approved allocating up to $25 million to the Indy Chamber, which utilized the BOI and Bankable partnership to disperse money to business owners, especially those who weren’t well served by mainstream financial institutions during the first round of federal funding. Considering that Black and Latino or Hispanic business owners are less likely to have loans approved at large banks (who typically favor their existing customers) compared to their white counterparts, the allocation of funds to the Indy Chamber will ultimately make them more accessible.

Key components and features 

The Indy Chamber offered two options for access to capital for small businesses:

  • Rapid Response Loans
    • Initial response, most immediate
    • Range from $1,000 to $25,000
    • 3.75% interest rate
    • Available for startups or existing businesses in the Indianapolis region
    • No minimum credit score required
    • ITIN accepted in place of SSN (making loans available to immigrant entrepreneurs)
    • No prepayment penalty
  • Paycheck Protection Program Loans
    • Subsequent response from the federal government
    • Up to $75,000
    • Forgivable by the U.S. Small Business Administration

Successes 

The Indy Chamber has issued 215 Rapid Response Loans, disbursing a total $4.15 million. Of these loans, 65% went to businesses owned by women or minorities, which can likely be accredited to the novel partnership between the chamber and CDFIs. For the PPP loans, the Indy Chamber reported issuing 171 loans for a total of $3.14 million. Of these, 76% have gone to minority- and women-owned businesses. With the average PPP loan amount being fairly low—around $21,000—there is an indication that the chamber is prioritizing helping microbusinesses that may not otherwise have had relationships with traditional banks. The inclusiveness of their loan distribution has made the Indy Rapid Response Fund a national model for a chamber-CDFI partnership that achieves inclusive small business recovery.

Considerations 

With nearly 43,000 small businesses in the Indianapolis region, one of the biggest challenges to the initial Rapid Response Fund was the high demand for loans that overwhelmingly exceeded what was available. By the time the chamber had raised $6 million, local small businesses were requesting up to $18 million. Ian Nicolini, the vice president of Indianapolis economic development for the chamber, said, “As soon as we announced the fund, I think within the first day and a half it was oversubscribed.” The Indy Chamber had to grow its loan approval process team from five to 32, and the initial rapid response fund was depleted quickly. Not being able to provide relief to everyone is a challenge likely to present itself during any unexpected economic disaster that calls for emergency aid.

The next challenge for the chamber will be providing follow-up technical assistance to the hundreds of loan recipients who will need it; this will require even greater staff hours and resources that currently are unavailable from local sources.


Sources and additional resources


Do you have a similar solution in your area? Is there another problem that you’re tackling in an innovative way that you’d like to share with a wider audience? Contact us at localrecovery@brookings.edu.

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