Operating in low-wealth neighborhoods where risk-averse banks are less likely to lend, six Akron companies are set to receive nearly $1 million in loans from a new small business fund.

The loans, carrying a low 3% interest rate, will be announced in October by the Development Finance Authority of Summit County (DFA), which is overseeing the lending through the creation of the Western Reserve Community Fund.

With initial deposits of $250,000 from Summit County and $650,000 from the DFA, the new revolving loan fund, essentially a private financial institution behaving like a community-focused bank, is structured to last forever. Whatever it invests this year could be matched next year with federal funding. And as loans mature on larger projects already supported by the DFA, reserves set aside in those deals will fill the Western Reserve Community Fund, which DFA President Chris Burnham hopes eventually to capitalize at $5 million.

The new U.S. Treasury-backed fund is the first “community development financial institution" in Akron, and only the ninth in Ohio. CDFIs can serve multiple purposes, from supporting workers to lending to affordable housing. Akron's will issue small business loans.

But what sets CDFIs apart from venture capitalists and traditional investment banks is their mission of putting communities before shareholders by reinvesting profits for the good of the public, not the investor.

To that end, they must operate in the red areas of "severe distress" on federal wealth and income maps. In Summit County, all of Akron, the Chapel Hill corner of Cuyahoga Falls and the northern half of Barberton are red.

“It’s unfortunate for Akron that no one ever pursued the idea of a CDFI before, because if you look up at Village Capital Corporation (a CDFI that’s funded catalytic real estate projects in Cleveland for nearly 30 years), they’re doing wonderful things," said Burnham.

The first six loans for yet-to-be-named Akron businesses — only one located downtown — are “oriented toward commercial ventures, employing people, putting property on the tax rolls and creating wealth," Burnham said. "The only way we’re going to get rid of this red stuff is to create wealth in the community.”

Menu of loans

The city is taking a different route.

Sam DeShazior, Akron Mayor Dan Horrigan's chief economic development officer, has started talking with investors and banks about funding a Rubber City Match program. Still just an idea, the city would dip into the fund to issue loans of up to $75,000 to entrepreneurs who can raise the same.

The city provided $200,000 in small business loan assistance last year. It's not financially supporting the new effort at the DFA. Still, there's a few local options for cash-tight businesses:

The Greater Akron Chamber of Commerce's Akron Development Fund averages loans of $120,000; The city's Great Streets initiative provides matching façade grants of up to $30,000 or five-year "micro loans" up to $10,000; State loans through the Small Business Development Center; The Bio Innovation Investment Fund offers $25,000 loans for startups to demonstrate potential or up to $225,000 to commercialize their vision. Since 2014, Summit County's revolving loan fund, in a partnership with Cascade Capital in downtown Akron, has issued 10 $50,000 loans to local businesses, including Café O' Play in Stow and most recently the Barley House in downtown Akron. Two recipients, the West Point Market in Fairlawn and Gastro Pub in Cuyahoga Falls, have closed.

DeShazior said 80% of Akron's small businesses that need financial help are shopping for loans of $50,000 or less. Banks can't make a significant profit on loans that small.

"As a consequence, many of the banks shy away from these loans unless there is an already established history or relationship with the business entity," he said.

And as the economy shifts from manufacturing to service and technology, venture capitalists fly over Midwestern cities like Akron to seed their money on the coasts. That, coupled with a lack of access to affordable loans in the $200,000 to $500,000 range, creates what Jason Dodson, chief of staff to the Summit County executive, calls a "big doughnut hole."

"Small and midsized businesses are what drive the economic health in our community," he said, echoing the city's mission to grow existing business, not expend all resources on attracting new ones. "So we’re sitting in an economic ecosystem that does not help the businesses that drive jobs in our region."

Serving the middle

The DFA, formerly known as the Summit County Port Authority, boasts $975 million in investments since 1993, which it says has preserved or created 14,448 jobs (not including construction) across northeastern Ohio, primarily in Summit County and Akron.

But the organization, until now, has limited its investments mainly to builders who need $500,000 to $2 million to finish large projects like renovations to the old Goodyear Tire & Rubber Co. headquarters at East End, the Hilton Garden Inn next to it, the Ronald McDonald House by Akron Children’s Hospital or a mix of new residential and retail space under construction at the Bowery in downtown Akron.

With a CDFI, Burnham can direct resources down the development food chain toward companies that economists say are responsible for the bulk of local job growth.

“You’re going to have more ability to play a role in projects that benefit local mom-and-pop shops who need $200,000 to put in a new HVAC system and roof on their local manufacturing facility,” said Dodson.

Dodson said the new loans in October will help manufacturers and retailers alike. “From the ones I do know, they’re kind of all over the place,” he said, adding that most first-round recipients are existing businesses instead of new developments that tend to attract disproportionate financial support.

There’s little evidence of how CDFIs impact depressed economies. Economists at the Federal Reserve Bank of Cleveland haven’t studied them since 2012, when a report showed mixed reviews of their effect on boosting credit union lending, which resulted in a slight uptick in delinquency rates on those loans.

The nearest a CDFI has come to Akron was the Common Wealth Revolving Loan Fund at the Ohio Employee Ownership Center in Kent. The fund supported employee-owned businesses and cooperatives for 10 years, mostly in Cleveland, before returning to Youngstown where it was created 30 years ago after the collapse of the steel industry.

 

Reach Doug Livingston at dlivingston@thebeaconjournal.com or 330-996-3792.