With less foundation money available and dwindling interest on the part of the U.S. government, community-based organizations are finding fewer resources to assist them in start-up, expansion and technology. The battered economy has also taken a harsh toll on small businesses that can give financial boosts to impoverished areas that desperately need jobs and commercial reinvestment.
Fortunately there are sources of financing for technological and business support for community-based organizations. Such assistance can make the difference between an organization thriving and plunging into extinction. Offering a small loan to a rural business owner with no access to traditional banking services can create a much-needed service in a deprived community. Simply knowing what resources are available can affect and rejuvenate an entire community.
The Roberts Enterprise Development Fund, a part of the Roberts Foundation, helps businesses in the San Francisco Bay area put the second bottom line first. (See Shelterforce #89.) By taking into account the social costs of each business it assists, the fund makes sure that the businesses remain committed to social improvement first and profit second. “Ideally a business will contribute all social and financial costs,” Melinda Tuan, managing director of REDF, said, but these businesses are here “not to make money, but to employ people who need it.”
By providing businesses run by nonprofits with an annual capacity-building grant of $75,000 to $150,000, REDF allows the businesses it assists to hire people with mental and physical disabilities, homeless youths and adults, ex-convicts, and others who find it difficult to acquire decent jobs because of employers’ prejudices. In return for grants and business assistance, the funded businesses are expected to perform according to REDF’s rigorous standards. Profits are important but are not emphasized as much as improving people’s lives by providing decent jobs and livable wages.
Although REDF has been mostly successful, it has had to pull funding from groups like a construction company that planned to hire homeless workers but met with too many difficulties using unskilled laborers in an industry with little room for mistakes.
Funded organizations have had both social and financial success. REDF-sponsored organizations have been able to hire hundreds of people every year who normally would not be able to find work. Tuan said that of the 15 businesses in REDF’s portfolio, about half of them do their primary work while remaining financially independent.
The Roberts Enterprise Development Fund
PO Box 29566
San Francisco, CA 94129-0566
(415) 561-6685 Fax
ACENet Ventures Fund
ACENet Ventures Fund, a nonprofit subsidiary of the Appalachian Center for Economic Networks, provides financial assistance to small businesses in Central Appalachia, an area characterized by high poverty, high unemployment and low median income. By investing in the specialty food and technology sectors, the fund helps create jobs for the poor, providing skills that enable them to attain reliable full-time employment.
The organization offers two forms of funding: providing the entire amount of the loan or partnering with a bank or lending institution for subordinated debt. In addition, it allows payback through royalties and stock ownership (near-equity financing). ACENet Ventures also offers business training and expansion services.
ACENet-funded organizations have met with great success. According to Rick Krieger, director of ACENet Ventures, the fund has invested in 26 companies, and only two have defaulted. Frog Ranch, a salsa and pickle manufacturer in Glouster, OH, received a bank loan leveraged by ACENet Ventures to build a larger production facility and hire six employees. The company paid off the loan this year.
Success has allowed the fund to begin investing in heavy truck machine parts, commercial greenhouses, fishing lure distribution and retail. It recently funded Helping Hands, a rural company that provides transportation for the elderly and disabled to medical appointments, which are often a far distance from their homes. The fund’s assistance allowed Helping Hands to purchase three new vans and create ten new jobs.
94 Columbus Road
Athens, OH 45701
(740) 593-5451 Fax
Microenterprises – businesses that require less than $35,000 in start-up capital and have five or fewer employees – are a vital part of the U.S. economy and can be important in revitalizing poor neighborhoods. According to the Office of Advocacy for the Small Business Administration, small businesses account for 53 percent of all U.S. jobs. The Association for Enterprise Opportunity (AEO) helps create and maintain these microenterprises.
Members of AEO serve potential business owners who “do not have access to traditional sources of capital such as bank loans, either because of the small size of the loan or because of bad credit or other extenuating circumstances,” said Meredith Trimble, program manager for public awareness and fund development at AEO. “The largest common denominator among AEO members is the focus on serving economically disadvantaged populations, many of whom have little experience with the ‘above ground’ economy.”
For its 450 members nationwide, AEO offers training and technical assistance to improve the chances that member-assisted microenterprises will survive. In addition, the association conducts research and has a policy and advocacy program. Federal funding is a vital source of capital for microenterprise development organizations, so AEO helps publicize the accomplishments of small businesses. Recently, AEO joined Congresswoman Nydia Velazquez (D-NY), ranking member of the House Small Business Committee and Congressman Bob Beaupres (R-CO) at a press conference to feature three entrepreneurs who gained success with the help of federal funding.
Association for Enterprise Opportunity
1601 North Kent Street, Suite 1101
Arlington, VA 22209
(703) 841-7748 Fax
The Community Development Venture Capital Alliance (CDVCA) provides services to member funds supporting businesses that focus on helping people rise up from poverty and invest in areas that have seen little economic development. (See Shelterforce #123.)
Like traditional venture capital funds, community development venture capital (CDVC) funds pursue strong financial returns. But unlike others, CDVCA funds also measure social returns. To create this successful second bottom line, CDVCA invests in regions and businesses that traditionally do not see such investments. According to Charity Shumway, program assistant at CDVCA, 65.2 percent of all traditional venture capital investments occurred in five states and often focused on the technology and biotechnology sectors. CDVCA members invest in places like rural Ohio and the Mississippi Delta. Almost half of all investments are in manufacturing, focusing primarily on providing entry-level jobs.
CDVCA offers several tools to create more efficient CDVC funds. The alliance gives training to those who are new to the field, as well as advanced practitioners, through regional programs, annual conferences and peer learning. It also provides individual consulting services to members, investors and organizations interested in strengthening their work in community development venture capital.
CDVCA uses its $6 million central fund to invest in improving the CDVC industry. Specifically, the money is invested in member funds that create high-quality jobs for low-income people and distressed communities, and in nonmember companies that meet specific social and financial criteria. The alliance also unites the industry by providing research, communications and advocacy work. Besides offering a variety of online publications,CDVCA works with traditional venture capital communities to encourage their involvement in community development funding and serves as a national voice for their members.
Community Development Venture Capital Alliance
330 Seventh Avenue, 19th Floor
New York, NY 10001
(212) 594-6717 Fax
From unexpected funding cuts to inappropriate program influence, relying on foundation money and government grants can be a frustrating and financially precarious way to manage a nonprofit. Fortunately, the Social Enterprise Alliance is helping nonprofit organizations achieve economic independence.
SEA is a membership organization that builds self-reliant nonprofits by teaching earned-income strategies through peer learning. To encourage this philosophy, SEA hosts teleconferences, an annual conference and a showcase to highlight new and expanded earned-income projects; offers legislative advocacy; and provides email listservs, a newsletter and a membership and consultant directory. SEA also plans to establish a mini-grant program to support member projects and peer-to-peer mentoring.
One common concern is that the focus on profit will overshadow the mission of the nonprofit. Beth Bubis, president of SEA, disagrees. She said that running a good business allows an organization to serve more people. “More money allows you to spend more time focusing on the mission.” Bubis has seen many who have succeeded. Stressing peer learning again, she said, “There are enough examples of people who do it right.”
There is growing interest in social enterprise as an alternate source of funding. According to Bubis, at SEA’s last annual conference, about 55 percent of attendees registered for introductory classes. With numerous successful members ready to share their knowledge, these new groups have a much greater chance of achieving financial independence.
Social Enterprise Alliance
43 S. Cassady Avenue
Columbus, OH 43209