Editor’s note: This is the latest installment in “Raising the Bar” — a new series of essays and blog posts authored by North Carolina nonprofit leaders highlighting ways in which North Carolina public investments are falling short and where and how they can be improved.
The past few years have brought a major shift in how the state of North Carolina approaches economic development. Legislation passed in 2014 eliminated the state’s seven economic development partnerships, and replaced them with eight Partnership for Prosperity Zones. These zones were placed under the umbrella of a new public-private partnership to manage North Carolina’s economic development efforts.
The establishment of the public-private partnership signaled a new direction for economic development in North Carolina, one that is focused more on the attraction and retention of high-growth, innovation-focused, large employers and not as much on the businesses on Main Street.
This new direction was reinforced in the state budget. The Fiscal Year 2014 budget enacted major funding cuts to nonprofit community economic development organizations, organizations which play a critical role in ensuring that jobs and investment reach our most under-served and distressed communities. This is particularly true as the state’s economic development structure focuses more on business attraction and retention, and less on local economic development. The Support Center was included in these budget cuts, along with the Institute for Minority Economic Development, the Association of Community Development Corporations, the Indian Economic Development Initiative, the Community Development Initiative, and others.
Gov. Pat McCrory’s 2015-2017 biennium budget continues down this path. The Governor’s job creation proposals speak much about entrepreneurship and investing in innovation. He proposes $15 million annually for the Venture Multiplier Fund, to increase investment in early-stage companies, and $2.5 million annually for the Rallying Investors and Skilled Entrepreneurs program, which would recruit investors and entrepreneurs to the state. A $5 million appropriation for the One North Carolina Small Business Program would also invest in high-growth, high-tech small businesses.
All of these programs, though they are geared toward entrepreneurs and small businesses, do not address the capital or training needs of “Main Street” businesses—the local small businesses that are the backbone of economies in communities across the state. These are not necessarily the high-tech innovators, but they are nevertheless important economic and community assets. These restaurants, barber shops, bakeries, bookstores, auto repair shops, child care programs, doctor’s offices, small farms, and more are critical economic engines. They create jobs, generate wealth, and are rooted in communities.
Yet these small businesses face the most significant barriers to accessing capital. They are not in the target market for venture capital funds seeking high-growth investments, nor are they able to access traditional bank loans. Since the Great Recession, traditional banks have pulled back from small business lending, and very small businesses are unable to meet banks’ strict lending criteria, even if the business owners are creditworthy or previously had been able to obtain a bank loan.
Supporting innovation and high-growth industries is certainly an important part of our state’s economic development strategy. But what we need is a multi-level approach, one that would also support local, home-grown, Main Street businesses in accessing capital and other resources. The state of North Carolina does not have a program for addressing the gap in capital access for these small businesses, especially those that are in under-served communities.
As we described in a recent report on state-supported small business lending programs, there are models that our state can adopt to leverage our existing resources and make new investments in small businesses. A revolving loan fund established through a state appropriation would provide capital that loan funds, like The Support Center and other community loan funds, could use to deploy to small businesses in under-served communities.
Alternatively, a state-level guaranteed lending program could be established, which would enable lenders to make loans to businesses that may fall outside traditional lending criteria. To harness existing resources, a business development corporation could pool investments from banks and other investors, which would then be used to lend to small businesses in markets that they do not traditionally serve. Finally, a healthy food financing initiative would help bring investment and nutrient-dense, fresh foods to our state’s 349 “food deserts.”
After several years of budget cuts, our state needs proactive investments to get us on the road to a broadly shared economic recovery. In the area of economic development, our state’s policies and priorities should consider the needs of businesses and people that have an impact in local communities.
To spur job creation, increase wealth and asset building, and to revitalize communities, we need an approach that focuses on more than just certain industries and businesses.
Sadaf Knight is the Policy and Research Director at The Support Center. The Support Center is a nonprofit Community Development Financial Institution. Our mission is to foster economic development in underserved areas by providing capital, business services, and policy research to support small businesses. Since 2010 we have invested over $15 million in over 230 small businesses across the state, which have helped to support over 420 jobs.