Many businesses are currently facing a dire situation. The economy has essentially stopped for some businesses in the hospitality industry and other sectors. Small businesses and microenterprises of fewer than five employees are particularly impacted and may only survive via an infusion of cash.
Getting cash quickly to these small businesses is essential for many of them. Efforts by federal and state governments are noteworthy, but because of timing, may not make cash available to businesses early enough to ensure their continuation. The closest level of government for small businesses is local, and inevitably, these businesses will first turn to local Economic Development Directors for assistance during this time.
Local governments, either directly or through state governments, are eligible to receive Community Development Block Grant (CDBG) funds on an annual basis from the US Department of Housing and Urban Development. These funds can be used for a variety of purposes, including infrastructure needs, low-moderate income housing needs, and other eligible activities. The category of “other eligible activities” include providing capital to businesses through grants or loans.
Recipients of CDBG Funds (states, cities and towns) have provided capital to small businesses in the past through the establishment of loan and grant fund programs. A good example of this is the State of New Hampshire which provided grants to seven economic development organizations serving two counties. The seven organizations provide financing and other services to microbusinesses that are owned by low and moderate income persons. It should be emphasized that a community that receives CDBG funds decides whether those funds should be used to provide grants or loans or other assistance, so the decision is made locally as to what type of assistance is most appropriate.
It is important to note that the CDBG Program provides flexibility to its recipients within the three national objectives to
1. Principally benefit low to moderate income persons
2. Aid in the prevention of slums or blight and
3. Meet an urgent community need.
Economic Development is one of the CDBG program’s eligible activities. It can be argued from a community standpoint that there is currently no more urgent need than the viability of small businesses, which are owned locally and which employ millions of local people. Not by their decision, but by a recommendation made by local and state governments have these businesses been forced to close their doors, at least on an interim basis. The result of these closures has been no revenues, no business and no cashflow to pay bills and salaries.
Many businesses can survive for only a few weeks without an injection of capital. If a small business owner can inject needed capital, he or she will. But in many cases, this capital cannot be sourced internally. Therefore, a business will look to loans or grants from external sources. Banks and credit unions are the primary source of external capital for businesses. However, with no demonstrated means to pay back debt, capital from these sources will be limited to a few borrowers. It is therefore imperative that government at all levels do what it can to assist businesses at this time.
CDBG funds are not the solution to our current situation but they can play a role. In some cases, these funds may prove to be the difference that allows a business to survive. Local communities need not provide capital to all businesses, but only to those which prove themselves to be viable. In other words, local governments can provide grant or loans to businesses and can attach conditions to these injections of capital, for example, limiting funds to a particular purpose and requiring repayment if those conditions are not met. CDBG Funds are flexible, available, and designed to meet community needs. There is no greater community need now than to maintain the viability of businesses. Without healthy small businesses, our communities will not prosper and they will not grow. Providing CDBG funds for small business loans and grants is an eligible use of funds for all communities to examine at this time. Our communities depend on this.
Vin DiCara is the founder of DiCara Training and Consulting, LLC