Developing Small Businesses and Leveraging Resources in Detroit
Seven session series - Chicago Federal Reserve Bank
Notes taken by Stephen Boyle
[ link to October 16, 2012 - afternoon ]
Ocober 17, 2012 morning
Contents
Michigan Center for Empowerment and Economic Development (CEED)
Michigan Economic Development Corporation
What Have You Seen Yesterday to Today?
What can be done for a conversation in the short term, mid-term, and long-term?
David Enger, President & CEO Hudson-Webber Foundation and New Economy Institute
Densest area of development in the entire United States near WSU Launchpad breaking ground.
Systems have setup competitively for financing. Leaders of institutions have to start speaking together constructively.
Looking at subways as a model for mapping providers and services for entrepreneurs.
Targeting Small Business Finance in the Context of Lower-Income Communities
Moderator: Bruce Pietrykowski - University of Michigan - Dearborn
Panelists:
Must be factored into all discussions.
Undercapitalized households
Black owned businesses are more likely to hire black workers
Often rely on credit cards and personal credit
Labor intensive business typically
Successful black entrepreneurs typically place outside neighborhoods of need
Low Income populations and banking - do you have a checking account? 24% do not. Most common reason is “do not like dealing with banks” (28% response).
Local economic multiplier - creating social capital in low-income communities
Drextel: Commonly hear they don’t do faith-based lending. Cyclical lending every 10 years gets busy then dries up. Little guy is still having a tough time. Focus on urban lending through Liberty Bank. Developing products for micro-lending $50-500 apply by phone. Putting incentives on lending into Detroit so that it makes a difference. Need banks to develop more products that are diverse and target startups. Comparables are very low and not very comparable.
Success stories (Drextel): Many solid, stable historic buildings. Battered women facility of 40 units. Wholefoods project. Charter Schools. Meijers project. 47 units next to Palmer Park - The Vogue(?) - historic building, creating a neighborhood with additional development nearby.
Louise: She is a CRA professional and not a lender. Headquartered in Dallas TX. Aligned with business bank, retail bank, wealth management. Assets of $61 billion. Has the highest deposit ratio in Detroit. 2nd highest unemployment rate. Non-performing schools. Many challenges.
Job growth is the key to recovery.
Small businesses provide 85% of nation’s GDP
90% of new jobs are created by small business
Leveraging funding is a challenge with many opportunities
HATCH Detroit project working with Comerica - created opportunity for additional partners to come forward.
Entrepreneur Institute of Mid-Michigan
Urban Rebound
Michelle: One of the older micro-lenders in the country. Focus is on women and minorities. Have made $5.2 million in microloans to 356 small businesses.
WOSB - Women Owned Small Business designation by government for set-asides
Started in Ann Arbor
Opportunity given to put 1.3 million in loans to 65 businesses
Entrepreneurial roundtables 4 times per year - food, construction, maintenance, film industry, retail, service. Several hundred people participating each year.
Sew Detroit - creating products in Detroit
Creation of Hispanic Business Conference (4th annual just held)
“Entrepreneur Week” by Milwaukee Junction Small Business Center
Paul: Went from programs helping a specific business or industry - each business model is unique. They all need angel investors, which is basically the same manner of financing - it doesn’t have to be unique.
Look at the capital sources within communities.
MEDC programs have to meet 3 rules
Gap in the capital continuum for borrowers needs to be addressed.
First position collateral.
MEDC wants to select the 5 groups that will be chosen for programs. These often align with community selections.
Leveraging Financial Resources for Small Business Financing
Moderator: Richmond Hawkins - New Detroit Inc
Panelists:
David: Serve anchor institutions - Henry Ford, DMC, and ? spending money outside the city. Less than 11% spent in state of michigan.
Grow businesses faster - high growth accelerator. Not necessarily technology based.
Scott: Deficiency of collateral recognized and we can’t do traditional financing. Being heavily regulated there are confines in what can be done as a bank.
$2 billion committed to new business in Michigan
Huntington is a traditional bank.
Teresa: Rationalize resources through DWP. What is best utilization of land? Identify the core backbone areas of the city and make sure investments are helping each other. Transportation linkages for residents to business for work.
Detroit hasn’t got enough capital sources.
New venture funds have risen.
City has located where they want to grow the city, now how can they bring the capital resources into them.
William: Credit Unions have over $1 billion in loans in Michigan.
Richmond: New Detroit Inc Seminar held to demystify financials so borrowers could speak more clearly with lenders.
Collateral walking in to seek funding is biggest obstacle to small business owners in the audience.
David: Forgotten a key driver is self-interest, so that is a reality of people seeking funding. Grant funding through foundations doesn’t take into account how self-interest isn’t often aligned with grant program interests. That means little surprise that when grant funding runs out the program it created dies... it didn’t align with self-interest of the grantee.
Teresa: Coordination of interest to investment along with community interests needs to be addressed.
James: Brookings Foundation is interested in creating an international forum on investment possibilities to create business.
Richmond: Ray La Hood (FTA) is back on board with light rail system now.
Audience: City has inept management that puts tax dollars to work in other areas of the city. Rosedale community is putting their own money into their community without the city assisting where need is shown. Letting someone else pick the winners and losers isn’t working for the public.
Concern regarding education of new entrepreneurs. It needs to begin in middle school. More collaboration between banks, credit unions, and schools. Reference Lemonade Stand Day showing children how to be entrepreneurs.
Scott:
David: No urban school system that is generating entrepreneurs. Teachers and entrepreneurs that look like the students matters. Need to create more successful minority and women entrepreneurs that can present to our youth and inspire them.
Small businesses need to get bonded and insured.
David: MDOT meeting monthly for contractors and partners.
Would like to see excitement show up in Detroit again. Programs such as Shark Tank, Funders Initiative would promote innovative businesses to come together with lenders and show how it is done - here in Detroit.
These are all alternative lending, collaboration opportunities, and entrepreneurial training. The question becomes with all the resources that do exist - how can people find out about them?
Transportation systems making headway - looking for direct marketing revenue opportunities.
Suggest pressing Congressman Gary Peters to increase from 5% the initiatives for minority.
Suggest collaborating on a shop inside Detroit guide.
DEGC is working on a Shop Detroit campaign
Why is this conversation important today as opposed to any time in the past?
David: Have started to understand the market. Market hasn’t been ready until the past 3-4 years.
Teresa: Capital and real estate issue going forward, its been refined
William: Need to create more collaboration between lenders.
Richmond: Lenders need to get into communities. Schooling and education is important. Catalog of resources needed. Transportation is changing around Detroit and opening new areas to investment.
Moderator: Jeremiah Boyle - FRB Chicago
Panelists:
Foundations are the venture capital organizations around Detroit.
Need to emphasize more than one sector - not only technology, service industries have great growth opportunity
42% from asset lenders rather than banks. Businesses need to enter lending conversation with banks knowing what the bank is looking for and how it works.
Communities are a key factor in creating successful business.
SBDTC can assist young business with 1-2 years and they can be finding support before they start encountering problems.
Economic and Regulatory factors exist now making it tougher to provide financing through banks and often sending business to alternate funding sources more often than not.
Train the lenders on how to act like community development centers
Thomas: Getting enthusiastic about business promotion and branding. Social capital is as important as financial capital. Bankers have created a distance between themselves and the community decision makers. Bankers need to work on educating regarding non-depository lending to businesses. Immigration may be a key in changing the business climate of Detroit.
Where do we want to go?
How to get there?
Timothy: College graduates are the ones that are typically small business owners. Pool of inter-generational wealth is smaller than ever. Identifiable subset that are important to developing story - firms grossing $1 million are creating 65% of jobs and higher compensation than younger smaller firms. Tragedy that can be addressed - growing firm lands a big opportunity and that is what kills the company because they don’t have the expertise. Slow-pay will kill a small nimble company trying to grow, they extend themselves out and if not cared for will collapse.
Susan: Midtown focused. Growing population. Will be ¾ of the M-1 Light Rail Project. Will be seeking products that will sustain the community during development and afterward. Woodward Corridor Initiative is acting as an intermediary. Approach working in community holistically with an assessment to understand the market of Midtown.
WCI is working with lenders often to link entrepreneurs and business.
Has capital available for development deals and help the businesses once they get open. Over 50% are minority and women owned. Many don’t have the needed reserves and line of credit is lacking. Intentionally clustering businesses to create success - they attract a larger market when gathered together. Safety and security can be addressed through location assistance.
Owns the Park Shelton Hotel.
Timothy: Foundations haven’t been something he has desired going to. Foundations could identify the banks they are doing business with and shift money into a few chosen banks. Puts pressure on non-selected banks to understand better how to gain business and work with community.
Susan: Buy local is a highly desired opportunity. It needs to be promoted more. National businesses coming in want to support the developing business environment. Need to encourage them to shop local for services, supplies, etc. Foundations could gain more in credit enhancements, and marketing.
Thomas: As a McArthur Fellow - interested in the preservation initiatives. Project and monitor the geography and services in the next five years.
Michael Barr
Assistant Secretary for Financial Institutions at the US Department of Treasury
University of Michigan
US Treasury during Clinton and Obama administrations
Presenter: Alicia Williams - Vice President Federal Reserve Bank of Chicago
The symposium was brought together to elicit candidate comments and work forward on initiatives found during the symposium.
Build relationship early and interact with them as you are developing business.
Provided context for current lending and business environment.
Audience was 1) Lenders, 2) Entrepreneurs & Business Owners, 3) Alternative Funding Sources