Today we welcome Teresa Morrow, vice president of external relations and marketing at The Minneapolis Foundation, to share how the foundation’s Working Capital Loan Fund, a $1.5 million Program Related Investment (PRI), is helping minority businesses get into the game of building the new Vikings stadium.
In late 2012, a Minnesota legislative appropriation and the investment of the Vikings football organization launched plans for a billion dollar sports facility in Minneapolis. Many supporters of the new stadium heavily promoted the economic activity that would result from the construction of this new facility.
Access to Working Capital is Large Barrier
But without intentional efforts to level the playing field in terms of access to financing, the stadium will not be the inclusive project that the Legislature envisioned. The goal of The Minneapolis Foundation’s Working Capital Loan Fund is to eliminate the single largest barrier to the inclusion of Minority Business Enterprise (MBE) contractors in this project: access to working capital.
Due to shorter business histories, narrower asset bases and limited access to conventional financing, the only sources of working capital for MBEs are expensive. Providing working capital at a more reasonable cost to these MBEs leverages the stadium’s benefit to the entire community by developing long-term quality employers, new skills and capacity—not only for the MBE but also for its employees.
The Working Capital Loan Fund
The Working Capital Loan Fund is a $1.5 million Program Related Investment (PRI) of The Minneapolis Foundation, paying a 1.5% annual interest rate for a period of three years. The investment is a loan to MEDA, which is an experienced Community Development Financial Institution. The fund takes a “reuse and recycle approach” with 75% of the fund deployed at any given time, at a rate of 8% to qualifying MBEs. The funds are expected to revolve four times annually, as MBEs repay and the funds are re-lent. Principal will be returned after three years.
Enthusiastic Donor Response!
Donors to The Minneapolis Foundation were invited to participate in this PRI by investing a limited share of capital from their funds to a pool of $500,000, or one-third of the total $1.5 million PRI. The balance ($1 million) will be provided by an investment of The Minneapolis Foundation’s unrestricted assets.
The response on the part of donors was enthusiastic, with full funding provided in a matter of weeks. Risk to a donor is limited by the structure of the Working Capital Loan Fund. Prior to the foundation experiencing any loss in the $1.5 million Loan Fund, a $300,000 loan loss reserve will be drawn down to cover any default. This reserve will cover a default rate of over 12%. If cumulative defaults exceed 12%, the general assets of MEDA are obligated to ensure repayment to The Minneapolis Foundation and its participating Donor Advised Funds.
While the support of donors has been gratifying, the interest by potential borrowers is equally satisfying. Small business owners now have access to tools that will truly help them “get in the game!”
Related: For more on the topic, see Mission Investing Gaining Minnesota Momentum, a post by Wendy Wehr, MCF’s vice president of communications and information services.
Photo cc MoDOT