Column: Big ideas needed for small enterprises

ASSETS Executive Director, Jessica King, wrote a column for LNP discussing poverty alleviation and the creation of the Great Social Enterprise Pitch. To view the column, in it’s original format, on LNP, click here

I have failed at my job.

I am executive director of an economic development organization whose root mission is poverty alleviation. But in our city of 60,000 people, the poverty rate has increased 50 percent over the past decade.

To my credit, I’ve only been in my role for a few years and have spent most of that time developing new programs and shaking the trees for funding in response to government cuts.

Those in the nonprofit sector know we can’t do it all, especially with underfunded organizations and a historic “charity mindset” that works to alleviate symptoms rather than create empowered, intelligent, coordinated approaches to structural change.

Government isn’t solely to blame.

Lancaster city consists of a tax base in which 30 percent of the population lives below the poverty line. And 65 percent of the city budget is spent on the police and fire force and their rapidly escalating pension costs. Most of those public employees also live outside the city, which removes a middle-class demographic from a population that skews heavily toward poverty.

The city’s main way to increase revenue is through property taxes on a geographically constrained and nonprofit-heavy (i.e. tax-exempt) tax base. There is only so much it can do to proactively fight poverty.

To the point of individual responsibility (while this might sound like heresy in a conservative community like Lancaster), pulling oneself “up by the bootstraps” is virtually impossible if you don’t have boots.

The roots and depths of poverty are deep and depend on the individual (both those in poverty and those exploiting the poor), the community and political and economic structures.

In light of the challenges faced by the nonprofit sector and government, I believe the largest opportunity in the fight against poverty might be in the private sector. After all, it is the largest segment of our economy. In 2014, government represented 13 percent of the U.S. economy and nonprofits somewhere around 5 percent — leaving the vast majority of economic activity in the private sector.

While the federal government stagnates and nonprofits work to align our scarce resources, short-term hope lies in private-sector businesses that operate with multiple bottom lines; not maximizing profit at all costs, but also considering the sustainability and health of the community as a whole when making business decisions.

We need more companies that are innovating to fill gaps in the market. We need consumers who think about where their goods and services come from and how their spending decisions contribute to the problem or to the solution.

Most importantly, we need businesses that pay living wages and work to employ those in our community with barriers to employment or those who are working at minimum (or poverty) wages. After all, the surest path out of poverty is a good job.

Through our traditional work with underrepresented entrepreneurs, Assets helps people create their own jobs through self-employment. This includes training and innovative lending for those who can’t access traditional capital.

Last year, we launched with Lancaster County Community Foundation the Great Social Enterprise Pitch, an idea incubator and business planning competition to spur private-sector social enterprise growth. The hope is that these local social enterprises will create new economic opportunity.

In the past year, we have also been able to attract new government funding to make a low-cost loan of over $500,000 to a local social enterprise working to create “thriving-wage” (a step above living wage) jobs in Lancaster city. As that loan is repaid, it will be recycled to make more impact loans supporting job-creating social enterprises in areas where jobs are needed most.

The “social return on investment” of this kind of work is significant: For every dollar spent by a social enterprise, over $2.23 is returned to society in total benefits, primarily by reducing the cost of public assistance to those who were trapped in poverty and are now employed at family sustaining wages.

So while this type of lending might not have a huge financial return to Assets, the net value to the community is tremendous. We expect the capitalization of this loan pool will amplify the efforts of entrepreneurs to make a deeper financial and social impact in the local economy.

We can’t afford to fail in the fight against poverty. This means aggressively seeking new approaches, assessing impact and quickly adjusting course when needed.

We have to do this work differently if we want to see different results.

Jessica King is executive director of Assets Lancaster, a nonprofit that provides “microenterprise” support, teaching entrepreneurs how to start and grow early stage companies.

More than Money: Big benefits result from small business loans through ASSETS Lancaster

LNP featured an article about our micro-loan program. To view the original post, click here.

A year ago this month, ASSETS Lancaster began a program that lent $13,200 to nine small-business owners looking to jump-start their enterprises and rebuild credit.

But the program provided more than money.

The group gathered regularly for business training, credit counseling and mutual support — activities that the aspiring entrepreneurs found as valuable as the loans.

“It was exactly what I was looking for,” said LaShonda Whitaker,  who got a $1,200 loan to buy supplies for Whitaker Family Child Care, which she operates out of her Lancaster home.

Whitaker just hired a part-time employee and said she wants to be in the next round of the expanding microloan program where $5,000 could be on the table.

Small loans, big hopes

ASSETS made the loans in March  2014 through the PRECAPS program of FINANTA, a Philadelphia-based microlender.

Modeled after successful international microloan programs, the loans of $1,200 and $3,600  were given at 9 percent interest.

The program also featured a “lending circle,” where the nine borrowers meet monthly to learn about business and to encourage each other.

“I think it is having the impact we wanted it to have,” Jonathan Coleman, program director for ASSETS.

The businesses represented included tax preparation, consulting, a hair salon, fashion design, landscaping, electrical, property management, day care and  antique window restoration.

The loans helped the business owners buy tools, supplies and equipment as well as gave them a chance to rebuild damaged credit.

“This was probably the first year that my credit score didn’t go down,” said Lindsey Gruber, a 27 year old who got a $1,200 loan for her side business, Gruber Accounting Services.

Of the nine people in the class, seven had their credit scores go up, with one person establishing credit for the very first time.

Of the six people who had their existing scores go up, the average increase was from 589 to 612.

And as of last Wednesday’s graduation, all but $280 of the loans had been paid back.

The one unpaid loan was to a business owner who stopped attending classes. The owner did not return calls from LNP, but Coleman said he expects the loan will be made good.

Any missed loan repayments are covered by a group escrow account, to which everyone contributed the equivalent of one month’s payment.

Michael Tull, 45, who got a $1,200 loan for his  UgLY 1 clothing line, said he wouldn’t be bothered by having to help cover someone else’s shortfall

“We all knew that going in,” Tull said. “We know that for the group that is here, we stayed loyal and we can still do it together.”

Small loans growing

Coleman said ASSETS, which assists entrepreneurs from underserved populations, learned enough from FINANTA to launch its own lending circles.

The next round will give out around $25,000, with possible individual loans up to $5,000 for those who completed the initial round.

The new loans are expected to close in early May.

ASSETS hopes to have several lending circles a year in Lancaster plus expand the program to York, Harrisburg and Reading.

To that end, ASSETS has hired a lending officer who begins later this month and will oversee the program. Coleman said it should be able to operate without FINANTA in about six months.

Coleman told the lending circle group at their graduation last Wednesday, “We were testing it this year and you’ve proven, through your hard work, that this can work.”

The graduation, which was held  in Southern Market Center at 100 S. Queen St., included food from Espino’s Pizza, whose owner Ramon Espino is part of a six-person lending circle ASSETS began in December.

Succeeding together

The lending circle borrowers universally praised the ASSETS program and the support they got from each other.

“The other business owners actually empower me to keep going when times get tough,” said Falesha Martin,  39,  who used a $1,200 loan to buy additional supplies and equipment for her salon, Turn N’ Headz weaving and braiding studio, including a hair steamer.

With a new round of funding, Martin said she would add a retail section to her salon.

James McFarlane,  33,  used a $1,200 loan to buy some tools for Bear Service, his one-man electrician business. McFarlane said a second loan could bring him closer to hiring another electrician and an electrician’s helper.

Rob Vital, 40, used the $1,200 loan to get some supplies and a new paint job for the van he has for his business, Vital Property Services.

Vital said he especially appreciated the accounting and bookkeeping help for his handyman service, which he has operated since 1998.

“I could do the work, but I’m not in business management,” Vital said.

Tony Russell, 38, used a $3,600 loan to buy a wood splitter so he could to augment his one-man landscaping business, Russell’s Lawn Care and Home Services, by selling firewood over the winter.

“I didn’t realize there was a firewood cult out there,” Russell said of the new line of work.

Gerald Simmons, a Lancaster pastor, got a $1,200 loan for promotional supplies for his consulting business.

Simmons, who is in his 60s, said the lending circle program provided a good starting point for business owners who are not sure of the way.

“It’s what I would call the on-ramp to the mainstream for small businesses,” he said.

Business-based solutions can address violence, poverty

ASSETS Program Director Jonathan Coleman recently published an article in the Lancaster Newspaper titled “Business-based solutions can address violence, poverty”. In this article Jonathan gives some advice on how he thinks we can reduce poverty in the city. 

When I moved to Lancaster city in 2013 to work at ASSETS Lancaster, I was often told that the city is new and improved, a different place than it was a decade ago. The dramatic development of downtown, the popularity of First Fridays and the influx of new residents, both young hipsters and still-hip retirees, were examples of a city on the way up. As I began to dig into some of the economic realities of the city, however, I soon realized that this success narrative was missing some important components. A decade ago, poverty rates in Lancaster city were 21 percent, according to U.S. Census figures. Today, that number has jumped to 29 percent. Worse yet, poverty rates in parts of the south side of the city today are at 40 percent.

It is clear from these statistics that despite the apparent rising tide of city development, not all boats have been lifted. Many of our citizens are being left behind. This reality impacts all of us, regardless of our economic status. Take recent criminal activity in Lancaster as an example. Each headline likely involves crippling economic underpinnings that go unmentioned in the news reports. It stands to reason that in light of this reality, a primary tactic to reduce violence could be poverty alleviation.
We must recognize that a renovated downtown, involvement in community peace initiatives, and more security cameras — while all positive initiatives in their own right — cannot offset the challenges to those living in poverty.
With this in mind, we want to propose a few ideas to reduce poverty using business-based approaches:

Support businesses and “social enterprises” that pay thriving wages.
The best way out of poverty is a good job. Why not, therefore, do everything we can to promote businesses that intentionally pay high enough wages for a family to not only survive, but thrive? The Lancaster Food Co. is a great example of a new social enterprise established for this purpose, intending to create more than 40 thriving wage jobs for those who struggle to find work elsewhere.
These companies only succeed, however, with adequate market demand. In Lancaster, that could include all of us who eat bread (and the expanding line of food products the company produces)!

Consider a Social Impact Bond to fund efforts to reduce poverty in the city.
A Social Impact Bond is an innovative financial product created to get funding into the hands of the most successful nonprofits. These bonds bring in for-profit investors who get financial returns, paid by the government, if the funded project results in reduced government expenses. Think this is unrealistic? Goldman Sachs recently made a $13.5 million investment into a Social Impact Bond aiming to reduce recidivism in New York. This model proves the financial value to society of investing in poverty alleviation.

Get money into the hands of underrepresented entrepreneurs so they can grow their businesses. Millions of dollars have been invested into city businesses over the last decade, but those efforts have not created prosperity for all, so maybe we should add a new approach.

At ASSETS, we are already working on this through our Lending Circles Microloan Program, empowering entrepreneurs from low-income communities to grow their businesses, creating new jobs and developing their neighborhoods from within. Lancaster needs more targeted solutions to fight poverty. These are a few ideas, but there are certainly others to be considered. Neighbors, nonprofits, businesses, and government should consider new shared vision and common goals to reduce poverty. The future is bright, but only if all boats can rise with the tide.