Local First Arizona’s emphasis on local economic sustainability throughout Arizona aligns with the Community Investment Corporation, a legacy partner of Local First Arizona and a nonprofit organization serving as one of Tucson’s economic engines.
CIC, like Local First Arizona, believes in the benefits of localism as it relates to small business creation and cultivation. Its executive director for the last three years, Danny Knee, is passionate about removing barriers for Tucsonans with few or no resources but who want to put their entrepreneurial spirits to work.
“While starting and running a business is hard work, we should do more to help those with the drive and diligence to succeed regardless of their current socioeconomic status,” Knee said.
With a vision to enhance the quality of life in Southern Arizona by investing in locally owned businesses in both rural and urban areas, CIC pursues strategies that help expand business opportunities while incentivizing entrepreneurs to focus on community benefit and impact as well as their profits.
“Profits are important, of course, but businesses should exist for the benefit of people, not the other way around,” Knee said.
This “double bottom line” approach as it is known in social entrepreneurship circles, led to CIC’s partnership with Local First Arizona via the SCALE UP (Sustainable Communities Accessing Lending and Expertise Upon Performance) program. SCALE UP is an award-winning program designed for local businesses, nonprofits and residents to save energy and money by implementing sustainable practices and retrofits. By integrating local energy, water, waste and transportation conservation expertise into hands-on trainings that teach benchmarking and evaluation, Local First Arizona and CIC are proving that conservation investments make business as well as environmental sense.
This partnership is an expansion of CIC’s social impact lending program which incentivizes borrowers through lower interest rates to pursue activities that are considered an “enhanced community benefit.” Examples of these benefits include businesses that support regional food security such as farm-to-table efforts, businesses that pay all of their employees living wages, or as is the case with SCALE UP, those that pursue conservation retrofits.
“I think we underestimate the economic benefits of doing good,” said Knee, who holds an MBA from the University of Arizona. “From a lender standpoint, we financially incentivize what we want to see more of in our community such as conservation.”
In this vein, local businesses participating in the SCALE UP program are given access to short-term funding through an exclusive revolving loan fund and offered grants from CIC to cover 10 percent of the project costs up to $1,000 per business. The businesses must fulfill a variety of requirements to ensure their commitment to the partnership. The loans are not large, which limits their profitability, but Knee notes that CIC is accustomed to the needs of “micro-borrowers” offering flexible, but robust, underwriting, loan origination and limited legal fees for document creation.
In addition to Local First Arizona, CIC works with Small Business Development Centers across southern Arizona as well as nonprofit organizations like the Community Food Bank of Southern Arizona to generate leads, provide access to credit for underserved populations and counsel business owners and aspiring entrepreneurs. CIC’s total current lending portfolio consists of 41 loans with outstanding principal balance of $3.7 million. For those wondering about the impact of CIC’s work, a 2018 study estimated the annual economic and social benefits at $7.4 million which is 558 percent return to the community on every dollar invested in services provided by CIC.
Even though most economic development incentives still focus on recruiting large employers, Knee believes the numbers born out of this study should encourage more investment in innovative solutions to community problems beyond traditional approaches.
“We should be paying attention to the foundation of a healthy economy, which is a diversity of different firms, not just large national companies,” Knee said.
In CIC’s approach, economic development is not an “either/or” proposition, but instead supports the notion that a community can simultaneously recruit large employers and support the creation of local mom-and-pop lifestyle businesses which have the added benefit of reinforcing Tucson and southern Arizona’s strong local culture.
In support of this belief, CIC has made microlending a strategic priority.
“Stories abound of multi-million dollar companies that started with less than $10,000,” said Knee, who laments how difficult it can be for people to get small loans because they are not profitable for banks and lenders.
At the same time, he understands their position because they are not profitable for CIC either. But CIC sees it as part of their mission and the organization has the benefit of not needing to make a profit on all segments of their loan portfolio.
“Metaphorically speaking, the first step for entrepreneurs can feel like it’s 25 feet tall,” Knee said. “At CIC, we believe in trying to make that first step to funding a business moremanageable.”
With a goal of economic development focused on job creation and retention, CIC has originated 28 microloans (less than $50,000) since 2012 and has 23 active microloans in its portfolio—18 of which were originated in the past three years.
CIC’s small business lending program provides access to capital at competitive interest rates with flexible terms and provides lending solutions for organizations of every size. Knee believes “small businesses are often underestimated because of their size, but they play a vital role in job creation and the overall growth of our nation’s economy.”
According to the Small Business Administration’s Office of Advocacy, small businesses employ over 47.8 percent of the country’s working population, and employ nearly 1 million Arizonans. Half of our GDP is from small businesses with 100 employees or less. This data on small businesses is one of the reasons that CIC provides financing options to ensure their dreams of entrepreneurship come to fruition.
CIC also has its sights set on addressing predatory consumer debt such as auto title lending, which Knee believes is a drag on the national and local economy.
“Some studies estimate these types of extractive loans take nearly $1 billion a year out of the U.S. economy through bankruptcy and job losses,” Knee said.
Working in conjunction with Pyramid Federal Credit Union and Catholic Community Services on a pilot program called “A Better Loan Experience,” CIC and its partners are offering 12-month, unsecured loans at 12 percent interest for individuals who have stable employment but live below 250 percent of the federal poverty level. Each participant is required to set up a savings account and participate in a 16-hour credit builder course.
CIC and Catholic Community Services are helping the economically vulnerable avoid or refinance out of predatory loans. The goal of the pilot program is to learn what the true pricing of the loans can and should be so that the partners can invite ethical lenders into the market space and increase the amount of debt capital that is made available to economically vulnerable borrowers without taking advantage of them.
The impact to the individual borrowers is unmistakable as illustrated by one of ABLE’s current loan recipients. For example, ABLE assisted an individual who borrowed roughly $1,250 online to cover a car payment, catch up on rent, and buy food during a brief interruption of employment. After months of making $600 payments, he still owed $1,000 in unpaid principal. His effective interest rate was 695 percet annually. By refinancing him into a one-year loan at 12 percent interest, his monthly payments were roughly $111. This is an individual who had almost $500 more per month in his pocket to meet his car payment and other living expenses and needs. Without a refinance, it is likely he would have paid close to seven times the original amount of the loan before it was paid off.
The partnership between Local First Arizona and CIC is a testament to the two organization’s philosophies of service, creativity and sustainability. Local First Arizona believes that as CIC continues to find low-investment economic development solutions and bring more attention and resources to them, our local economy in Tucson and Arizona will be more resilient as a long-term result.
For more information about the Community Investment Corporation visit cictucson.org.
There is also a new Southern Arizona page for Local First Arizona and the Local First Arizona Foundation for keeping updated on all of the key areas of our work at localfirstaz.com/tucson.
This is a regular series of columns from Local First Arizona on local sustainable economy issues. Get involved as a member or volunteer of Local First Arizona by signing up at localfirstaz.com. Contact LFA Southern Arizona Director Michael Peel at firstname.lastname@example.org or 975-0145.