In 2014, Morgan Stanley, along with its partners, the Local Initiatives Support Corporation (LISC) and CDC Small Business Finance, commits million for an expansion of the Morgan Stanley / LISC Job Creation and Community Revitalization Fund. This more than doubles the amount of the 2012 pilot program. The fund will make qualifying loans under the Small Business Administration (SBA) 504 program, a federal program that helps business owners buy, build, or expand facilities as well as purchase equipment. The fund's expansion is made possible, in part, by the latest allocation of federal New Markets Tax Credits (NMTCs).
The fund is the first of its kind to combine the benefits of the SBA 504 program with NMTCs. This structure allows for investments that are smaller than those associated with typical NMTCs, making the capital more flexible and responsive to the needs of local entrepreneurs and small businesses. By pairing the NMTC with the SBA 504 program, Morgan Stanley, LISC, and CDC Small Business Finance have been able to assist in these businesses with loan sizes as small as , allowing small businesses to access affordable growth capital that otherwise would not be available. Moreover, the structure of the fund provides small business owners with economic incentives to build and grow businesses - and consequently, jobs - in distressed areas of the U.S. All million of the fund is expected to be deployed to approximately 20 small businesses by the end of 2015, with an average transaction size of approximately .25 million each. Morgan Stanley and LISC are investing million into the fund, including million of NMTC allocation, with SBA debentures comprising another million of capital.
In addition to Morgan Stanley's investment, the firm is also contributing its intellectual capital and thought leadership in helping develop the original idea and scale-up of the fund. LISC is also serving as fund manager, as well as providing its expertise and network in distressed communities across the U.S. CDC Small Business Finance is the key partner in operationalizing the fund - leading the underwriting, documentation, disbursement and collection and leveraging its long history and track record in helping small businesses expand and create jobs.
Sept 21-24, 2014 - Announce the Job Creation and Community Revitalization Fund expansion at CGI
Q4 2014 - Launch fund expansion. LISC and CDC Small Business provide marketing services, distribute and publicize program lending guidelines to potential small business borrowers around the country.
Q1 2015 - Deploy .5 million in capital to businesses (including SBA debenture). Implementing partners will Partners will use existing robust, intensive business development process on sourcing and diligencing businesses.
Q2 2015 - Deploy an additional .5 million to businesses
Q3 2015 - Deploy an additional .5 million to businesses
Q4 2015 - Fully deploy the remaining .5 million of the Job Creation and Community Revitalization Fund
In today's domestic small business capital market there remains a 'missing middle' of commercial finance, small businesses that employ five to fifty individuals, have less than million in annual revenues, and most importantly, need much less than a multi-million dollar economic development investment but more than the lines of credit and personal debt that help many entrepreneurs operate. What lies between is the fuel for small manufacturing plants, doctors' offices, retail shops, services providers and other small businesses critical to communities across the U.S.
Furthermore, small businesses in low-income communities in particular often struggle with accessing capital compared to their counterparts in more mainstream geographies. These businesses often do not have the same level of access to conventional bank loans or SBA programs. For example, the ability to attain a real estate loan for a new facility can be hampered by low real estate valuations and inadequate business cash flows compared to businesses in more thriving neighborhoods. As a 2011 report by the Initiative for a Competitive Inner city found, 71% of inner-city businesses are dramatically undercapitalized, operating with only one quarter of the capital compared to their industry peers.
While there is already a strong federal framework to encourage commercial investment in low-income areas, like New Market Tax Credits (NMTC), the challenge is making sure NMTC and programs like it work as well for small businesses in distressed communities as they do for larger ones.
Morgan Stanley, LISC and CDC Small Business Finance welcome additional Community Development Financial Institutions (CDFIs) willing to commit additional NMTC location to the fund.
Morgan Stanley will provide technical assistance to CDFIs who join and help further expand the impact of this commitment.