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CBA Requests re Town's Small Business and Non-Profit Emergency Loan Fund

CBA Requests re Town's Small Business and Non-Profit Emergency Loan Fund

Carrboro Business Alliance
The following is a letter submitted from the CBA Leadership Council to the Town of Carrboro Mayor and Council on Tuesday, April 21, 2020.

Dear Carrboro Mayor and Town Council Members,
Thank you to you and town staff for so efficiently executing the first tranche of funding from the new Small Business & Non-Profit Loan/Grant Fund. We are grateful.
Today, we ask that you direct staff to dispense the balance of funds with the following three considerations:

  1. Time is of the essence – please direct staff to invest the full balance of funds with urgency.
  2. Governance and capacity – please direct staff to proceed with either the Task Force or ESC with sufficient staff support.
  3. Scope – please adjust the current guidelines so that borrowers can appropriate funds to the highest and best use, that non-profits can submit alternatives to the credit report and personal guarantee, and applicants have the opportunity to explain if they cannot submit the Form 941.
We make our case for these considerations below.
Thank you for your heartfelt and thoughtful engagement. We look forward to hearing the discussion this evening.
David Jessee
Chair, Carrboro Business Alliance
CC: Town Manager David Andrews
Making the Case:  Three Considerations for The Town of Carrboro’s Small Business & Non-Profit Emergency Loan and Grant Fund

1) Time is of the Essence: We understand the re-design of the town’s fund was intended to provide interim emergency relief for local businesses and nonprofits as the federal government established national relief programs.

The good news is that the
national relief programs were established and several local businesses and non-profits successfully secured those funds.

The bad news is that the national funds were quickly exhausted, at this time the feds are no longer accepting applications, and many of our local enterprises are left empty-handed and remain deeply burdened.

Thankfully, there is a second local emergency fund with the Orange County Government, and some of our local Carrboro-based businesses applied. However, as we await final decisions, we know the fund received far more applications than is possible to accommodate and will be extremely competitive.

As such, there remains tremendous need for emergency funds among our local businesses and non-profits during this global crisis, and we ask that you direct staff to invest the full balance of funds with urgency.
2) Governance & Capacity: We applaud the Emergency Task Force for doing an excellent job reviewing and approving applications in the first tranche of funding, and we have full confidence in this Task Force continuing this important work. We also have confidence in the ESC managing the funding decisions going forward. We defer to you and staff on the most appropriate governing body and only ask that the speedy pace of the program continues.

A major concern is staff capacity given recent turnover. Knowing how time intensive the process of preparing the applications for the Task Force review was, and how this will hopefully be a rolling process with dozens of applications going forward to the Task Force or Committee for review each month, we ask that you let it be known to the manager your wish for him to adjust and flex staff focus where necessary to ensure continuity in the administration of the emergency loan fund.

Our hope is that the next round of applications would be reviewed by the TBD governing body by no later than May 12, which would be the next scheduled meeting of the ESC. Achieving this would require staff to activate immediately.

3) Scope: We appreciate the thoughtfulness that went into the design of the original application, which ensured a streamlined process and strong fiscal management. From what we understand, most applicants were missing some paperwork, particularly the non-profit credit report and IRS Form 941. We have confidence that some of the previous applicants would indeed meet the necessary fiscal threshold and re-apply if the requirements and terms were slightly modified. Some options for your consideration which we believe maintain good governance practices: 

  • Modify short-term payroll requirement and terms: The stay at home order mandated most local businesses and non-profits close and has resulted in significantly minimized operations, meaning many local employers do not have work to offer employees. All the while, the state unemployment program is now updated with increased federal funds for displaced local workers. As such, the well-intentioned focus of the town’s emergency fund to meet short-term payroll needs is not as relevant as it was just five weeks ago. Things have moved quickly and we recommend modifying the Town’s fund to allow loan recipients to determine the highest and best use of the loan funds. Also, the expectation that the town funds be a bridge loan and returned upon receipt of federal funds has proven complicated, as federal PPP funds are intended for payroll expenses and SBA EIDL funds are intended for lost revenue - and neither of these federal funds are to be spent on settling existing debt (like a Town loan). We recommend removing any expectation that the town loan must be repaid upon receipt of federal loans or grants.
  • Add non-profit alternatives to the credit report and personal guarantee: Ensuring credit worthiness is an important element of loan fund management. While a credit report and personal guarantee proved useful tools in determining likelihood of repayment for business applicants, it proved more complicated for non-profit applicants. Very few non-profit organizations have Dunn & Bradstreet numbers and we have found these reports to be based on outdated information and not always reflective of the current fiscal state of the enterprise. Further, while there is precedent for a personal guarantee for a nonprofit, it is very rare and not best practice (according to conversations with staff at the NC Center for Nonprofits). We recommend allowing non-profit organizations to submit alternatives to the credit report and personal guarantee, including proof of collateral or bank-issued letter of credit worthiness (or perhaps a CPA-certified profit and loss statements and balance sheets to give a full financial picture). Worth noting, the Orange County Emergency Small Business Funding Program does not require a credit report of any applicant. 
  • Adjust IRS Form 941 expectation: A current requirement is the submission of the IRS Form 941, which is how employers report federal withholdings from most types of employees. There could be organizations that have been in operation for more than your three-month minimum but have not yet filed their 941. As such, we recommend allowing applicants the option to explain why they cannot submit the form. (Note - Orange County does not require this form in their emergency loan and grant program.) 
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