Ryan Brennan, General Manager, Benefit Capital.
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As the post-pandemic economy navigates its sustained downturn, the path to financial well-being and wealth creation begins with a concerted effort around growing local small businesses. Helping entrepreneurs and business owners create the jobs needed to elevate areas that need more economic opportunity. But those overlooked and underserved areas also need access to capital to produce the positive impact that can correct a dull economy. The The impact of accessible capital does not stop at the store– it can have a ripple effect by strengthening surrounding communities.
The business opportunity in rural and economically difficult urban areas
For undercapitalized parts of the country – the regions where lenders and investors have all too often been less inclined to support small businesses – a double bottom approach to investment may be needed to make a significant difference in focusing funds on these capital-starved communities. Public-private partnerships, which link government incentives and policies with the private sector’s innovation and investment expertise, can have great potential for stimulating local economies and enabling positive impact for small businesses and the communities and customers they serve.
In rural and economically challenged urban areas, aspiring entrepreneurs and budding small business owners have repeatedly faced with strong winds to attract investors to develop their ideas and grow their business. Whether they are considered risky by SBA lenders, rejected by community banks because they lack seed capital or collateral, or only have access to highly inflexible and expensive financing options, they face a path to much-needed capital that may seem almost impossible in distressed areas.
An important first step that those in the private and public sectors can take to ensure that inequalities in access to investment opportunities are addressed is a strategic partnership with their states. Local governments and impact-oriented investors should see incentives as solutions for small businesses.
Collaborate on incentives
For more than 30 years, public-private partnerships (including those developed by my company) that link innovative capital-raising structures with diverse groups of investors and partners have successfully channeled capital to companies and projects far too often overlooked. have been overlooked by traditional sources of venture capital. And the results were profound.
According to the Urban InstituteNew Markets Tax Credit (NMTC) investment areas have created more than 100 new jobs on average, residents have seen annual incomes increase by $562 per year, and poverty in these communities has decreased by approximately 0.8% per year. These results provide overwhelmingly supportive evidence that programs such as state and federal NMTCs, as well as nationwide rural employment laws, can be catalysts for local economic growth in underserved areas.
Since 2007, more than a dozen states have passed NMTC or similar programs, resulting in billions of dollars of private capital invested in areas underserved by traditional forms of capital. In addition, many other states have introduced tax credits specifically aimed at creating rural jobs. These programs have enabled entrepreneurs to access low-cost, flexible financing and expert operational support from private investors. This has increased entrepreneurial opportunities, company growth and community development.
The role of the public and private sector
Channeling capital to specific areas through participation in NMTCs and other similar state-level instruments that link public policy, capital and incentives to the innovation, efficiency and expertise of the private sector allows states to direct funding where it traditionally fails to go , keeping jobs and workers within their limits and encouraging private investment with good returns.
For policymakers looking to drive change—especially creating more opportunities for citizens in low-income areas, and in the face of record inflation and economic uncertainty—it’s worth exploring tax credit programs with decades-long track records of growing companies’ profitability to support the overall economic well-being and prosperity of workers and their families.
For investors, entrepreneurs and others eager to make a positive impact – while generating positive returns – advocacy and action are required. Investments must be made with intention and, as outlined earlier, can be accelerated with incentives. For those with the resources and the mission, join us. View the available programs. Lobby for legal support in your country. Search for companies and funds that are pioneers in impact investing and get in touch. Help direct capital to places it wouldn’t naturally end up.
High-impact incentives provide accessible opportunities that boost revenue, taxes and income growth for cities, towns and states, especially as the storms of recession and economic downturn are weathered.
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