A NEW KIND OF SERVICE

When the COVID-19 pandemic struck North Carolina, DFI applied its expertise to helping communities respond to the urgent financial needs of their small businesses.

It was a beautiful spring day in April 2020, and downtown Belmont, North Carolina, was deserted.

It was a sobering sight for local leaders like city manager Adrian Miller. Like many of the state’s communities, Belmont had put decades of work into creating a vibrant and dynamic downtown environment. But as the COVID-19 pandemic forced businesses across the state and nation to shutter, local governments feared their economies would be sent into a tailspin.

“It felt like every day lasted 36 hours,” Miller recalls. “We didn’t know how long the shutdown would last, and we knew we wanted to help. We were doing social media campaigns and encouraging our community members to support local, but we felt we didn’t have anything tangible to offer our small business owners.”

Historic downtown Belmont, North Carolina with rows of brick and stone buildings, parallel parked cars, and multi-colored awnings. — Historic downtown Belmont, North Carolina. Belmont city employees worked with DFI to launch a small business loan fund in response to the financial effects of COVID-19. *(courtesy City of Belmont)*

Belmont’s experience wasn’t unique. While it appeared federal and state support for businesses was likely, a timeline for disbursement of funds was less clear. Local governments wished to step into the breach and provide support but needed technical expertise to find the best solutions possible. It was natural, then, that hundreds of local leaders turned to the UNC School of Government for help. Emails and messages poured in to Tyler Mulligan, Robert W. Bradshaw Jr. Distinguished Term Professor of Public Law and Government and director of the Development Finance Initiative (DFI), and Marcia Perritt, associate director of DFI.

“Our work is public-service minded,” Perritt said. “In a time of crisis, we had to ask ourselves what tools we could use to be helpful in that moment. This was an area where we could help our communities and respond to their needs.”

Emergency loans for small businesses can quickly become overwhelming for local governments to navigate, making support from DFI critical. The most common path for disbursing these loans to businesses uses a revolving loan fund. A community might establish a revolving loan fund for a variety of purposes; in this case, funds could be used for payroll, rent, mortgages, and more. When the loan is repaid to the local government, the funds can then be redeployed into another business, allowing the fund to “revolve.”

While the concept is straightforward, maintaining a successful program is a challenging undertaking. There is a litany of considerations to be made as the loans are structured and awarded, including:

Ideal interest rate and accrual
Payment structure and deferral periods
Collateral considerations
Applicant qualifications (e.g. credit score, business financials)
Loan sizes
Loan servicing and potential third-party administrators

“The majority of revolving loan funds fail, usually because they are underfunded, the application and reporting process is too onerous for business owners, or because they have a committee that doesn’t feel comfortable deploying the money,” said Rory Dowling, development advisor for DFI. “At the same time, there was a great deal of demand for answers to these questions. The federal Paycheck Protection Program hadn’t been announced yet. We realized we could be proactive and respond to the call for assistance.”

It was a time of great uncertainty—many communities feared local businesses couldn’t last a few weeks, and the prospect of federal aid was unclear. Following the School’s core value of responsiveness, DFI launched into action. Analyst Frank Muraca conducted research on existing revolving loan funds and created a framework of indicators to focus on in order to help communities be successful. Mulligan outlined the legal authority, and Analyst Amalie Bailey used financial modeling tools to advise communities. The team fielded dozens of inquiries, interpreting complex advice and providing practical guidance to communities.

The nature of revolving loan funds meant that DFI was often helping communities discover that such a program wasn’t the right choice for them. But for others, DFI advising made it possible to move forward quicky and responsibly with a loan program to support local businesses.

Belmont City Manager Adrian Miller and his team established a fund that distributed $67,000 in loans to Belmont’s local businesses.

In Belmont, Miller learned about the possibility of setting up a small business loan program when a city council member—a UNC-Chapel Hill graduate—forwarded him one of Mulligan’s blog posts outlining the process for creating such a fund. After speaking with the city attorney to verify whether such a program was feasible, Miller and his team got to work for Belmont.

“We were able to be very quick and responsive,” Miller said. “We went from reading the blog post, to council approval, to reviewing applications and handing out checks in two weeks. I was really proud of the council for trusting us to implement the program, but also of our staff for creating this program.”

DFI’s advice was instrumental in the creation and implementation of the program. Miller and his team worked in close contact with Mulligan, seeking clarifications and setting up a program that was simple for small business owners while providing protection for the city and the loan recipients. The fund distributed $67,000 to local businesses—half of which has already been repaid. PPP funding and the City’s “Keep the Lights On in Belmont” campaign provided additional support that kept Belmont’s downtown afloat.

“The best outcome was the support generated for our business community, our downtown, and our community in general,” Miller said. “Small local governments like ours rely on the School of Government. We had this program up and running while other towns were still talking about what they should be doing. DFI helped give us the expertise to fill in that gap and be responsive to our community’s needs.”

To date, communities working with DFI have made over $1 million in loan capital available to North Carolina small businesses. By rapidly offering their expertise in an area of high need, the organization made a difference for North Carolina communities and became a critical resource in a time of great stress. For many DFI team members, the work also reframed how the organization could be of assistance in an emergency—and the many forms public service can take.

“We often work on helping communities create thriving downtown environments,” Perritt said. “Small business success is essential to that. This work was outside our conventional model but in line with supporting local economies. Their survival is essential to North Carolina.”