THE LOS ANGELES COMMUNITY DEVELOPMENT BANK
INVESTING IN L.A.'s FUTURE
NOT A COMMERCIAL BANK
- President Clinton
- "We cannot repair the American community and restore the American family until we provide the structure, the value, the discipline and the reward that work gives."
- Vice President Gore
- "The greatest challenge to our economic strength is here at home where too many of our inner cities are distressed. That is what we intend to change. I believe we can do it."
- Secretary Cisneros
- "Los Angeles' Community Development Bank can serve as a model of innovation and creativity for the rest of the nation. It can create new partnerships among all members of the community to rebuild our neighborhoods."
- Assistant Secretary Andrew Cuomo
- "In order to truly create communities of opportunity, we must invest in the people who live in those communities. The best investment we can make is to provide quality jobs for residents."
- Mayor Richard J. Riordan
- "The Los Angeles Community Development Bank will provide a real economic boost to targeted communities, putting working capital into the hands of business owners to create quality jobs for Angelenos."
THE LOS ANGELES
COMMUNITY DEVELOPMENT BANK
The Los Angeles Community Development Bank (LACDB) is a critical economic development tool and provides the opportunity for Los Angeles to invest more than $1billion of working capital, equity and grants over the next ten years to organizations in those areas needing an economic stimulus. The Bank's activities will enhance and invigorare the existing economic development infrastructure.
Though not a commercial lending institution, the Bank will provide access to capital with funds from the Department of Housing and Urban Development, private lending institutions, and from proceeds of the sale of bonds. These funds will stimulate job creation and business growth in the designated Empowerment Zone and other low and moderate income areas of Los Angeles. Local businesses and community-based institutions located in these areas will become eligible for funds in the form of loans, loan guarantees, venture capital and grants.
The Bank will make funds and technical assistance available primarily through investment in existing community-based lending organizations, thereby allowing most decision making to take place at the local level, by people who best understand the needs of the community.
The Bank is a national model for economic development, as well as a true partnership between the City of Los Angeles, the County of Los Angeles, the federal government, private lenders, community organizations, businesses and entrepreneurs.
BANK OPERATIONS OVERVIEW
TYPES OF FINANCING PROGRAMS AVAILABLE
- DIRECT BUSINESS LOANS SECURED BY REAL ESTATE AND/OR OTHER BUSINESS ASSETS
- DIRECT LAND ACQUISITION/REHABILITATION LOANS
- PARTICIPATION IN LENDING SYNDICATES
- MICROLENDING
- DIRECT GRANTS TO LOCAL ECONOMIC DEVELOPMENT ORGANIZATIONS
- INTEREST RATE AND/OR LOAN FEE BUYDOWNS ON LOANS MADE BY THIRD-PARTY LENDERS
- LOAN GUARANTEES ON ECONOMIC DEVELOPMENT LOANS MADE BY THRID-PARTY LENDERS
- VENTURE EQUITY CAPITAL INVESTMENTS IN QUALIFIED PROJECTS
ELIGIBLE BORROWERS/GRANT RECIPIENTS
- SMALL-TO-MEDIUM SIZED BUSINESSES LOACTED WITHIN LACDB PROGRAM AREAS
- EXISTING BUSINESSES SEEKING TO LOCATE WITHIN EMPOWERMENT ZONE
- NEW BUSINESSES WILLING TO RELOCATE WITHIN EMPOWERMENT ZONE
- BUSINESSES SEEKING CAPITAL FOR EXPANSION
- COMMUNITY-BASED NONPROFIT AND FOR-PROFIT DEVELOPERS
- LOCAL ECONOMIC DEVELOPMENT ORGANIZATIONS
- INDIVIDUAL ENTREPRENEURS
COMMUNITY DEVELOPMENT BANK ORGANIZATION CHART
OVERV1EW Although not a bank in the legal sense, the LACDB will operate much like a bank: it will screen applications for loans and grants and determine the eligibility and credit-worthiness of borrowers; it will guarantee loans made by third-party lenders, participate in venture capital investments and provide outright grants to nonprofits and other eligible parties. The LACDB will not provide depository services. Interest earned on loans may be set aside to fund a variety of programs, social services, loan loss reserves and direct grants within the designated Empowerment Zone and other low- to moderate- income areas of Los Angeles.
SOURCES OF FUNDS
Beginning in mid-1995 the LACDB will be stage-funded over the first four years by a combination of federal Economic Development Initative (EDI) grants, totaling $115 million, and proceeds from debt guaranteed by the federal government ($315 million in U.S. Department of Housing and Urban Development Section 108 loan guarantees). In addition, the LACDB will receive funding by way of participating loans with private-sector banks and other lenders. Altogether, as federal dollars are used to "leverage" funds from the private sector, the LACDB anticipates financing more than $1 billion in new economic development in the targeted areas over the next ten years.
WHO QUALIFIES
LACDB loan applicants can include established small and medium-sized businesses, manufacturers, franchisees, community-based organizations, and both for-profit and nonprofit developers. The Bank, through various intermediaries, will provide start-up equity capital for new business ventures without access to sufficient credit. Also, the Bank will join with other community-based lenders to provide "bridge" loans to companies unable to obtain similar loans elsewhere.
BANK PROGRAM AREAS Whether a company or an individual may apply for LACDB financing depends on a number of factors, including its location. To qualify for loans, a business must be either 1) in the HUD Section 108-eligible area; 2) the designated Empowerment Zone (see map), or 3) up to one mile outside of the Empowerment Zone, provided that at least 51% of the jobs created at the supported facility will be held by Zone residents.
THE LACDB's ROLE WITHIN THE EXISTING LENDING COMMUNITY
The success of the LACDB will depend upon its ability to partner with private-sector intermediaries to leverage its limited public funds to foster targeted economic development. The LACDB envisions operating in conjunction with a number of community based financial institutions, as well as other major financial institutions, to implement the LACDB programs (in addition to providing direct loans). In large part, the LACDB's role will be to support, recapitalize and make more flexible the funds in the existing community lending organizations (both financial institutions and intermediaries).
WHEN AND WHERE TO APPLY
The Bank will become operational by July of 1995, and funds should be available to businesses by this coming Fall. In the interim, you may wish to contact one of the following organizations for immediate assistance.
- The Los Angeles Local Development Corporation - for financial assistance between $25,000 and $250,000 at (213) 847-6211.
- The Community Financial Resource Center - for financial, business and technical assistance at (213) 233-1900.
QUESTIONS AND ANSWERS
- Q:
- What if my business is located near, but not actually inside the qualifying Empowerment Zone?
- A:
- You may still qualify for funding under the EDI Grant program if your business activity "serves" the City and/or County Empowerment Zone, which under HUD rules means you are either a) located immediately adjacent to the Zone, or b) located up to one mile from the Zone boundary but at least 51% of any new jobs created at the supported facility are held by Zone residents.
- Q:
- What if I don't meet those criteria?
- A:
- You may still qualify under the HUD Sect. 108 loan guarantee program if your business is located in an area designated as an "Enterprise Community" by the City, or in certain census tracts within the City where the poverty rate meets or exceeds 20% (see map).
- Q:
- What types of loans will be available?
- A:
- Generally, the LACDB svill make business and land acquisition loans secured by real estate and other business assets, either directly or through other intermediairies. In addition, the LACDB will participate in lending "syndicates," as well as guarantee loans made by third-party lenders. The LACDB may also participate with other intermediaries in providing "microloans" to small businesses. Moreover, the LACDB will institute programs through other intermediaries to buy down interest costs or reduce fees on loans made by private lenders.
- Q:
- Other than loans and loan guarantees, what other types of funding will be available from the LACDB?
- A:
- Either directly or through intermediaries, the LACDB will provide "patient equity" capital on a venture basis to qualifying projects, which means that, in exchange for funding, the Bank will actually hold equity in your business. Qualifying projects can include existing or start-up businesses, franchises, and/or participation in venture investments with other institutions, such as pension funds.
- In addition, the LACDB will make outright grants to local development organizations for the purpose of making "microloans" to area small businesses, and to economic development organizations to provide "gap" financing for project development, infrastructure support, technical assistance programs and/or other economic development objectives.
- Q:
- My business is located within the bank's program area, so l qualify under that requirement. What criteria will be used in deciding whether to make me a loan?
- A:
- Like any lender, the LACDB will examine your business records, including balance sheets, profit/loss statements and tax returns. Second, it will also consider what you intend to do with the money, with emphasis to be given to job creation, community revitalization and other factors that will help create economic opportunities for low- to moderate-income residents. You should also have a written business plan that spells out exactly how you intend to use the loan proceeds as well as sales and cost projections.
- Q:
- Does it matter what type of business I operate (or want to get started)?
- A:
- No --- it may be a manufacturing concern, service business, retail store or virtually any other type of legitimate business. Home-based businesses may qualify as well.
- Q:
- Filling out all the paperwork for a loan is a real hassle -- can the LACDB do anything to help me?
- A:
- Yes, the bank will provide a variety of technical assistance programs to help businesses through the loan application process.
- Q:
- How long will the bank be in operation?
- A:
- It is anticipated that the Bank will be self-sufficient and operational for an indefinite number of years. The exact duration will depend upon myriad factors including, among others, the quality of the LACDB management team and the ability of the LACDB to successfully partner with existing intermediaries to implement the LACDB programs.