Pooling, Aggregation and Integration: Strategies for Small Issuers to Increase Their Volume

1. Pooling, Aggregation and Integration:Strategies for Small Issuers to Increase Their Volume Presented by: Nancy Straw West Central Initiative May 22, 2006 New York

2. Organizational Context West Central Initiative • Regional community foundation and a community and economic development organization • Serve nine counties, 8500 square miles, 210,000 people • 83 communities, largest is 33,000 • Long-term goal: flexible, permanent resources for our region

3. Problem Statement and Catalyst for Innovation • In 1986, regional agricultural economy in a decline, and a shortage of jobs for people who stopped farming • The challenge: find ways to diversify the local economy and create jobs • The problem: lack of flexible loan funds for small business development and as a foundation, WCI was prohibited from making grants to for-profit businesses

4. Solution • Analysis: WCI needed funds and connections • Strategy: Partner with local leaders, commercial lenders and utility companies to:  benefit from their knowledge  increase deal flow  get to know the region • WCI contribution to partnership:  strengthen loan portfolios  build communities • help partners meet the needs of more customers • Innovation: Component funds that make loans (Component fund: a separate pool of funds used in a specific geographic area with input from local advisors)

5. Description of the Program/Model/Strategy • Component Funds are WCI’s assets • Advisory group recommends applications to WCI for final approval or denial • WCI provides underwriting, servicing, reports, etc. • Loans consistent with WCI lending policy • Fees are competitive with similar services

6. Benefits of the Program/Model/Strategy • Appeal to local leaders:  donation, tax deduction  donor can restrict use  make recommendations as to use  WCI does underwriting, etc.  AND WCI takes the heat if an application is denied • Benefits for WCI:  filling a market gap  better service to area  increased loan volume  local knowledge  business has local support  WCI had infrastructure • built goodwill  new, flexible funds  leverage new funds  WCI more adaptable  Leverage local dollars with other WCI loan funds  partners now donors  increased WCI’s asset

7. Implementation Lessons Track Record • 33 out of 63 Component Funds can make loans • Component Fund assets available for loans: $5.2 million • Currently, Component Funds represent $907,000 of our $6.4 million in outstanding loans (14%) • Number of Component Fund loans to date: partners in 140 of 725 total loans for WCI (19%) • Total cumulative Component Funds loans to date: $6.3 million of $25.3 total for WCI (25%) • Now 10,000 manufacturing jobs; was only 4,000

8. Implementation Lessons • Critical success factors: • local advisors for Component Fund • commercial lenders and utility companies as partners • Limitations: • work with finite number of advisory groups • limited secondary market options for us • local people do not want to say no to a project • some loan funds are underutilized

9. Looking Ahead… • Future potential: • new ways to partner with Advisory Groups • working toward State of Minnesota program • equity investments, RAIN Funds • more services for families with low incomes and for New Americans • adapting to changing market conditions • Threats: • harder to find new sources of funds • Limitations: • turnover in membership of Advisory Committees • loans activity slows when market interest rates are low • may be too late to obtain CDFI status

10. Looking Ahead… Conclusions: • Yes, this approach could be adapted by developing partnering relationships between a community foundation and a community or economic development organization • Build on what you have, develop partnerships