skip navigation

Friday, December 19, 2014

[ – ] Text Size [ + ]  |  Print Page

Cascade: No. 83, Fall 2013

Goldman Sachs Expands Small Business Initiative*

In an expansion of its 10,000 Small Businesses initiative in 2013, Goldman Sachs is providing small business loan capital to the Philadelphia Industrial Development Corporation (PIDC) and Community First Fund (Community First) and is funding a 100-hour educational curriculum for small business owners at the Community College of Philadelphia (CCP).

Background

Goldman Sachs targets small businesses that have annual revenues of $150,000 to $4 million, at least four full-time employees, two years of operating history, and a business model that could result in job creation. It also targets businesses that operate in economically disadvantaged areas.

John F.W. Rogers, executive vice president of Goldman Sachs and chairman of the Goldman Sachs Foundation, said, “We want to move them (the business owners) to the next level of development. They already have succeeded, and they know what they want to achieve.”1

The Goldman Sachs program has a focus on access to capital and education supplemented by business support services. The capital is provided by community development financial institutions (CDFIs) or other nonprofit business lenders, while the educational curriculum is provided at community colleges. The curriculum, which is free to accepted owners and was developed by Babson College in Massachusetts, assists owners in implementing growth plans and understanding customer relationships, target markets, and their competitors as well as human resources, finances, and other key topics. Applicants for the educational program must complete a detailed application and submit balance sheets, profit and loss statements, and federal tax returns.

Loans provided by the initiative’s capital partners typically range from $50,000 to $750,000, average about $190,000, and generally have terms of three to 10 years and interest rates of 6 percent to 10 percent. Eligible loan purposes are working capital, machinery and equipment, building improvements, leasehold improvements, and real estate acquisition and construction.

Goldman Sachs has committed $500 million to its 10,000 Small Businesses program, which started in 2009 and also operates in Chicago; Cleveland; Houston; Long Beach, CA; Los Angeles; New Orleans; New York; and Salt Lake City. Goldman Sachs is providing only the access to capital component in Kentucky, Montana, Oregon, Tennessee, Virginia, and Washington State.2 Goldman Sachs makes a commitment to maintain the program at each site for at least five years. Cristina Shapiro, vice president at Goldman Sachs, said that Goldman Sachs has made a $500 million investment in the 10,000 Small Businesses program. Of this amount, Goldman Sachs Bank provides $250 million for loans to CDFIs or other community-based lenders, and the Goldman Sachs Foundation provides $50 million in grants to the CDFIs or other lenders for capacity building, operating support, and loan-loss reserves. The $500 million investment includes $200 million from the Goldman Sachs Foundation for the educational program and business support services.

Shapiro also said that the initiative’s goal is to provide underserved small businesses with access to business education, capital, or both. Most borrowers under the initiative have been located in low- and moderate-income areas and/or have been women- or minority-owned companies, she said.

Philadelphia and Eastern and Central Pennsylvania

According to Shapiro, the $500 million investment includes $10 million for PIDC loans, $5 million for Community First loans, and $5 million for the educational program and business support services at CCP.

PIDC and Community First are making loans through the 10,000 Small Businesses program to new or existing borrowers for expansion or working capital. The loans are typically secured and require an equity contribution from business owners. The CDFIs identify potential borrowers through the educational program and referrals from banks and other business assistance providers, such as small business development centers and SCORE.

PIDC, which has financed and managed large economic development projects since 1958 and has also provided financing to small and mid-size businesses,3 formed a CDFI subsidiary in 2012. Community First, based in Lancaster, PA, became a CDFI in 1992 and has focused substantially on small business lending.

Under the Goldman Sachs initiative, the two CDFIs lend in their traditional service areas. PIDC lends in Philadelphia and Community First lends in a 13-county region in eastern and central Pennsylvania.4

Margaret Berger Bradley, executive director of Goldman Sachs 10,000 Small Businesses — Greater Philadelphia and a former chief operating officer of The Reinvestment Fund, said that participants in the first set of classes, which started this past spring, consisted of 23 owners, including a kitchen countertop manufacturer with 30 employees, an aerospace parts manufacturer, and owners of a specialty food business, a textile design studio, and a coffeehouse. A second set of owners will begin classes in September.5 The owners spend 10 to 15 hours between classes on assignments related to their businesses, including working with a business advisor and attending clinics and networking events with business organizations and professional service firms, she added.

The Greater Philadelphia Chamber of Commerce, the Greater Philadelphia Hispanic Chamber of Commerce, and the Urban League of Philadelphia helped inform small business owners about the educational program.

Lessons Learned

Saudia Davis, CEO of GreenHouse Eco-Cleaning in Brooklyn, NY, is a graduate of the Goldman Sachs 10,000 Small Businesses program and the recipient of a working capital loan from TruFund Financial Services, Inc., formerly SEEDCO Financial.Saudia Davis, CEO of GreenHouse Eco-Cleaning in Brooklyn, NY, is a graduate of the Goldman Sachs 10,000 Small Businesses program and the recipient of a working capital loan from TruFund Financial Services, Inc., formerly SEEDCO Financial.

Shapiro said that some early lessons from the initiative included the following:

  • Programs should be adapted to meet the specific needs of communities and small business owners. Although a number of small business owners have benefited from the combination of capital, education, and business support services, many others have elected to focus on just the educational component in order to grow their business.
  • There is a gap in funding for small businesses looking for $50,000 to $250,000 in growth capital that is still not being addressed by traditional financial institutions. The program’s provision of capacity-building grants as well as loan-loss reserve grants has been critical to allow the program lenders to reach underserved businesses.
  • There is uneven capacity of CDFI loan funds across the country that can manage loan capital of $5 million or more and relend it to small businesses.6 There are opportunities to partner with other community-based lenders, such as Small Business Administration 504 providers that already lend to small businesses and are interested in expanding into working capital loan products.
  • With more than 1,100 graduates to date, the education program has a 99 percent graduation rate. Among more than 400 respondents to a survey six months after graduation, approximately 63 percent reported increasing their revenues, and approximately 47 percent reported creating new net jobs.

For information, contact Cristina Shapiro at 212-902-2393 or cristina.shapiro@gs.com E-Mail, ow.ly/oQXIv External Link; Anne Bovaird Nevins, senior vice president, PIDC, at 215-496-8151 or anevins@pidc-pa.org E-Mail, www.pidc-pa.org/ External Link; Joan Brodhead, senior vice president and chief operating officer, Community First, at 717-393-2351 or jbrodhead@commfirstfund.org E-Mail, www.commfirstfund.org/ External Link; or Margaret Berger Bradley at 267-299-5901 or mbbradley@ccp.edu E-Mail, www.ccp.edu/10ksb External Link.

  • * The views expressed here are those of the author and do not necessarily represent the views of the Federal Reserve Bank of Philadelphia or the Federal Reserve System.
  • 1 See ow.ly/oQWe9. External Link
  • 2 Locations are selected by such factors as the needs of the small business community, the strength of local partners, and the ability to develop the entrepreneurial ecosystem within a community, according to Goldman Sachs.
  • 3 In 2009, PIDC absorbed the portfolio of Philadelphia Commercial Development Corporation, which had provided financing and technical assistance since 1974 to businesses, business associations, and community development corporations.
  • 4 Community First lends in Adams, Berks, Chester, Cumberland, Dauphin, Franklin, Lancaster, Lebanon, Lehigh, Montgomery, Northampton, Perry, and York counties in Pennsylvania.
  • 5 According to Berger Bradley, the participating business owners come from a broad area, and there is no residency requirement for applicants to the educational program.
  • 6 Goldman Sachs worked with the Opportunity Finance Network from 2011 to 2013 on a capacity-building initiative to enable 21 CDFIs, including Community First, to strengthen their capacity to lend to small businesses through peer learning opportunities, consulting services, training, webinars, and white papers.