Community bankers in Tennessee are lining up to invest in a new program designed to spark economic activity and job creation in underserved rural communities there.
Over the next 10 years the Tennessee Rural Opportunity Fund, a public-private partnership between the Tennessee Bankers Association, Gov. Phil Bredesen, and a local community development financial institution, plans to originate $25 million of loans to more than 350 rural small businesses.
Organizers expect the program to create roughly 600 jobs over the next decade.
The fund, which organizers hope to launch next month with $12 million of capital, is intended to provide short-term loans to new or expanding businesses that would not qualify for private-sector financing. Gov. Bredesen has committed $2 million of capital for the fund, and member banks of the state trade group are expected to contribute the rest.
In exchange for their investment, the banks will receive Community Reinvestment Act credit and a 3% return. But bankers also are hoping that by helping small businesses grow, they can create a pipeline of future customers.
"Our goal is to take a company that is not bankable over three to five years and make them bankable," said Clint Gwin, the president of Southeast Community Capital Corp., the CDFI that will administer the fund.
Since its inception in 1999, Southeast Community has originated 286 loans, worth nearly $21 million, to 216 small businesses primarily in urban Tennessee communities, creating 786 jobs. By joining forces with the Tennessee Bankers Association and Gov. Bredesen, Southeast Community will apply its economic development model for the first time to the state's rural markets.
"We have been very fortunate in this state to have economic growth in the greater Nashville, greater Memphis, greater Chattanooga, greater Knoxville areas, but where we've got more work to do is in rural Tennessee," Bradley L. Barrett, the trade group's president. Tennessee is "still very much a rural state, and we'd like to see that economic growth spread throughout."
Scott Greer, the chief financial officer at the $614 million-asset Citizens Bank, an Elizabethton unit of Citco Community Bancshares Inc., said that he has seen firsthand how rural communities have lost manufacturing jobs in recent years. Some of the jobs are re-created in urban areas, but that does not "help the families that live in those rural communities unless they are willing to relocate," Mr. Greer said. The new fund "is creating the opportunity for some businesses to create some development right here in their own back yard."
Mr. Gwin said that the fund would target businesses, particularly those owned by women and minorities, that have fewer than 10 employees and lack access to capital.
"Most of they time they are very good at producing the product. They just have such a small amount of working capital that as they start growing, the lose their ability to go after new business," he said. "And that's what we provide. This is growth capital."
The new fund's average loan will carry a 40-month term and an interest rate of prime plus 2 percentage points.
Paul Willson, the chairman and chief executive officer of the $511 million-asset Citizens National Bank of Athens, called the fund a great idea.
"This fund is designed to make loans to organizations in rural areas that are not quite ready for bank loans," Mr. Willson said. He has already referred several customers to Southeast Community for help, "knowing that once ? [the small businesses] get up and get rolling ? we'll get to take them on" as customers.
Mr. Greer agreed that the fund could lead to new business down the road.
"Building that relationship is important to us," he said. "While there is no guarantee they'll come back to us for future services or future credit needs, hopefully the fact that we pointed them in the right direction and helped them get their feet on the ground can result in a long-term relationship and future business for the bank."
Mr. Willson said Citizens National has already invested "a couple hundred thousand dollars" in the fund and is likely to contribute more.
"The return is just good enough so that you don't grit your teeth about doing something good," he said. "You don't get many opportunities to do something that has an expected benefit and it doesn't cost you to do it."
Mr. Greer would not say how much money Citizens Bank would commit, but he said that the tax credit that investors would receive "really helps to create an incentive for banks across the state to be involved in the program."
Mr. Barrett said he is confident the Tennessee banks will come up with the funding.
"We're well on our way in raising the $10 million we need to get this thing triggered, and we're real excited about it," he said.
