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Small Business Technical Assistance: Sustainable
Economic Development
Executive Summary
Sustainable economic development requires a healthy small business sector
and to be successful, small businesses need access to capital.*
Unfortunately, a credit gap can exist between banks and small businesses
when small business entrepreneurs lack the traditional credit history
and business experience judged by banks as necessary to be "bankable."
Without access to mainstream financial services, many of these small business
entrepreneurs must turn to family or friends for funds or rely on expensive
credit card debt.
Partnerships between banks and technical assistance providers (TA providers)
can help close the gap between small business entrepreneurs and banks.
TA providers provide critical financial training and services to small
business entrepreneurs to help them strengthen their business capacity.
After receiving TA provider services and training, many small business
entrepreneurs successfully apply for mainstream financial products and
no longer need to rely on family and friends or credit card debt.
Bank/TA provider partnerships are critical to helping small business
entrepreneurs make the transition to using mainstream financial products
and services. TA providers refer clients to banks who are familiar with
the quality and type of technical assistance the clients have received.
The banks can then structure loans appropriate for the unique needs of
these small business entrepreneurs.
In the past several years, the California Reinvestment Committee (CRC)
has conducted research regarding the critical role bank/TA provider partnerships
play in successful economic development. In a recent study, CRC documented
the "value added" benefits banks and small business owners gain from small
business technical assistance. Based on the results of this study and
other research by its Economic Development Committee, CRC approached the
Community Affairs Unit (CAU) of the Federal Reserve Bank of San Francisco
(FRBSF) to suggest hosting technical assistance forums. During these forums,
banks and TA providers would talk face-to-face about the challenges of
working with each other and would strategize about how to work more effectively
together.
CAU is responsible for helping banks meet the credit needs of small business
owners as required by the Community Reinvestment Act (CRA) and consequently
was a logical and interested partner for these forums. In its role as
"neutral convener," CAU can bring multiple players "to the table" to discuss
differences and can play an instrumental role in improving bank/TA provider
partnerships.
Together, CAU and CRC hosted a series of "Small Business Technical Assistance
Forums" (Forums) throughout the state of California. These Forums brought
banks and TA providers together to discuss the problems they face when
working with each other. At these Forums, banks and TA providers identified
the following five major areas that need improvement:
- Bank/TA provider communication
- Performance measures/benchmarks for TA provider products and services
- Financial product development
- TA provider funding sources
- Regulatory incentives
After discussing common concerns and debating controversial issues, banks
and TA providers spoke openly about what they needed and expected from
each other. Based on the results of the Forums, the following steps are
recommended for developing effective bank/TA provider partnerships. These
steps will ensure that the results of the Forums have a direct impact
on how banks and TA providers work together. Both CAU and CRC could play
important roles in implementing the steps.
- Bank/TA provider communication
CAU and CRC should host workshops and develop resource guides that
improve the flow of information between banks and TA providers. This
exchange of information would increase bank and TA provider knowledge
of each others' clients, resources, and business needs and would build
the foundation for more productive local and regional partnerships.
- Benchmarks for success for TA provider products and services
CAU and CRC should spearhead a task force to study performance measures
and benchmarks used to measure TA provider products and services.
Such measures and benchmarks would provide identifiable measures of
success for TA provider products and services and raise the professional
standards for banks and TA providers.
- Financial product development
CAU and CRC should educate banks, TA providers, and small business
entrepreneurs about safe and sound financial products that have flexible
underwriting standards and are tailored to the needs of TA provider
clients.
- TA providers funding sources
CAU and CRC should research different funding strategies and host
informational seminars to educate TA providers on how to increase
and diversify their funding sources. ð Regulatory incentives CAU and
CRC should work with the Federal Financial Institutions Examination
Council (FFIEC) and FRBSF compliance staff to clearly define how banks
receive credit under the CRA for working with TA providers. Such clarification
would improve regulatory incentives for banks to partner with TA providers.
To assist in the implementation of these recommendations, CAU, CRC, and/or
others involved in the Forums could host a series of follow-up "Small
Business Technical Assistance Action Summits" (Summits) in 1999. At these
Summits, CAU and CRC should provide additional training on the multiple
topics addressed in the recommendations and present information on funding
strategies, regulatory incentives, etc. The task force formed to address
TA provider quality could also report its findings. Most importantly,
these Summits would allow banks and TA providers to evaluate their progress
since the Forums and to decide what future action is needed.
With the support of CAU, CRC, and those involved in the Forums, banks
and TA providers can take the critical next steps in establishing "best
practices" for bank/TA provider partnerships. With these partnerships,
banks and TA providers will help build a solid foundation for the technical
assistance industry and support sustainable economic development in our
communities.
* For the purposes of this report,
a small business is defined as a business with gross annual revenues of
$1 million or less.
Sustainable Economic Development - Developing Effective Partnerships
Between Banks and Technical Assistance Providers
Helping Small Businesses Grow - Core Competencies of the Nonprofit
Technical Assistance Industry
Directory of Small Business Technical Assistance Providers in
California (May 1999)
If you have questions or comments, send a message to Community
Affairs..
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