Agenda Packets - 1983/10/24 - Laserfiche WebLink

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BUSINESS FINANCING POLICY What types of capital are most difficult for businesses to obtain in the Region? The Metropolitan Council studied this issue in a report titled Availability of Investment Capital in the Twin Cities Area. The report concluded, among other things, that the capital s or age-- efined as credit worthy business being unable to acquire loans at a reasonable rate --was, indeed, a problem but a national problem rather than one specific to Minnesota. Minnesota is not, however, exempt from the problem. The shortage comes from high interest rates nationally, economic uncertainty about future directions for the U.S. economy and the world economy, and structural gaps in the financial system providing loans for businesses. Small businesses are particularly sensitive to the problem. They start up almost entirely outside organized capital markets. The most important sources of start-up capital for small businesses are investment of the entrepreneur's personal savings and equity investments from family, friends or personal contacts. These sources provide only modest amounts of capital compared with the needs of the business. Usually, businesses need equity and debt capital from financial institutions to continue operations and to expand. However, unsecured and long -terms loans and equity capital are the most diffi- cult forms of capital for small business to obtain in Minnesota. Commercial banks provide more short-term capital than long-term capital. This can result in a long-term financing "gap" for small business. In this situation, a business would finance acquisition of equipment or real estate with loans having maturities considerably shorter than the life of the purchased assets. This results in a mismatch between debt service and cash flow generated by the financed assets. Local government and the State of Minnesota are providing some programs which address the financing problem. There is, however, a need for a metropolitan role as well. Not all communities are currently participating in organized economic development programs. The Council can provide these communities with an opportunity to participate in such programs without having to organize and finance their own. Secondly, successul economic development programs establish close ties with the local business communities. The Council is in a better position to build those ties than the state and could concentrate on just the Region without the worries about outstate problems. K. THE METROPOLITAN COUNCIL, IN CONJUNCTION WITH STATE AND LOCAL GOVERNMENTS AND THE PRIVATE SECTOR, WILL ENCOURAGE THE EXPANDED USE OF FINANCING PROGRAMS TO MAKE MORE CAPITAL AVAILABLE TO BUSINESSES LOCATED IN THE REGION-S URBAN SERVICE AREA AND FREESTANDING GROWTH CENTERS. BUSINESS FINANCING ASSISTANCE PROVIDED BY THE METROPOLITAN COUNCIL WOULD BE AVAILABLE ONLY IN COMMUNITIES THAT INVITE THE COUNCIL TO PROVIDE SUCH ASSISTANCE. The Council will continue to look at a full range of business needs and what role government should undertake with the private sector. Initially, the Council will examine implementing this policy through two vehicles available to help alleviate the long-term financing problems of small business. They are the Small Business Administration (SBA) 503 Program and IRBs Program (see implementation section of this draft). 14