Opportunity to engage states around employee ownership
by Karen Kahn
The U.S. Treasury department is rolling out the $10 billion State Small Business Credit Initiative (SSBCI), which was enacted under the American Rescue Plan Act (ARPA). The vast majority of the funds have been allocated to states to make capital investments in small businesses, with a particular focus on benefitting socially and economically disadvantaged individuals (SEDI). Additionally, the Treasury is now soliciting applications for technical assistance grants, for which they have set aside $500 million. States can apply for funding to provide businesses in which they invest capital with legal, accounting, and financial services. State applications are due on October 14, 2022.
States have been encouraged to include employee ownership transitions as an allowable use of their SSBCI capital. For those who wish to advance employee ownership, the TA funds could be used to overcome barriers such as the cost of pre-transaction feasibility studies and legal and financial services needed to do a business conversion.
Build Relationships with State Agencies Administering Funds
In a recent webinar sponsored by the National Center for Employee Ownership, Democracy at Work Institute (DAWI) and the Employee Ownership Expansion Network (EOX), Melissa Hoover, executive director of DAWI, encouraged employee ownership advocates to identify and reach out to the state agencies that will be administering the SSBCI program. These differ by state—for example, the Vermont Economic Development Agency (VEDA) is administering that state’s program, while in California, it is the California Infrastructure and Economic Development Bank (IBank) and the California Pollution Control Financing Authority.
Employee ownership advocates and TA providers can educate their state capital providers about how employee ownership transitions can help them meet their goals. Matt Cropp from the Vermont Employee Ownership Center and Hillary Abel from Project Equity provided examples of how they have done just that. The Worker-Owned Recovery California (WORC) coalition, for example, started conversations with the IBank in 2021. To reinforce their messaging, Project Equity created a short explainer, making the case for including employee ownership in California’s SSBCI programs, and has been connnecting with IBank affiliates around the state. The goal is to understand how these agencies see the opportunity for, and barriers to, working with more companies that are employee owned or transitioning to employee ownership. The key themes that have emerged are the need to educate the direct lenders and to generate a pipeline of employee-owned borrowers.
Show How Your Organization Can Add Value
In the new round of technical assistance grants, Hoover made the case that employee ownership organizations could make the most effective case to become subcontractors or sub-awardees by positioning themselves and their business service provider networks to provide pre-transaction employee ownership feasibility studies, an allowable use for TA funds. This is a key step for businesses considering employee ownership and often poses a financial barrier to moving forward.
In the previous round of SSBCI financing following the Great Recession, state agencies found it difficult to deploy all of their resources. Hoover noted that employee ownership advocates should make it clear to their state agencies that they can help to build a pipeline for conversions and thereby help ensure that the capital is deployed over the next five years (otherwise it must be returned to the federal government). “We can add value because we are well positioned to reach small businesses with under 20 employees and socially and economically disadvantaged communities,” said Hoover.
Align Message with State Application Requirements
State applications for technical assistance funds are due October 14 and must include the following:
- A data driven assessment of needs
- Discussion of the organizational capacity and ability of the TA providers
- How TA is connected to SSBCI capital deployment
- The state’s strategy to reach very small businesses and socially and economically disadvantaged individuals
- Performance goals and metrics
As employee ownership advocates reach out to their state agencies, they should keep these goals in mind and align their messaging with the needs of the agencies, said Hoover. This might include educating the agency about the impact of the silver tsunami in the state and the need for business transitions; how pre-transaction feasibility studies fit within program guidelines; why employee ownership is a good fit for very small businesses; how technical assistance will support deploying capital more effectively and mitigate risk, ensuring long-term business sustainability.
NCEO, EOX and DAWI, along with Project Equity, will be hosting an additional webinar for state agencies on August 31 to help these agencies understand the resources available to assist them in deploying SSBCI dollars for employee ownership transactions. The partner organizations are encouraging employee ownership organizations over the next few weeks to reach out to their state applicant organizations to introduce employee ownership; develop a list of state-based technical assistance resources to support employee ownership transitions; and craft a pitch for inclusion for meetings with state agencies. The goal is to keep the door open, said Hoover, and to encourage states to see how employee ownership can help to meet their goals for the SSBCI program going forward.
Editor’s note: A policy brief published by EOX, DAWI, and Ownership America provides additional background on the SSBCI program.
Karen Kahn is a communications consultant and the editor of Employee Ownership News.
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