City councilors discussed the prospect of Cottage Grove establishing its own small business emergency loan program during a City Council meeting on May 11, ending with a unanimous vote to move forward with a plan.
Since the onset of the lockdown resulting from COVID-19, the city has been in talks with local entities such as the Cottage Grove Chamber of Commerce, Community Development Corporation and the Economic and Business Improvement District to find financial solutions for small businesses struggling from the economic downturn.
“We’ve saved some money,” said City Manager Richard Meyers, who helped draft the program. “We’ve accumulated about $100,000 … to do loans for small business in Cottage Grove.”
Cuts to a planned “visioning” project, recent city layoffs and taxes from alcohol, cigarette and marijuana sales contributed to the city’s ability to establish the fund, according to Meyers.
To develop the plan, the city contacted Community Lending Works, a financial institution based in the Willamette Valley which works with organizations to create community loan and grant programs.
Under the proposed plan, companies within Cottage Grove city limits could apply for a maximum of $10,000 during a set application window.
“Turning [applications] in the first day or the first five minutes or the last five minutes of that window doesn’t make a difference,” said Meyers. “All applications come in, they’re verified as to whether they’re eligible … and those that [are qualified] are put forward to receive loans.”
According to the draft in its current form, if the total amount requested by businesses is less than the fund, all eligible applicants will receive loans. If the total requested amount far exceeds the fund, the proposal suggests awarding by lottery.
“We’re trying to make it fair and equal for everyone to have a chance to be funded,” said Meyers, “not being put at a disadvantage because they may be a really small business and they just don’t have the staff to do the application and do the work.”
The loan program is targeting businesses in Cottage Grove which have 20 employees or less and, in light of the frequency with which the area has seen states of emergency since last year, it also asks businesses to create an emergency resilience plan as a prerequisite to qualify.
Awardees would pay no interest for the first six months and a “very low interest” following that, which would cover the costs for Community Lending Works to run the program, thus ensuring an unbiased third party oversees awards and funding operations.
Ideally, loans which are paid back will return to the pool and will allow the city to use the funding again in case of any future emergencies.
City councilors were supportive in Monday’s meeting, but added some points of concern to be addressed as the plan moves forward.
“As a cautionary tale, there may be some defaults,” said Councilor Mike Fleck. “In our last experiment, we did have one default that pretty much wiped out the program. That was, of course, one big loan as opposed to a lot of small ones. That said … I think it’s a very good use of funds and I absolutely support it.”
Decades ago, the city attempted to set up a similar loan program, but the strategy allowed for some high-risk loans which upset the process, said Meyers.
Councilor Jake Boone raised the point that the program’s language could potentially benefit corporate chains which have Cottage Grove branches.
“I’d like to see something [in the plan] about that because I don’t necessarily want to see all of our money going off to Chevron corporate headquarters or something,” he said. “That isn’t really what we’re trying to do, I think.”
During the Monday discussion, councilors Fleck, Greg Ervin and Candace Solesbee declared conflicts of interest as their organizations or businesses could hypothetically qualify for the loan program. Though Fleck said he had no intention of applying for the program, Solesbee said her businesses would.
City Attorney Carrie Connelly weighed in: “I actually believe that Councilor Solesbee has a ‘potential’ conflict of interest because even if she’s planning to apply, there’s no guarantee that she would be awarded. Therefore, I believe that it’s fine that she’s participating,” she said. “And I believe that everyone, under these circumstances, is able to continue in the discussion.”
In a related development, Business Oregon, the state’s economic development agency, announced the first round of a grant program that will match funding for communities which are giving loans or grants for their local businesses. Should the city make a successful bid to join this program, it would add another $100,000 into the Cottage Grove pool.
In a conference call with the agency on Tuesday, however, Meyers said there appear to be issues to hammer out before the city goes for the matching grant.
“I was hoping going into it that the two programs could run parallel so we could have our requirements associated with what we want it to be in the city and then be able to get the grant funding from the state that would then have their requirements,” he said. “But, no.”
In order to be considered, the Cottage Grove program would first have to match the state agency’s criteria.
Among stipulations, the state grant requires that “historically disadvantaged business owners” are given first opportunity to apply for the loans, which the agency defines as Asian, black, Native American, Hispanic and women business owners.
While Meyers said there are some business owners in Cottage Grove who would benefit from this, fulfilling this requirement adds another step to a process which is already up against a tight deadline the city may not be able to make.
The state grant timeframe calls for applications to be submitted by May 18, awardees chosen by May 30 and aid distributed by mid-June.
“That’s pretty fast,” said Meyers. “Plus you have to demonstrate a huge marketing program to show that you’ve tried to get all the businesses that you could possibly get in there.”
In contrast to the city’s plan to run a two- or three-week application window, the state’s timeline could curb the city’s attempt to maximize the amount and range of applicants.
In addition to timeframe concerns, the state program exempts any business which has received aid from the federal CARES Act — an exemption the Cottage Grove program does not make. If enough local businesses have been awarded the federal money, attaching to the state program may not be an attractive option for the city.
Because the Business Oregon matching grant will come in four rounds total, the city is also considering moving ahead with its own program to get the process started and apply to the second or third round of state funding later.
“What we’d prefer to do is move forward with our program, but get it matching as close as possible the state requirements,” Meyers said.
To properly assess which path to take, Meyers said the city may soon conduct a business survey.
While the city irons out the details in the next week and decides on a path forward, certain aspects of the proposed program may be subject to change.