Struggling economy to blame
We hear it often. Small businesses are the engine of economic growth in the United States. According to the U.S. Small Business Administration, small businesses account for 44 percent of private payrolls in the U.S. and employ half of all private sector employees. Their ability to thrive in Western North Carolina is essential to long-term economic growth in the region, says Will Lambe, Associate Director of the UNC School of Government’s Community and Economic Development program.
Unfortunately, as many entrepreneurs know, small business ventures often times end up in failure. As Americans continue to battle with the ramifications of the greatest economic setback since the Great Depression, local governments look for new ways to initiate private investment in their respective communities. Their efforts tend to focus on spurring small business enterprises, as larger industries are usually swayed with large tax and cash incentives that small counties cannot offer.
Local governments in North Carolina, courtesy of state discretion, have a variety of tool kits they can utilize to attract investment in their communities, however. Jackson County, North Carolina uses a revolving loan fund, one such tool county leaders think provides a foundation to spark small businesses that cannot get a loan elsewhere.
In accordance with N.C. General Statute 158, Article Two, Jackson County Commissioners adopted the revolving loan program (RLF) in May of 1993. The purpose of the fund, according to the county’s RLF guidelines, is to create new job opportunities for Jackson County residents and to retain existing jobs in the area. The fund is also geared towards providing low and middle income Jackson County citizens with economic opportunities.
The RLF fund must adhere to the laws laid out under Title 12 of the Housing and Community Development Act of 1974, a U.S. federal law aimed at jumpstarting investment in poor communities. Jackson County’s RLF funds came from two grants amounting to $660,500, and currently the fund has $748,058.70 in its coffers.
Jackson’s Board of Commissioners also set some of their own rules for how they give out loan funds, establishing fifteen different sets of criteria for RLF applicants to meet before being approved by the board. For example, the business or project must create at least three new permanent full-time jobs in Jackson County, and at least 51 percent of the new permanent jobs created or existing jobs retained must be provided to low or moderate income citizens.
Commissioners use a points system to help with their decision-making on the RLF applications, which encompass the number of jobs created or retained, the percentage of low/moderate income jobs created, the amount the business adds to the county’s tax base, and whether or not the business uses county utilities all plays a factor in how commissioners choose to allocate the loans, according to the county’s RLF guidelines.
Since the county’s Economic Development Commission is inactive, Jackson County’s Board of Commissioners serve as the revolving loan committee. All RLF loans are active for ten years and are attached with a two and a half cent interest rate.
Recently, commissioners voted to dole out $110,00 of RLF funds to bring the WRGC radio station back on the air, a risk the county hopes will pay off. The RLF monies, in some cases, are used to subsidize high risk activites, or businesses that would not be able to get a loan through a bank, according to Jackson County Manger Chuck Wooten. As a result, some of the loans do not go as planned.
Jackson County has six outstanding loans through the RLF fund, totaling $1,081,255. One loan is current and one loan is in the deferment period, and the county considers it to be current. Four of the RLF loans are in default: Clearwood Industries (12/10/97), which totals to $79,643.17; QC Apparel (5/26/95), a $423,751.70 loan; Mountain Biofuels (08/17/06), a loan that amounts to $159,203.26; and Metrostat (11/15/2004), a $258,220 loan.
According to County Manager Chuck Wooten, all four of the companies that have defaulted are “either out of business or going out of business,” he said. “I can only guess that these companies were casualties of the declining economy. The Commissioners recently authorized the County Attorney to determine if any of these companies had assets that could be attached. Unfortunately, the collateral pledged either had no value or was insufficient to cover the loan balance,” he said.
Since the RLF is not funded by county tax payers, but rather through grant rewards, the defaults had no effect on the county’s finances. “Our financial status is very strong and our fund balance is equal to approximately 33 percent of our general fund budget, even after transferring $5 million to the capital reserve account to construct the Cashiers recreation center,” said Wooten.
The county did in fact receive an unqualified audit opinion, confirming Wooten’s statements about the county’s financial status. “The defaults should disappoint some folks, but the economy is the main culprit,” said Wooten. “The credit markets are still crunched, so I think counties still have to play a role in economic development activities. A lot of times people will come to us for a loan because they can’t get a loan through a bank,” he said.
RLF Loans in Default
Clearwood Industries - $79,643.17
QC Apparel - $423,751.70
Mountain Biofuels - $159,203.26
Metrostat - $258,220