Capital Investment/Revolving Loan Fund I. TOPIC: Economic Development II. LOCATION: Rural Northeast South Dakota - 22 counties III. SUBJECT: Capital Investment/ Revolving Loan Fund to Halt Out-migration IV. SUMMARY: To minimize out-migration in the area, the North East South Dakota Energy Conservation Corporation (NESDECC), a 501 (C) (3) private non-profit community development corporation was created by its parent corporation, the Northeast South Dakota Community Action Program (NESCAP). Its mission was to assist small rural communities with business development and job creation, targeting the low-equity sectors. The NESDECC established a Revolving Loan Fund (RLF) to assist low-income/disadvantaged and low-equity individuals secure loans and to begin or expand an existing business. The RLF has four loan programs: CD Pledge Program, Supplemental Income (Loan) Program, Direct Loan Participation Program (DLPP) and the Small Business Administration (SBA) Microloan Demonstration Program. V. SUCCESSFUL PRACTICE Creation of a viable revolving loan fund that stimulated capital investment in a 22 county area of rural northeast South Dakota, and reduced out-migration. VI. CONTACT Robert Hall Executive Director NESDCAP/NESDECC 414 3rd Avenue East Sisseton, SD 57262 (605) 698-7654 (605) 698-3038 (Fax) VII. CASE STUDY The Problem: 22 counties in rural northeast South Dakota were faced with a major out-migration, with most of the counties having lost anywhere between one-third and one-half of their population as a result of the demise of the family farm. The Approach Adopted: In 1978, the NESDCAP Board approved a plan to develop NESDECC as a new, separate 501 (C) (3) private non-profit corporation to stimulate business opportunity, economic development, increased employment and self-sufficiency, increased economic diversity, decreased net out-migration, and greater receptivity of the financing community to the needs of low-equity residents so as to expand accessibility to capital. How They Implemented The Approach: NESDCAP sponsored Area Councils (composed of low-income residents) and the NESDCAP Board of Directors were instrumental in a planning process that led to the identification of economic development as a major need in the communities of rural northeast South Dakota. Staff from the State Economic Opportunity Office (SEOO) helped in developing written documents and plans crucial in the development stage. Consultants identified by the SEOO were instrumental in the election/selection process to create the NESDECC Board of Directors, and in developing Articles of Incorporation and By-laws. NESDCAP staff with experience in starting-up a home furnishing business and a live-stock co-op were extensively involved in the NESDECC development. The South Dakota SEOO authorized the reprogramming of existing Weatherization funds to the newly incorporated NESDECC which allowed the hiring of a Business Management Specialist, and launched the first venture: a Weatherization contractor. Since its inception, the NESDECC has received grants or loans to establish a revolving loan fund from: Community Services Administration/ U.S. Department of Health and Human Services, United Presbyterian Church, NESCDAP, Community Services Block Grant (State Department of Commerce and Regulation), East River Electric, First State Bank of Roscoe, South Dakota Community Foundation, Traverse Electric Co-op, North Western Public Service Company, Spink Electric Co-op, Aberdeen Development Corporation, Sisseton Development Corporation, Northwest Area Foundation, and the U.S. Small Business Administration. Fifty-seven private financial lending institutions either have been, or are now partners in the RLF Program. The RDL Program consists of four types of loans that assist low-income/disadvantaged and low equity individuals to secure loans to begin a business or expand an existing business. These programs are: (1) The CD Pledge Program -- NESDECC can pledge a CD of up to 50% of a small business loan. The actual loan is made by a private lending institution, with $20,000 being the maximum pledge. (2) Supplemental Income (Loan) Program -- this program provides direct assistance to low-income applicants seeking to develop secondary sources of income such as a part-time business to supplement a primary source income. There is a $2,500 maximum on these loans. (3) Direct Loan Participation Program (DLPP) -- with these funds, NESCECC participates directly with conventional lending institutions and the borrowers to complete a loan financing package. The DLPP assists in coordinating capital investments for low-equity businesses in north east South Dakota. A typical loan package consists of 40% NESDECC, 50% lending institution, and 10% applicant with a maximum NESDECC limit of $75,000. (4) Small Business Administration (SBA) Microloan Demonstration Program -- this program provides assistance to women, low-income, and minority entrepreneurs, business owners, and other individuals desiring to operate business concerns. Designed to assist small business concerns in those areas suffering from a lack of credit due to economic conditions, these microloans generally do not exceed $10,000. In certain circumstances, a borrower who demonstrates that they are unable to obtain credit elsewhere at comparable interest rates, and is a good prospect for repayment, may receive a loan for up to $15,000. Results: Collaboration between NESDCAP, NESDECC and over 57 area banks and a variety of funding sources has led 291 area businesses to get financed. A total of 413 loans have been processed and the creation or retention of 981 jobs has reduced out-migration. The Rural Loan Fund concept has been replicated in many rural counties of South Dakota. A total of $3,497,488 has been loaned, with a total of $7,654,924 leveraged as a result of the loan activity. VIII. PROGRAM SPIN-OFFS NESDECC has since expanded to 12 adjacent counties from the original 10 county service area. An Affordable Housing Project has been launched in cooperation with NESDCAP. In addition, NESDECC provides Rural Loan Fund training to city, county and multi-county organizations in South Dakota and throughout the United States. Ref: nesdecc.doc