The Northland Institute is getting back to business

After the economic and financial markets meltdown of 2008 forced them to hit the “pause” button, the Northland Institute is back in the lending business again. The Institute, which was established in 1996 as a nonprofit subsidiary of the Northland Foundation, focuses on economic development including small business financing, education, and employee business ownership.

In 2003, the Institute founded the Minnesota Community Capital Fund (MCCF) which serves the state as a small business gap lending resource. MCCF is a nonprofit corporation with 70 members – mainly local governments and electric utilities – who have pooled their limited economic development resources together in order to offer loans of up to $1.5 million to local businesses and nonprofits. The Institute has provided overall management services through a contract with MCCF since its establishment.

“... judging by the number of inquiries we’ve had recently, it’s safe to expect a half dozen or more loans will be originated and closed in the next few months.”
–Scott Martin

In order to meet loan demand and manage risk, MCCF depends upon national capital markets for its loan capital. All MCCF loans are originated for sale to a specialized secondary market for community development loans. However, when financial markets froze in the fall of 2008, MCCF lending came to a screeching halt.

The economy is now, finally, showing real signs of life and, along with it, the return of a still risk-adverse secondary market. In order to entice investors to once again purchase MCCF loans, the Northland Institute and MCCF worked together to garner legislative support in 2011 for the creation of a new Minnesota Small Business Loan Guarantee Program. Backed by the Boards of both organizations, Institute president Scott Martin spearheaded a successful effort to pass legislation that provides for State-backed loan guarantees of 70 percent for eligible small business loans made by MCCF, Northland Institute, and other qualified economic development lenders in Minnesota. For more details on MCCF lending, click to download a brochure in pdf format.

“State support for small business financing throughout Minnesota has been critical for MCCF to get back to making new loans. Judging by the number of inquiries we’ve had recently, it’s safe to expect a half dozen or more loans will be originated and closed in the next few months,” stated Martin.

Loans made directly by the Northland Institute are also being jumpstarted by the new state loan guarantee program. The Institute launched its Minnesota Employee Ownership Fund in 2007 to provide education, information, and financing to help retain Minnesota businesses whose owners are ready to retire or sell. Employee Stock Ownership Plans a.k.a. ESOPs allow owners of Minnesota-based businesses to pass ownership of the company, all or in part, to their employees rather than shut down or sell to an outside interest that may not choose to continue local operations.

Martin reports renewed interest in ESOPs, and the need for financing to implement them, as business owners can begin to focus on issues beyond mere survival.

"The Institute now has the capacity to make ESOP loans of up to $1.5 million in partnership with local lenders," Martin explained. “Our newly launched fund to support employee ownership was just gaining traction when the Financial Crisis hit in 2008. With the state loan guarantee legislation in place, we’re ready to assist with the financing of ESOPs.”