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Community Lending Series Part II: The Three Challenges for Services Providers

By OnePierce

Part I of our Community Lending series reviewed why OnePierce Community Resiliency Fund chose to split its assets across three programs: 1) grants; 2) community loans; 3) health innovation funds. The post supplied an overview of OnePierce’s Lending Program including details and the differences between working capital and facility or real estate loans.

OnePierce Investment Strategy

OnePierce Investment Strategy

OnePierce elected to use and distribute loans due to certain advantages – which we’ll cover in Part III of this series – but it’s also important to call out that loans are not appropriate for all providers or all circumstances. OnePierce has a grants program precisely to fill the gap for providers, when loans aren’t the best solution for their needs. We would never want to jeopardize the financial health of a local organization by recommending a loan when that is not the appropriate financing tool. There three challenges providers often come across when considering a loan are as follows.

1. In start-up mode or determining the business plan

Loans have real financial implications if not repaid, and many start-up organizations (or established organizations transitioning to different business models) do not have stable revenue sources to repay loans. While this creates a problem for lenders, it is more of a challenge for providers stuck with a loan they are unable to repay. Interest can mount and legal challenges can come to head. It’s best for everyone that a dedicated community lender with the community’s best interest at heart takes a robust stance on whether they believe a start-up organization can repay a loan – and only issues the loan if repayment seems possible.

2. The business model does not have stable revenue sources

In contrast to the above scenario in which a provider still does not have a concrete business plan, there are many small, community-based providers that flex their services according to grant revenue. For example, a small, local food bank may distribute different amounts of food each month according to the donations it receives. This business model is valid and plays a critical role in supporting access to food and nutrition in our communities. However, it’s not necessarily the right model for an organization applying for loans that have set interest payments and repayment timelines. Instead, these organizations are better off applying for grants, to maintain maximum flexibility, instead of letting loans complicate their model.

3. Cannot afford interest on the loans

OnePierce offers low-interest loans, and in has previously offered zero-interest bridge loans for CARES Act contractors. In setting its interest rates. OnePierce works to balance the repayment capacity of its borrowers and the cost of administering the loan program. This often means that OnePierce rates are concessionary when compared to that of traditional lenders. While zero-interest loans are a great temporary offering, they are not sustainable for OnePierce in the long term. Earnings from interest enable OnePierce to offer other services. OnePierce ensures that the provider groups within Pierce County can afford to pay interest rates and that OnePierce will be sustainable for future investment in the region.

Are Loans Right for Your Organization?

OnePierce offers grants and community loans in order to serve more service providers and community-based organizations within Pierce County. We understand that some providers will require grants, whereas others will have the business models and experience to take on loans.

If your organization is deciding on the right financing fit, please contact us. We are happy to speak with you about your organization’s financing needs and to together determine whether OnePierce can support your work to improve the lives of everyone in our communities.

Let's connect about your funding needs

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