Program meant to support independently-owned businesses impacted by virus-related shutdown
In an effort to help businesses impacted by COVID-19, the Sebastopol City Council gave direction to city staff and city consultant CoMission regarding implementing a loan program for local businesses.
In a time where the COVID-19 shutdowns have resulted in a steep loss of revenue for many local businesses, the program will open up a pot of $150,000 in loan funds. Loans will be available in two tiers based on repayment time and loan amount — $5,000 or less for a three-year term and $5,000 to $10,000 for a five-year term. Of the $150,000 in the coffer, 40% of the funds will be reserved for businesses specifically applying for the first tier, $5,000 or less loan.
The intent of the program is to promote and support local businesses, rather than those that have corporate ownership or are part of franchises. It’s also supposed to help businesses who may not have been granted funds from the Payroll Protection Program, or who may not have had the resources or bandwidth to apply. Those who apply for funds from the city will be chosen via a lottery system.
The loan program presented to the city by CoMission was put together using examples from programs in St. Helena and Healdsburg, as well as input from earlier council meetings.
One concern voiced by multiple council members tried to address how to ensure that those who utilize the business loan don’t take advantage of the funds and use them for uses outside of those set aside in the program’s financial requirements — namely, that funds from the loan can only be used for personnel costs, lease or mortgage payments, utilities or materials and supplies that help improve the business’ ability to reopen in compliance with the health order.
While some council members inquired whether or not the city could utilize an auditing process to make sure the funds are used appropriately, CoMission representatives said that other cities that have adopted a loan program haven’t implemented audits.
“I feel like in this dollar figure amount, it’s best to trust them, have them explain how they’re going to use it and why it is that they qualify, and take their word for it,” said Sebastopol City Manager Larry McLaughlin.
To qualify for a loan from the city, businesses are required to meet criteria related to staffing, location and type of entity (see sidebar) but aren’t required to meet financial requirements typically associated with loans.
“No businesses look like they qualify for traditional loans right now. It would be really challenging for all of us to then create a metric that says, ‘Well you’re in this much trouble because of the pandemic, but we see this sort of trajectory that means you’re going to survive it,’” said Johnny Nolan of CoMission. “It really is putting your faith in the person that they’re going to take the money, do the best thing they can with it and then perform well through the duration of the pandemic.”
According to Nolan, in a survey of local businesses, 17 businesses expressed interest in a loan program with a near-even split between businesses interested in loans above and below $5,000.
“Basically we’re saying — which I think is a reasonable risk to take — that we’re taking a big risk because we’re not really evaluating peoples’ creditworthiness,” Vice Mayor Una Glass said.
While CoMission recommended that the city’s loan program only apply to businesses with storefronts in the city, the council gave broader direction which would allow any independently-owned business within city limits to apply.
“It’s not all about sales tax, it’s about local funds circulating locally,” Mayor Patrick Slayter said, adding that he believes the loan program should be available to local businesses that don’t have physical storefronts as well.
“We have a couple of design-build firms who are in storefronts, and yet we have probably hundreds of licensed tradespeople who operate out of a spare bedroom when they have to do paperwork, otherwise they’re out on a job site,” Slayter said.
“We get kind of limited to this vision of our one block long old-timey Main Street and yet we have a much larger business community in a range of services beyond retail, brick and mortar,” Councilmember Sarah Glade Gurney said.
Additionally, Slayter said that he doesn’t feel that it’s appropriate for the loan to only be available for stores that have been in business for a minimum amount of years — during its Aug. 12 special study session, the council discussed a three to five-year minimum.
“To say that a business has to have been in business for three years, to me that’s excluding viable, valuable businesses that are in our community,” he said.
Glass said that as COVID-19, fires and other economic stressors drag on, she’s concerned that the city’s loan is just a drop in the bucket of what people actually need.
“I’m really hoping that part of what this does is enable people to get through the next few months and maybe there will be more federal funds,” she said.