By Louis Martin, RCAC staff writer
Like most small businesses, the United Cerebral Palsy (UCP) of San Luis Obispo considered March on track to be a typical month. The thriving nonprofit organization has provided critical community services for California’s central coast since 1987. Over time, it expanded services to people with a range of developmental disabilities beyond cerebral palsy. UCP also supports seniors, veterans and low-income families. Central to this is its social service transportation system, called Ride-On. Ride-On employs 54 drivers, operates 150 vehicles, and provides 750 rides per day.
Midway through the month, everything changed. UCP was labeled an “essential business” and tried to balance its workers’ safety with the need to continue to provide services. It also faced the challenge of being required to stay open despite a dramatic reduction in people using social service transportation. The Ride-On program is an important revenue source that supports UCP’s nonprofit work. Without it, UCP would struggle to maintain its payroll.
Paycheck Protection Program first round funds exhausted
When the Payroll Protection Program (PPP) details were released from the federal government on a Friday, Mark Shaffer, UCP’s executive director, spent the weekend gathering documents and preparing the application. Monday morning, he was at his local bank at 9:15. He was shocked when representatives warned him that all the money was likely spoken for already. They took his application as a courtesy and officially informed him two weeks later that his organization would not receive PPP funds. Shaffer asked if he would be eligible for the just-announced second PPP round. He was assured that he was “in the front of the line.”
Another week passed without word. By this time Shaffer’s organization had been operating with virtually no revenue for weeks. Reducing services isn’t an option for UCP. Not only is UCP contractually obligated to provide medical transportation, the specialized drivers UCP employs are costly to replace. He got another call from his bank: his application had not been filed with the Small Business Administration (SBA). It wasn’t clear if it was a clerical error or not, but at that point, the reason didn’t matter. UCP needed cash “yesterday,” or the results would be catastrophic for both its employees and the community it serves.
RCAC helps UCP meet payroll
Because UCP was a prior borrower, Rural Community Assistance Corporation (RCAC) had called Shaffer in the preceding weeks offering to help, but Shaffer said his bank was taking care of him. Now, he was tearing his office apart looking for the RCAC phone number he had scribbled down.
He found the number and called RCAC on Tuesday morning, May 5. Whereas his bank had taken two weeks to tell him he was not approved for PPP, RCAC had a loan available for him to meet his payroll in two days. Shaffer says the speed of the process saved jobs and lives.
“I was at my last payroll. If you guys hadn’t come around, I probably would have scrapped away for the month, but the next payroll would have been a disaster,” Shaffer said.
The loan allows UCP to continue to pay its workers for five days a week, even though most were working three days as stay at home orders and social distancing guidelines led to reduced transportation needs and office staff. UCP staff members kept their medical benefits, and no one was laid off. Just as important, thousands of people without access to transportation still have it.
In the weeks that Shaffer was negotiating with his bank, RCAC staff was working around the clock on an ambitious new partnership. From the moment the various shelter in place orders across the nation put millions out of work, RCAC Chief Executive Officer Suzanne Anarde knew that federal aid would come. But her 30 years in nonprofit work told her that the distribution would be a “messy free for all.” To her, RCAC’s task was clear.
“We saw immediately, probably before the press did, the folks those dollars were intended for were not going to be in the mix unless we jumped in with both feet. We were already putting the pedal to the metal. We were doing it and going to figure out the details later. If not us, then who?” Anarde said.
Huge demand for capital requires investors that move quickly
RCAC put a call out, leveraging its status as an SBA 7a “community advantage lender.” The SBA pilot loan program gave RCAC access to distribute PPP loans and lines of credit. Initially, the guidelines were difficult to interpret and even that information was difficult to obtain, which required research from RCAC’s Loan Fund staff and inquiries to state offices. RCAC’s community advantage lender status made it a beacon among Community Development Financial Institutions (CDFIs) looking to access PPP funds for their own borrowers. But while RCAC could process and approve the loans, it needed investors to meet the huge demand for capital. Anarde knew speed was critical, and it was time for a leap of faith. Every day RCAC delayed meant another organization like UCP could have its loan claimed by someone else. RCAC began to process PPP applications.
“We made the decision that we’re going to do this because it’s the right thing to do for our rural partners. We’re going to believe in our funding partners and investors. That we’re going to find a cadre that does the right thing and supports us,” Anarde said.
The “cadre” RCAC needed was on its way. Ceniarth directors’ Diane Isenberg and Greg Neichin also had PPP on their mind and how the family office and private foundation could best deploy its capital to help. In the last two years, Ceniarth has concentrated its investing on persistent poverty regions. Ceniarth is an active lender to many members of the Partners for Rural Transformation (PRT), a coalition of six nonprofit organizations, including RCAC, that work in persistent poverty areas. In fact, Neichin had just spoken with Anarde in January about how Ceniarth and RCAC could work together beyond a small $50,000 investment Ceniarth had already made in RCAC.
With the groundwork laid, Neichin picked up the phone and made a call to Anarde. After hearing that RCAC was moving forward with PPP loans, Neichin asked Anarde what kind of investment RCAC would need. Ceniarth was an ideal partner, able to move quickly with a small board of directors. Within a few hours of the call, Neichin was briefing Isenberg, Ceniarth founder. Less than 72 hours later, Ceniarth had loaned RCAC $3 million for PPP purposes.
As an SBA 7a lender, RCAC also acted as a focal point to distribute the capital to other CDFIs. A strategy began to emerge among PRT. Ceniarth would make loans to both RCAC and Hope Credit Union, another PRT member and SBA 7a lender. Hope would loan to CDFIs in the east, and RCAC would loan to CDFIs in the west. Both RCAC and Hope supported their current borrowers as well. In addition, RCAC’s Board of Directors also approved loans outside the organization’s service area.
The ink was barely dry on the loan documents when Neichin made another call to Anarde, saying more help was on the way. Neichin knew the need would be greater than $3 million and began recruiting more investors. The first of these calls was to Lynn Hoey at Olamina Fund. Olamina Fund had worked with PRT before and was also strategizing about how and where to deploy capital during the COVID-19 crisis.
Olamina Fund is a $40 million loan fund focused on racial and social justice and is part of Candide Group, which works with families, foundations, athletes and cultural influencers. Hoey, Olamina Fund’s managing director, credits a long relationship with partners like Oweesta, HOPE and Ceniarth for allowing Olamina to make its own leap of faith to more broadly support the PRT.
“I think we all were aware that Paycheck Protection Program was going to exclude huge segments of the population,” Hoey said. “I was thinking about the fact that unless a CDFI was an SBA lender, they would never have access to this money. Even if they did, they’re going to need money to fund these loans. Greg [Neichin] provided a solution.”
Olamina Fund matched the initial Ceniarth investment with $3 million of its own. Hoey credited the speed at which they were able to move to trust in Neichin and a familiarity with the PRT and its mission, despite having no prior lending relationship with RCAC. Olamina also lent to Hope Credit Union, embracing the strategy of investing in RCAC and Hope as intermediaries to support CDFIs nationwide.
Word began to circulate about the need for investment and the foundations involved. Susan Phinney Silver, mission investing director at Dave and Lucile Packard Foundation, became aware of the emerging group on Monday, April 20. Historically, the Packard Foundation had invested in women’s reproductive health, children’s education, access to healthcare, environmental and conservation efforts, but the California based foundation was looking for ways to support communities in the Central Valley through PPP. The Packard Foundation had never worked with the PRT, but Silver said the potential impact of an investment in RCAC made it a clear winner, if they could move quickly. The board approved the loan on an expedited basis that Thursday. The Packard Foundation lent RCAC $3 million within seven days.
The Schmidt Family Foundation rounded out the investor group. The foundation focuses its grantmaking on renewable energy, sustainable agriculture, human rights and marine technology and partners with local groups working on the frontlines of environmental justice issues in low-income communities and communities of color. The foundation contributed $2 million in response to RCAC’s call for liquidity, compelled by RCAC’s rural community focus and its five poverty regions—all of which had a connection to the foundation’s grant-making.
Jamie Dean, director of impact investments for The Schmidt Family Foundation, said of the loan, “When we saw this opportunity on the Confluence Philanthropy Listserv, we quickly contacted Ceniarth, who we already knew. After some rapid-fire due diligence with RCAC and our funder peers, we presented this to our investment committee. They quickly approved, and we worked with our internal teams to make the loan—all in a matter of a few days.”
RCAC and its investors raise millions for PPP fund in record time
As this was happening, new guidelines for the second round of PPP lending opened up the program, allowing CDFIs to make PPP loans in excess of $250,000. With a now $11 million PPP fund, RCAC had raised the funds in record time.
As of late June, $8.1 million in loans were distributed to 76 borrowers like United Cerebral Palsy, and CDFIs like Communities Unlimited that also operate in rural America. RCAC estimates that these loans have saved more than 1,295 jobs.
The new investors’ loan terms allow RCAC to lend to organizations with no prior lending relationship, provided those organizations fit within the PRT mission. The loans to RCAC will have no interest for six months. After six months, interest will accrue at half of one percent, and revert back to no interest from 24 months to the remainder of the term. The loan terms allow for RCAC to re-issue the capital to its borrowers at the lowest possible interest while remaining financially sustainable.
The ripple effect of jobs saved may also help save lives. One small business in rural Washington, Buttonsmith Inc., has pivoted from manufacturing hundreds of products to making just one: face masks. The RCAC borrower was not only able to keep its employees working but has now sold tens of thousands of face masks, including more than 300 for RCAC employees. It is also one of the rare mask manufacturers to be “whitelisted” by Amazon, who is cracking down on fraudulent companies that make substandard masks.
Anarde says that while personal relationships helped the initial efforts, it was RCAC’s track record as an institution that instilled the trust between PRT and the foundations that provided capital.
“You can’t be in a position of trust, to do what we’ve done, if you don’t have an organization with financials to back it up; a development team that can put it all together, and a communications team that can present it in a way people need to see it. We have a solid organization, and we have such a diverse board of directors. We followed our mission with this enterprise, and we had partners that showed up to support us. That’s an important part of the story,” Anarde said. “The most important thing is that we were able to get loans to the businesses who needed them so they could keep their staff employed.”
Here are some examples of small businesses that RCAC has lent to as part of the Paycheck Protection Program.
