LEVERAGING OPPORTUNITY ZONES TO SAVE OUR SMALL BUSINESSES
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Community Development Financial Institutions ( CDFIs ) have been investing in capital and resource starved communities for decades .
records deploying capital while mitigating risk and returning measurable impact . Through extending capital to businesses when mainstream financial institutions wouldn ’ t , they ’ ve built profound community trust which translates into unique deal flow inaccessible to outside investors .
Interested investors can finance the growth of small businesses through diversified QOFs administered by CDFIs . Impact investors can access these investments while building on the expertise of local economic development organizations .
BUILDING COMMUNITY WEALTH THROUGH COLLECTIVE OWNERSHIP
There ’ s nothing inherently equitable or positive about OZs . But when thoughtfully implemented , this legislation can make it easy to invest in more inclusive and equitable economic development . Two underutilized applications of the legislation could transform distressed communities by offering workers and current residents avenues for participation in the wealth creation .
QOF DIRECT INVESTMENTS IN OPERATING BUSINESSES
Only 3 % of the 811 tracked Qualified Opportunity Funds ( QOFs ) invest in operating businesses , and only 1 % invest exclusively in operating businesses . 3 The proportional flow of capital to real estate via this economic development tool is staggering . Imagine how distressed communities across the country would be transformed if a meaningful portion of this capital was invested in the creation of permanent , high-quality jobs that were attainable for existing residents .
QOFs can currently make direct investments in operating businesses . Though it can be enormously productive , this type of direct investment takes substantial investor and entrepreneur commitment to utilizing the incentive . Deployment rules and the strict investment time frames introduce complexities not typically encountered in venture capital . The types of small businesses most in need of capital don ’ t typically generate the kind of growth that private investors require .
However , mission-oriented investors have a powerful tool at their disposal . Community Development Financial Institutions ( CDFIs ) have been investing in capital and resource starved communities for decades . These organizations have strong track
Small businesses nationwide are poised to undergo a significant shift in the coming decade . Baby boomers own more than half of all privately held businesses in our country , and the vast majority ( 85 %) don ’ t have a succession plan in place . 4
An early exploration by the Aspen Institute found that funding employee share ownership models like employee stock ownership plans ( ESOPS ) and workers cooperatives through OZ investments could “ contribute to the goals of the opportunity zone initiative by broadening opportunities for residents to both earn and own .” 5 We have yet to see OZ investments utilized for such transactions , but the infrastructure is in place .
A second high-impact vehicle for OZ investors looking to contribute to their small business economy is the Community Investment Trust ( CIT ). This is an innovative but proven financial product that allows residents of a particular neighborhood the opportunity to invest in commercial real estate in their own backyard . 6
OZ investments in CIT structured real estate projects can enhance the viability of small businesses operating in distressed communities . The Kansas City , Missouri City Council recently approved a project that combines the CIT with OZ capital to fund the redevelopment of a historic theater into a business incubator and economic development project . Merging the CIT with OZ
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