42 OPPORTUNITY ZONE MAGAZINE | VOLUME 2 • ISSUE 1
OZ investments in CIT structured real estate projects can enhance the viability of small businesses operating in distressed communities .
capital offers current residents an avenue to participate in the broader economic development happening around them . This wholistic approach to economic development and OZ investing incorporates opportunities for financial inclusion , equitable development and inclusive growth .
DIRECT INVESTMENTS IN COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS
Businesses with fewer than 500 employees account for 48 % of American jobs and 43.5 % of GDP . 7 Although they ' re an essential part of our economy , these small businesses often lack cash reserves to survive even a minor economic shock . As we continue to face an unprecedented public health crisis , consider what a future without your small business community would look like .
Direct equity investments in operating businesses aren ’ t an ideal fit for a lot of small or microbusinesses . Many are unable to generate the kind of growth that would provide attractive returns to investors , and investors would struggle to get comfortable with a lack of exit strategies . 8 With policy adjustments , OZ capital can still play a critical role capitalizing these businesses .
Revenue-based financing and other equity-like capital options that structure repayment as a percentage of future revenue , as opposed to an ownership stake can provide small businesses the flexible financing they need . This type of capital will be an essential piece of rebuilding a more resilient economy . Though such debt-equity hybrids aren ’ t a direct fit for OZs investments , there ’ s a strong nationwide network of community-based lenders that are ready to fill this void , but they need capital .
CDFIs across the country are in the business of innovating financial products designed to build a more equitable and inclusive financial system , but often lack capital necessary to pilot new products . These economic development financing intermediaries have an established history of creatively using complex tax credits that attract private investment to distressed communities . 9
OZ investments have the potential to provide a meaningful source of capital to these small business lenders . Representative Gregory Meeks ( D-N . Y .) has already proposed a bill allowing CDFIs to directly accept opportunity fund investments . 10 This legislation is a required step in catalyzing the flow if high-impact capital to our nation ’ s small and microbusinesses at a time of unprecedented need .
INVESTING IN SHARED PROSPERITY
Through a combination of market mechanics and good public policy , OZs can indeed create positive social and economic impacts while providing attractive financial returns . They
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