In 2016, recognizing its leadership role as an anchor institution with the power to provide significant support to Boston’s neighborhood economies, Northeastern University (NEU) set out to cultivate a diverse slate of minority- and women-owned small businesses as vendors for its tens of millions of dollars in annual procurement spending.
NEU partnered with LISC Boston to create a suite of loan products designed to provide a lending ladder to help small businesses come up the curve to institutional procurement, including: contract loans to help businesses who won a contract develop a reserve of working capital as advances of the anticipated invoice amounts; traditionally structured term loans to help finance growth over a five- to ten-year horizon; microloans of smaller amounts using and shorter terms; and, in partnership with Kiva, character-based loans, that served aspiring vendors. Lending capital and administration costs for these tools was provided by a $2.5 million contribution from NEU.
The lending program’s most successful component was the character-based loans: they were highly accessible for businesses needing very small amounts of capital. Topping out at $10,000, they were uncollateralized, interest-free, and charged no fees. The loans were 50 percent crowd funded with the other 50 percent being matched by a $100,000 Impact Lending commitment from NEU. A number of local partners acted as Kiva “Trustees,” which are community members or organizations who add credibility to a borrower by vouching for their character, business, and social impact—and who provide a further layer of support and assistance to these smallest business borrowers.
Karleen Porcena, who led the business outreach effort for LISC Boston, says it’s important to tell the story of how small loans can be some of the most impactful for businesses as they get their foot in the door with larger customers, such as anchor institutions. Food-related businesses were some of the best-represented among these loans and, overall, one-third of the 30 or so recipients were makers or manufacturers.
As other anchor institutions look to replicate a similar program, Porcena says they will benefit from identifying a champion at the institution who can work with procurement offices to proactively create purchasing opportunities geared toward small businesses. “It’s a different mindset than most anchor procurement operations are used to,” she says. “These are professionals who are generally expected to maximize volume and minimize costs. Those important efforts sometimes run counter to what is needed for smaller vendors to find a right-sized opportunity for them to get a first contract and establish a successful relationship with the institution. It takes a bit of time—and strong institutional champions to reinforce it—to help them think about ways to create value in the community that are also in alignment with the institution’s goals.”
This case study was co-authored by Mark Foggin and Johnny Magdaleno and published in 2020 as part of the Urban Manufacturing Alliance’s “Forging Fairness: How community-based lenders are centering both inclusion and manufacturing to promote equity [link to report].” This report highlights the work of practitioners in UMA’s Pathways to Patient Capital cohort and how these leaders are helping entrepreneurs of color – including makers and manufacturers – access to the capital and know-how they need to realize their business ideas and plans at scale.