Region Business, City of Elk Grove Partnering in RISE Program to Boost Capital Access For Area Businesses



November 9, 2017 |  

The City of Elk Grove and Region Business, a Sacramento-based business advocacy group and its newly formed Region Finance entity announced this morning a new program that seeks to give area businesses better access to capital.

The program - RISE - Responsible Investments for a Stronger Economy, will modify investment guidelines for the City of Elk Grove. As the first participant, the program seeks to advance regional economic growth by encouraging Sacramento region municipalities to redirect investment of $1 billion of its funds into community banks headquartered in the Sacramento region to spur economic growth.

"The City of Elk Grove is excited to be the first city able to participate in this new and innovative program,” Darrell Doan, Economic Development Director for the City of Elk Grove said. “The goals of RISE, supporting local economies and the Sacramento region through business lending, are in perfect alignment with Elk Grove’s strategy of supporting our small businesses by providing them enhanced access to capital.”

Among locally based banks that could see deposits grow are American River Bank, Five Star Bank, and River City Bank. By supporting these local-owned banks, it is hoped they in turn will make access to capital for area businesses that in turn will spur economic growth, job creation, and business expansion in the region by reinvesting these funds. 

Region Business and Region Finance executive director Joshua Wood said RISE is a simple solution that will give businesses in the region better access to funds that might not be available to them from money center banks. 

"Municipalities set aside funds that would otherwise be invested outside of their community. These funds are held in locally headquartered community banks who guarantee the municipality the same rate of return, but agree to investing a large portion of those funds into helping local businesses grow," Wood said. “Every local government in our region should follow Elk Grove’s lead and adopt RISE. It’s a concrete way to infuse local dollars into our economy instead of sending it across the country or oversees. Let’s invest in ourselves as a region."

Calling it a great win for local businesses and a historic step, Region Business and Region Finance Vice President Robert Abelon said with the new deposits, the community banks will report back to depositors their lending activities to ensure the program is doing what is intended. Abelon said Elk Grove has committed to transferring $15 million to local banks.

"It will give the public insight to how the money is being loaned," he said.

Abelon added now that Elk Grove has agreed to transfer deposits, they are working with several other municipalities to encourage their participation. He also said it gives local banks to showcase who they are and who they work with.

"They are local, and they are responsive," Abelon noted. "All that money is going to help infuse small businesses and the small business community to help create  jobs."










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2 comments

D.J. Blutarsky said...

This cheese is beginning to smell. Excuse me for being suspicious of the regional builders wanting to support easier access to capital by having cities direct their cash deposits to local banks.

Have you ever visited those used car lots that specialize in their own financing? You know, the ones with the big banners that read “Poor credit? We finance anyone? The car itself is but a piece of metal that can easily be repossessed if the buyer defaults on the loan, but those car lots essentially become finance companies for those buyers who would otherwise not qualify for conventional financing.

Well, this latest scheme by the region builders, called RISE, is starting to sound a lot like RISE, but DEFLATE later! But give the builders credit here for ingenuity. By supporting regional banks with cash infusion from cities, the builders are able to essentially tap into local banks for financing of their products, be it homes, retail centers, infrastructure, etc.

Remember the Great Recession? It all started with smaller lenders offering home loans to sub-prime borrowers who could not otherwise qualify for loan approval from the bigger, conventional lenders. Later on, the big banks eventually jumped on the bandwagon after seeing the business they were losing to the small lenders, but it all started with the small lenders.

Is it the ultimate objective of the regional builders to tap into the smaller local banks, because their pro-formas and customer credit history would not pass the muster of the large banks? Besides, those local bank Board of Directors are more easily ‘accessible’ and probably more well-known, than say the local branch managers of Wells Fargo or J.P. Morgan, who must run their paperwork up the corporate channels for approval.

I’ve noticed that most of the new housing tracts being built in Elk Grove offer their own financing. Remember the used car lot example? Take a builder like Taylor-Morrison for example. You walk into their sales office and they have an immediate conflict of interest. Sell a home to a sub-prime borrower and you can probably eek out a higher interest rate, plus get a kickback from the loan underwriter and everyone wins. Worst thing that can happen is the bank takes back the home if the buyer defaults, right?

Well, in order to avoid financing their own projects which takes too much capital and risk, the builders need access to cash from banks that do not have all the red tape that the big corporate lenders have. This is where the local regional banks come in. Beef up their deposits with city monies and promise those cities greater economic development. Everyone wins, right?

Would you like a glass of wine with that smelly cheese?


Josie said...

Well said D.J., exactly what I was thinking, but you said it better than I could. Doesn't pass the "smell test".

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