A Chicago program that links the wealth from downtown developments to small businesses on the city’s South and West sides can be a model for cities across the country, according to a new report.
The Washington, D.C.-based Urban Institute (UI) studied the Neighborhood Opportunity Fund (NOF) that former Mayor Rahm Emanuel created in 2016. So far, 174 businesses have received grants totaling $23.3 million. Almost three-quarters of the funding has gone to entrepreneurs of color.
“It absolutely stands to reason that some sort of support like this is exactly what the city needs,” said Brett Theodos, a senior fellow at UI and author of the report. “It could be 10 times as large and still find enough people to help.”
“Is a single program going to be the thing that changes the trajectory of all these South and West side communities, less certain there,” he added. “But is it worth doing, yes?”
Earlier this year, Theodos did a separate study illustrating how black and Latino communities often struggle to develop vibrant commercial corridors in Chicago. That study showed how the city’s high-poverty neighborhoods and neighborhoods of color are starved of private-market capital compared with their counterparts on the North Side. And while the study showed that public and mission-driven investment sources (nonprofit or investors who take lower rates on return) generally flow the opposite way, those investments don’t make up for the gap in private-market capital.
NOF money comes from developers in hot real estate areas who want to receive floor-area bonuses downtown are surrounding areas, commonly called “density bonus.” For every dollar received, 80 cents goes to NOF. The report notes that developers and the city see the program as a win-win.
The grant awardees for small projects can receive up to $250,000, and in some cases much more. The money covers between 30% to 65% of total costs. The report says requiring entrepreneurs to contribute financially improves the chances for success. Those businesses include restaurants, bakeries, breweries, clothing stores and cultural institutions. Since its inception, 1,400 applications have been received.
Theodos notes that NOF is an entirely new source of funding that didn’t exist for disadvantaged entrepreneurs who have a hard time accessing capital. With this financial boost, they can access other loans. “I think it could serve as a national model for how to reach more borrowers than conventional programs do,” he said.
But questions remain about the program’s long-term impact. “Whether it’s actually working in terms of whether people are still owning their businesses and getting their loans, that’s the study we need that’s a little bit longer on the time horizon,” Theodos said.
The North Lawndale Employment Network (NLEN) on the city’s West Side received one of the largest grants — $2.5 million — to help acquire a building and double its impact of serving 5,000 people a year.
“Without Neighborhood Opportunity Funds, there’s no way we could be doing this. They really get neighborhoods and community-based organizations like ours that need that kind of financial resources because that’s one of our greater challenges, getting access to capital,” said Brenda Palms Barber, president of NLEN. “For us, this is a huge opportunity to be an economic driver in our community.”
Interested applicants have a low barrier to entry — all they have to do is submit their application as long as their real estate project is in an eligible area. But there have been hiccups in the young program, and the city has corrected course. Grantees receive a list of lending coaches and construction project managers.
And trust has been built. For example, very few entrepreneurs from the Latino neighborhood Little Village applied in the first round of NOF grants. Later, the city changed its outreach efforts by working with trusted partners and providing material in Spanish. In the next round, the city received 17 applications from West 26th Street, considered the commercial heart of Little Village.
This story was updated to clarify the share of total project costs covered by money from the Neighborhood Opportunity Fund.