The State Small Business Credit Initiative program could catalyze significant business retention and broaden business ownership at the same time.
In early June, the Democracy at Work Institute (DAWI) and the Employee Ownership Expansion Network (EOX) both sent letters to the Department of the Treasury in response to the Treasury’s notice and request for information concerning the State Small Business Credit Initiative (SSBCI), to encourage implementation of support for state employee ownership centers and more broadly for employee ownership transitions. These transitions are when business owners sell part or all of their company to their employees. The most common forms of employee ownership are Employee Stock Ownership Plans (ESOPs) and worker cooperative forms.
The letters respond to the directive that accompanied the legislation to Treasury: “...[G]iven research demonstrating that increasing employee ownership is one way to help narrow gender and racial wealth gaps, the Committee encourages Treasury to provide funds to states that use the funds to support state employee ownership centers that provide technical assistance to businesses, including providing resources on how small businesses can offer workers employee stock ownership plans.”
In the letters, written by EOX Executive Director Steve Storkan and DAWI Executive Director Melissa Hoover, the two groups detailed the benefits of employee ownership of small businesses, and recommended specific actions to ensure the SSBCI program effectively enacts Congress’s employee ownership priorities.
“Employee ownership is growing in profile but is still a relatively new concept for many state agencies, and there is a danger it could be overlooked as a priority by agencies unfamiliar with it,” wrote DAWI in its recommendations to dedicate a small portion of funds to technical assistance and education alongside patient capital, to help businesses sell to their employees.
EOX added, “We are pleased that Congress has prioritized employee ownership as a means to assist small businesses targeted in SSBCI, especially those from socially and economically disadvantaged communities. Numerous studies have shown that employee ownership is an effective tool to help lessen the wealth and income gaps in our country. We must take the next step by using funds allocated in SSBCI to create a public/private partnership to educate the public and provide technical assistance related to employee ownership”.
In separate memos, Democracy at Work Institute and EOX urged the Treasury to work through existing infrastructures of support for employee ownership transactions, and recommended the following:
- Define uses of technical assistance funds expansively, including outreach to business owners and new lenders, and multiple employee ownership centers per state.
- Mandate that a percentage of a state’s allocated SSBCI funds be set aside as separate pool for lending and technical assistance.
- Pair funding for business technical assistance with equity-like capital to support employees to purchase shares.
- Treasury should focus on the Socially and Economically Disadvantaged Individual (SEDI) status of the underlying beneficiaries of ownership transfers as much as the SEDI status of the original business owner. This would increase eligibility for SSBCI funding for employees who show a commitment to buy the business.
- Work through the CDFI Fund, which is familiar with employee ownership and cooperatives, and prioritize CDFIs that already lend to these business transition transactions.
These recommendations about CDFIs echo those made by the NAFCU and Inclusiv in their June 7, 2021 letter urging Treasury to clarify and prioritize CDFIs.
DAWI and EOX concluded, “Employee ownership has the potential to benefit economically distressed communities and disadvantaged small businesses, and should be a well-supported part of the SSBCI toolbox.”
Democracy at Work Institute
Julian McKinley, Senior Communications Director
jmckinley [at] institute.coop
(415) 379-9201; ext. 10
Employee Ownership Expansion Network (EOX)
Steve Storkan, Executive Director
sstorkan [at] eoxnetwork.org