Central Corridor Businesses: Loans Aren’t Enough
Mary Leonard, owner of Chocolat CÅ½leste, loved her location on University Avenue in St. Paul-especially the large windows that allowed customers to see inside her kitchen as they wandered past.
But last fall, Leonard moved her business one block off of University Avenue in anticipation of the construction of the Central Corridor light-rail line that started earlier this year in front of her former storefront. For her, having enough customer parking was already a challenge, and eliminating it altogether exacerbated the problem. Despite moving to a quieter location with more accessible parking, her sales are still down more than 40 percent since construction began earlier this year.
Leonard is one of 10 business owners who-as of August 1-had been approved for a $20,000 forgivable loan through a program that was set up by the City of St. Paul, the Metropolitan Council, and the Central Corridor Funders Collaborative. The organizations initially made $1.5 million available through theprogram, but the amount was increased to $4 million in April. Smallbusinesses could start applying for the loans in June, and the moneywill be available until it runs out.
To qualify for the program, businesses within a designated area along the Central Corridor must demonstrate that the construction has negatively impacted them-and they must have less than $2 million in annual sales and no more than four locations.
The 11-mile Central Corridor light-rail line-a $957 project that will connect downtown Minneapolis and downtown St. Paul along University and Washington avenues-is scheduled to begin operating in 2014.
As of August 1, only 13 businesses had applied for a loan, and five of the 10 businesses that were approved have received funds. (The remaining five businesses will receive their loan money within the next week). Nancy Homans, policy director for St. Paul Mayor Chris Coleman, said that roughly 550 businesses qualify based on size and location, but they must show that they have been adversely affected by the construction to be eligible.
Homans says many businesses are still working on their applications and some are waiting to see if their losses continue to mount before applying. She added that some have indicated that they are surprised to find that they “are doing OK” despite the construction interference.
The $4 million made available to help struggling businesses is a fraction of what Jack McCann, president of the University Avenue Business Association (UABA), thinks is needed to support area businesses. UABA is currently conducting research to analyze vacancy rates in the area in an effort to show that the construction has forced many companies to relocate or close. That report is expected to be released later this month.
“We're confident the number [of vacancies] has gone up; we're just not sure by how much,” McCann said, adding that he does not agree with the Metropolitan Council's environmental assessment, which was released in April and found that construction of the light-rail line has no significant impact on area businesses.
In addition to not having enough funds available-McCann believes a fund of about $50 million would be sufficient-the loan program is also slightly misleading, McCann said. He thinks that businesses are turned off when they hear the word “loan” and that they don't understand that the loan is forgivable and doesn't need to be paid back.
“People don't want to take on more debt when they are already struggling,” he said.
But Homans said that many efforts have been made to inform businesses how the loan works and to encourage them to apply if they qualify. Several seminars and workshops have been offered and will continue to be offered, and the Midway Chamber of Commerce has also passed out informational flyers on the loan program.
For Leonard, who used up all $20,000 of her loan in a matter of days, the hardest thing about applying for the forgivable loan was that she had to commit to remain open for five years. Under the terms of the loan, businesses must stay operational over the course of the five-year loan period in order to be exempt from paying it back. They cannot move from the Central Corridor area either.
“You have to make it through the five years and essentially have to be in the same business as you were,” Leonard said. “That's difficult to do. There are a lot of unknowns.”
Although committing to remain open in an uncertain economic environment may be intimidating, Homans clarified that a business could apply to have the loan balance forgiven if it was to close before five years is up. There are, however, no guarantees that such a request would be granted by the Housing and Redevelopment Authority, which administers the program and would determine on a case-by-case basis whether a loan would be forgiven.
McCann and Leonard both stress that although they are skeptical that the loan fund will be able to help all the businesses affected by the construction of the light-rail line, they are not anti-rail.
“We've always been pro-business, but we've never been anti-rail,” McCann says.