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Why Low-Income Communities Need
Small Business

Housing development has long been a staple for community development practitioners
working to revitalize low- and moderate-income neighborhoods. Efforts to promote new home
construction, homeownership, and affordable housing have been key to urban renewal in many
areas. But housing alone is not a panacea; rather, housing must be one part of a broad, holistic
approach to community revitalization that also includes small business development.



Fourth District Profile
Appalachian Firm
Goes Global


In My Opinion
Manufacturing —
Creating a Future
Built on the Past


Compliance Corner
CRA Lending:
Keep It in Mind


nd Resource
and Resources

African American Chamber of
Commerce of Western Pennsylvania
Doris Carson Williams
Executive Director
Al Jones
Entrepreneurial Consultants
Al Jones
Association for
Enterprise Opportunity
Bill Edwards
Executive Director
703/841-7760, ext. 22

Business Alliance
for Local Living Economies
Cathy Lehman

Office of
U.S. Congressman Steve Chabot
Todd Lindgren
Communications Director

U.S. Small Business Administration,
Pittsburgh District Office
Donald S. Carter
Deputy District Director
412/395-6560, ext. 113

Demolition of the abandoned Collinwood
Rail Yard, site for the new Jergens Inc.
plant in Cleveland, Ohio.

F R O M PA G E 1

Small businesses and microenterprises (businesses with
fewer than five employees)
have an important role to play
in low- and moderate-income
communities: Often they are
the engines of growth in these
neighborhoods, providing
employment opportunities,
generating tax revenues, and
helping to anchor the community. In addition, owning a
business can be an important
way for individuals to build
wealth, both for themselves
and the community.
Small business development
in low- and moderate-income
areas can have a multiplier
effect, according to Michelle
Long, national coordinator of
the Business Alliance for Local
Living Economies, a national
network of independent business alliances. Locally based
businesses “support other local
folks through employment,
wages, and product support;
they strengthen the long-term
stability and
diversity of the

Chuck Crow © Plain Dealer Publishing Company, all rights reserved.




and they support the work of
local nonprofits,” she explains.
But attracting and retaining
businesses in low- and moderateincome communities is not
without its challenges: Negative
perceptions about doing business in distressed communities
remain. Al Jones, retired director
of the U.S. Small Business
Administration’s office in Pittsburgh, says the “misperceptions
or barriers that exist are the
accusations of overpricing,
selling inferior merchandise,
and providing less than quality
Many believe that local small
businesses have a significant
advantage: intimate knowledge
of their market. Small businesses “know their community
better [than national chains],
they can offer products and
services that are unique, and
they have stronger interpersonal
relationships—all of this helps
with customer loyalty, better
services, and profitability,”
says Long.
These relationships among
low-income communities and
small businesses create lasting
bonds that can boost business
for small firms. According to
Jones, “it is necessary to marry
the business with the community the business serves…
Small business owners know
the ‘heartbeat’ of the low- and
moderate-income communities.”

Businesses that locate in
lower-income areas may also
have an advantage because
they face little competition.
“Business owners can absorb
most of the market share, therefore generating enough sales
to make a profit…. This is
especially true for businesses
such as grocery stores, clothing
stores, and restaurants,” says
Bill Edwards, executive director
of the Association for Enterprise
Opportunity, a trade group for
microloan funds.
Making a Pesonal
Commitment to Growth


n addition to the benefits
that small business brings to
communities in the form of
jobs and tax revenue, business
owners themselves can play
powerful role as community
leaders. Often, entrepreneurs
become personally invested in
the communities they serve,
acting as spokespeople for their
neighborhoods and as catalysts
for change. “I believe that
business owners can play an
important role in revitalizing
neighborhoods,” says Congressman Steve Chabot of Ohio.
“This creates long-term
benefits for them (through
increased property
values and customer
base) and for

O N PA G E 3



F R O M PA G E 2

The new Jergens Inc. facility at the
abandoned Collinwood Rail Yard site.

President Jack H. Schron Jr.,
whose family founded the company in 1942 and grew up in
Collinwood, initially considered
locating on a greenfield site or
moving out of the city altogether.
Instead, the company chose
land then occupied by the
abandoned Collinwood Rail
Yard, once a hub of activity for
the New York Central Railroad
that had become environmentally blighted.
Schron believed that if
Jergens got the ball rolling by

Small Business Is Big Business
Small businesses are the backbone of the U.S. economy. According
to the U.S. Small Business Administration, small businesses

represent 99.7 percent of all employers


employ more than half of all private-sector employees
generate 60 – 80 percent of net new jobs each year


pay 44.5 percent of the total U.S. private payroll
produce 13 –14 times more patents per employee than large firms.

Carol Foster, a Pittsburghbased real estate agent working
in the city’s Manchester neighborhood, also believes that her
personal connection to the
neighborhood benefits both
her business and her customers:
“I concentrate on Manchester
because they are my neighbors
—I ensure they get the service
they deserve,” she says. “It’s a
great neighborhood. I have a
competitive advantage through
my detailed knowledge of
the neighborhood: I know the
residents, I know the market.”
Fueling Small
Business Development


ow can community
development practitioners
create a fertile environment
for small businesses and microenterprises? Some of the best
resources for start-ups in lowand moderate-income communities are small businesses
themselves, which can form
invaluable mentoring relationships and networks for sharing
information and best practices.
According to Bill Edwards,
“Building relationships… is
especially important for business
owners in low-and moderateincome communities. To be
known as a ‘good neighbor’
can lead to free publicity and
community loyalty.”
In the Pittsburgh area,
the African American Chamber
of Commerce of Western
Pennsylvania “tries to assist
members in finding access

to capital through various
government lending programs
and through working with the
local financial institutions,”
explains Doris Carson Williams,
the chamber’s executive
director. “We have helped
several members by providing
them a contact at a local bank
that is not only sensitive to
some of their issues, such as
credit ratings, but looks for
ways to improve their lending
programs for small business.”
In addition to these formal
and informal local networks,
small businesses that choose to
locate in low- and moderateincome areas can take advantage
of a number of tax incentives
and loan programs, such as
the New Markets Tax Credit
Program and the Main Street
initiative. Firms can also tap
community development
financial institutions, many of
which specialize in higher-risk
start-ups and minority- and
women-owned businesses.
Small businesses are a
powerful economic force, and
nowhere is this more true than
in low- and moderate-income
communities. In fact, neighborhood revitalization cannot be
complete unless local businesses
are strong. By complementing
our efforts in affordable housing
and financial literacy with small
business development, we can
work toward stronger, more
self-sufficient communities that
will thrive and grow over the
long term.


For instance, when Clevelandbased tooling components manufacturer Jergens Inc. went
looking for a new home for its
150-employee operation, it
found an opportunity to make
a difference in the city’s eastside Collinwood neighborhood.

redeveloping the Collinwood
Yards, others would follow suit.
He was right: In addition to
Jergens’s 105,000-square-foot
facility, which opened in 1999,
the Cleveland Foodbank and
the Cleveland Clinic now have
properties on the site.
Although the move made
business sense—the space
would give Jergens enough land
to continue to expand in the
future, and its proximity to
Interstate 90 makes it convenient for employees—it also
became a personal commitment
for Schron, who has opened
up the building for community
events and helps to organize
the neighborhood watch.
Other entrepreneurs, too,
cite their commitment to their
communities as one reason
they’re in business. Carolyn
Dorsey, an independent State
Farm insurance agent, has
operated her business in
East Liberty, an inner-city
neighborhood in Pittsburgh,
for 20 years despite pressures
to move to a more affluent
area. “I wanted to be in a
community where… I could
help advise people and make
my services available, because
so many businesses…”


4th district



Ohio University Small Business
Support Center Helps
Appalachian Firm Go Global


ave Ellenwood could live anywhere. With an
advanced degree, entrepreneurial spirit, and a sense for
the global marketplace, he could have chosen to stay
in Atlanta, where he was a training consultant. So
why move back to southeastern Ohio, of all places—
a part of Appalachia that has been hit hard by plant
layoffs, unemployment, and persistent poverty—
and start a company that has international clients?
To Ellenwood, southeastern Ohio is “an impeccable
environment for raising a family.” After years of living
and working in Atlanta, he moved back to his family
farm just outside Marietta, Ohio. “I live on a 50-acre
property in the country—on property that has been
inhabited by my family continuously for 200 years,”
he explains. “I wanted my kids to grow up in this
region, know their extended family, learn the values of
the region. We’re very involved in the community.”
At a time when Appalachian Ohio is suffering the
outmigration of manufacturing, Ellenwood and his
company, Visum, are thriving. Started in 1999, Visum
is a learning services company that builds curricula
for employee training programs.
“We are flourishing here,” Ellenwood exclaims.
“We go to Columbus, Montreal, New York City, and
bring money back. We have a service that allows us
to go out to places and bring back wealth to the

Visum’s leg up on the competition is the placeless
nature of its work. “We can do our work from anywhere, we can partner virtually, or travel to meet
the client. This is our competitive advantage.” These
virtual connections enable Ellenwood to enjoy his
location and play a significant role in the community.
“We’re competitive, we’re growing, and we have
the opportunity to be a significant part of the local
economy,” he explains.
Ellenwood’s leadership is vital to the area. “Just
being a part of the community is important to me.
I’m commissioner of the youth football league; I’m
a pastor of the church my grandfather helped build.
Now there are 100 people at the church, raising
money, giving money, taking care of people in the
AREI: A Key Small Business Resource


isum’s success is tied to another invaluable
resource in southeastern Ohio, the Appalachian
Regional Entrepreneurship Initiative (AREI), a program
affiliated with Ohio University’s Voinovich Center for
Leadership and Public Affairs, in Athens, Ohio.
“AREI helped us write a business plan, helped
conduct market research, acted as advisors, and got
us venture capital,” Ellenwood explains. “Having the
services that AREI provides has really catapulted us
as a company. They’ve helped us do things we would
not have ordinarily done.”

AREI’s Kevin Aspegren, manager of operational
assistance, provides a tiered approach to technical
and financial assistance
for emerging and growing
small businesses. “We
spend time with the entrepreneur to make sure it’s
a viable, sustainable, and
Kevin Aspegren
scalable business,” he
explains. “We not only want to assist small business
people to receive a loan, but we want to make sure
they spend the funds wisely and can sustain their
According to Aspegren, AREI goes beyond the
standard model of traditional management consulting.
“We assist clients with operational plans, technology
plans, marketing plans, and guide firms through
the entire process—from growth to acquisition to
expansion. We want to make sure we are building
strong businesses,” he says.
AREI comprises several business assistance
programs that provide technical assistance and training
to business and community development professionals
in Appalachian Ohio. AREI’s services are designed to
increase regional economic vitality by putting university
resources to work for southeastern Ohio.


Aspegren was instrumental in Visum’s success,
according to Ellenwood. “Kevin helped us expand and
think strategically about new opportunities. I can
think creatively, but Kevin coached me to think about
the things I didn’t think about—the big and little
things. He did the heavy lifting for our venture capital
funding request,” which was ultimately approved.
Part of the value that AREI brings to southeastern
Ohio is helping to remove the stigma sometimes
associated with Appalachia. “We bring a fresh perspective” to small business development, Aspegren notes.
“We help [entrepreneurs] apply for, acquire, and
manage capital necessary to make their small businesses
thrive. We structure small business people around
commonly understood businesses practices, such as
a business plan that can be ‘sold’ to people outside
the region who may want to fund it. We structure
the company in the best light for outside investors.”
To Ellenwood, AREI’s commitment to Appalachian
Ohio and their influence in the region has been a very
important element in his company’s success. “In
Atlanta, we would have been just another company,”
he says of Visum. “But here in southeastern Ohio,
we have the opportunity to be leaders.”

of interest
Conferences and Workshops
Big Ideas
for Small Business
A conference for small business
owners and entrepreneurs
designed to spark new thinking
about opportunities for success
in a changing economy.
October 12 – 13, 2004

Erie, Pennsylvania
Contact: Dan Holland
October 28, 2004

Toledo, Ohio
Contact: Maria J. Thompson

Community Reinvestment Act
The CRA Roundtables, presented by the Consumer Affairs and
Community Affairs Offices of the Federal Reserve Bank of
Cleveland, are interactive seminars designed to help financial
institutions and nonprofit, community-based, and faith-based
organizations understand the requirements of the Community
Reinvestment Act.
October 22, 2004

Lima, Ohio
Contact: Candis Smith
November 5, 2004

Erie, Pennsylvania
Contact: Dan Holland

CR Report:
A Path to Housing Opportunities:
Cincinnati Lending Analysis
This issue of Community Reinvestment Report explores access
to credit and capital in Cincinnati’s Empowerment Zone
neighborhoods using HMDA and census data. The report features
interviews with community development practitioners in the
Cincinnati area.

Federal Reserve Fiscal Impact Tool (FIT)
FIT is an easy-to-use software application designed to help
community and economic developers estimate the effects of
economic development projects. It comes in several versions,
each containing detailed information for all places, incorporated
or otherwise, in a particular region. Instructions are available
for visually impaired users and others who use screen readers.
To inquire obtain a free copy—by e-mail or on CD-ROM—
Be sure to identify the FIT version for the geographic region
in which your community is located.

KeyBank’s Stanley Appointed
to Fed Consumer Advisory Council
The Federal Reserve Board of Governors has appointed Forrest F. Stanley, senior vice president and associate general counsel for
KeyBank in Cleveland, to a three-year term on its Consumer Advisory Council. The council, which meets three times a year in
Washington, DC, advises the Board of Governors on its responsibilities under the Consumer Credit Protection Act and other matters
related to consumer financial services.
Mr. Stanley joins James King, president and chief executive officer of the Community Redevelopment Group in Cincinnati, Ohio,
on the Consumer Advisory Council. Mr. King was appointed in 2003. Special thanks to Patrick Liddy, vice president and attorney at
Fifth Third Bank in Cincinnati, Ohio, who completed his term on the council in 2003.
For more information about the Federal Reserve’s Consumer Advisory Council, visit


Board Withdraws Amendments to the CRA

Kevin Aspegren
Manager of Operational Assistance
Appalachian Regional
Entrepreneurship Initiative

In July, the Federal Reserve Board announced it would withdraw amendments to the Community Reinvestment Act (CRA) regulations
that had been proposed in early 2004. Two key aspects of the proposal were (1) to raise the small-bank asset threshold from
$250 million to $500 million, allowing more banks to benefit from streamlined CRA evaluations; and (2) to allow examiners to
reduce a depository institution’s CRA rating if the institution engaged in a pattern or practice of abusive asset-based lending.
Although community banks favor raising the threshold, it is uncertain whether the cost savings to the average community bank
would be significant. However, the proposal’s cost in terms of reducing community development capital in many rural communities is also
uncertain. On balance, the Board does not believe the proposal’s cost savings justify the adverse effects on certain rural communities.
Commenters were united in their opposition to the proposal to define a single abusive lending practice in the CRA regulations
(abusive asset-based lending) to the exclusion of other abusive practices. For these reasons, the Board is withdrawing the entire proposal.
To view the entire press release, visit

Dave Ellenwood
President and CEO

in my



to place. The co-location

Manufacturing — Creating
a Future Built on the Past

of suppliers, workers, and
services in city neighborhoods provides a powerful
and practical incentive for
companies to move in,
stay, and grow. With a large
workforce nearby—many of
whom have a background
in manufacturing—the fit is
ideal. And beyond the hightech jobs, manufacturing
still offers many entry-level
and low-skilled positions for
which people tend not to
drive across town.

Formed in 1986, WIRE-Net is a membership-based economic
development organization. Its mission is to retain, grow, and
attract manufacturing-related businesses and to link leaders to
each other and to Cleveland’s west-side community. For more

John Colm

information, visit

Executive Director
Westside Industrial Retention and
Expansion Network (WIRE-Net)


he future of many urban
regions lies in manufacturing.
That statement may sound a
bit odd, as outsourcing, overseas job migration, and foreign
competition appear to be undermining U.S. manufacturing
prowess. But if cities intend to
compete in the global marketplace, then manufacturing will
have to build on its past glory,
adding technology and innovation to help define the future.

The nature of manufacturing
has changed from a dirty, sooty
enterprise to a more complex,
high-tech, and specialized
business. Even the most basic
manufacturing jobs now tend to
require math, blueprint reading,
and spatial skills. Computers
are used in many aspects of
production. Workers operate
more than one machine, and
“Business 101” is also required.
But many of the essential
principles that helped manufacturing thrive in the twentieth
century still play an important
role today:

An ongoing commitment


Cheaper costs compared
to building elsewhere.

Manufacturing firms locate
in cities because the supplier
networks are already in
place. Communication is
easier and shipping times
are minimal when firms are
co-located. Many buildings
are adaptable to new uses,
and competition among
utility firms can also make
costs more favorable in
the city.

Manufacturing employment is growing
in Cleveland’s west-side neighborhoods.



A critical mass of social
services and training
programs. Manufacturing

training centers, job placement services, and high
school trade programs offered
in the city provide workers
the boost they need to
prepare for manufacturing
Challenges exist, to be sure.
Some city properties contain
brownfields or face other contamination issues that create
barriers to development. Obsolete buildings need to be adaptable for reuse or demolished,
and the process for remediation
and reuse of these sites needs
to be accelerated.
All too often, though, the
negative stories outshine those
of the manufacturing firms
experiencing growth. Even
during the recession, many

If cities intend to
compete in the
global marketplace,
then manufacturing
will have to build
on its past glory,
adding technology
and innovation
to help define
the future.

smaller firms were consistently
adding employees and production, but their growth is
considered minimal unless
combined with all the other
small firms that are growing
right alongside them.
On the west side of Cleveland, the WIRE-Net economic
development model has proved
to be a success. Despite the
massive loss of manufacturing
jobs over several decades,
roughly 600 manufacturing
and related companies remain
here, and they consider their

west-side location a competitive
advantage. WIRE-Net leverages
additional resources such as
the city of Cleveland’s Cleveland
Industrial Retention Initiative
and Mayor Campbell’s
“Advancing Cleveland Trade”
effort to build trust and goodwill among these firms.
Over the past 15 years,
west-side neighborhoods have
stabilized, jobs have been
added, and companies have
been retained, increased, or
expanded. Our approach seems
to be working: Between 1993
and 2000, manufacturing
employment in the WIRE-Net
area grew over 9 percent while
the city plummeted and
Cuyahoga County flat-lined.
As WIRE-Net continues to focus
on procuring an educated workforce, developing a coordinated
real estate initiative, and building strong, innovative companies, manufacturing once again
has a future in Cleveland.

Daniel Holland, Author and Sr. Advisor
Deborah Ring, Contributing Editor
Michael Galka, Graphic Design

Please contact the following members of the
Community Affairs staff if you have questions or
would like additional copies of this publication.
Ruth Clevenger

Vice President
and Community Affairs Officer

Cassandra McConnell

Community Affairs Manager

Maria J. Thompson

Senior Advisor

Emma Petrie

Research Analyst

Paula Warren

Administrative Assistant


Jeff Gatica

Senior Advisor

Candis Smith

Community Affairs Advisor


Daniel Holland

Senior Advisor


Visit us on the World Wide Web
We welcome your comments
and suggestions — send them to

The views stated in Community Reinvestment
Forum are those of the individual authors and
are not necessarily those of the Federal Reserve
Bank of Cleveland or of the Board of Governors
of the Federal Reserve System.
Materials may be reprinted provided that the
source is credited. Please send copies of reprinted
materials to Community Affairs, Federal Reserve
Bank of Cleveland, P.O. Box 6387, Cleveland, Ohio



Ruth Clevenger, Managing Editor





Commercial CRA Lending: Keep It in Mind
By Catherine Toth, Consumer Affairs Examiner

Although we often think of the Community Reinvestment Act (CRA)
in connection with access to credit for low- and moderate-income
homeowners, business lending is also an important part of the CRA.
In addition to sweeping changes that implemented the lending,
service, and investment tests that large banks (over $250 million) are
familiar with, the 1995 CRA analysis also incorporated institutions’
records of small business, small farm, and community development
lending. Banks can and should consider the impact of small business
lending on their CRA strategy, though this component is often overlooked.
Small business loans are defined in the Call Report as loans under
$1 million made for business purposes, while small farm loans are
those under $500,000 made for agricultural purposes. According
to the CRA, community development loans must provide housing
or services to low- or moderate-income individuals, revitalize or
stabilize low- or moderate-income geographies, or promote economic
development by financing businesses or farms that meet the eligibility
standards of the Small Business Administration or have gross annual
revenues under $1 million.
Before the 1995 changes, CRA evaluations did not formally
recognize small business lending. But community groups and many
banks pushed for the change, pointing out that small business loans

P. O . B O X 6 3 8 7
CLEVELAND, OH 44101-1387

are a critical part of economic development in low-income and
underbanked areas. Banks that engage primarily in commercial
lending were also eager to have their efforts recognized publicly.
Small business and farm loans and community development
lending fall under the CRA lending test, the most heavily weighted
portion of the CRA evaluation at 50 percent. Small business and
farm loans are evaluated by analyzing the geographic distribution of
loans and the distribution of loans to businesses or farms with gross
annual revenues of $1 million or more. In evaluating community
development lending, examiners review the number and dollar
volume of lending, as well as the responsiveness, complexity, and
innovativeness of these loans.
For communities and banks, the evaluation creates an opportunity
to find creative ways to increase economic development where it
is needed most: in low- and moderate-income geographies and
in small businesses that may not have access to traditional sources
of credit. Increasing credit to small businesses boosts job growth,
in turn creating more borrowers. Small businesses may grow into
larger businesses with established credit histories, giving them access
to additional sources of financing, and successful small business
owners often become bank customers for their personal banking.