ARC lauches Appalachian Community Capital Initiative to build access to credit in region

June 18, 2013

Appalachian Regional Commission (ARC) Federal Co-Chair Earl F. Gohl announced today the creation of Appalachian Community Capital (ACC), a new central bank for development lenders that will increase the availability of capital to small businesses in the 13-state Appalachian Region. Gohl made the announcement at the Clinton Global Initiative’s CGI America conference with Ray Moncrief, ACC board chair and executive vice president and chief operating officer of the Kentucky Highlands Investment Corporation, and Donna Gambrell, director of the U.S. Department of the Treasury’s Community Development Financial Institutions Fund. The Clinton Global Initiative considers the ACC initiative vital to economic development efforts in Appalachia.

Shaw Canale, CEO of Mountain BizWorks, serves on the board of Appalachian Community Capital. “We could not be more pleased to be a part of this important capital intermediary directing funding into our Appalachian communities,” says Canale. “Mountain BizWorks’ participation in the founding and oversight of this initiative translates into a greater ability to make more loans to small business in the western North Carolina counties we work in.”

Industry analysis indicates that over the past several years, banks across the United States have instituted tighter credit requirements for small-business lending, reduced their appetite for risk, and become more sensitive to concentrated credit exposures. When combined with a challenging economic environment, these conditions have left many financially sound businesses seeking new sources of capital.

For growing businesses in Appalachia, finding capital is even more difficult, as a number of systemic factors have limited the sources of available capital. According to recent studies, Appalachian small businesses receive only 82 percent of the loans of their comparable counterparts nationally, while businesses in Appalachia’s economically distressed counties receive less than 60 percent of the loans of their national counterparts.

To address this gap, ARC, along with participating community loan fund partners in the Region, has committed to establishing a new source of funding for development lenders and helping capitalize it with $42 million over the next 24 months. This new central bank is expected to leverage $233 million of private bank capital and help create 2,200 jobs.

Appalachian Community Capital will raise grant capital and leveraged debt from funding sources not available to or underused by individual funds, such as regional and national banks, utilities, and national foundations. Because this new central bank will pool the capital needs of all its members, it can attract investors that are seeking to place larger amounts of money.

Gohl underscored the innovative nature of this development lending initiative: “It will bring together the Appalachian capital financial institutions to raise capital as a group,” he said, noting that “it is better do things together than individually on our own.”

Moncrief said the community development financial institutions that practice in Appalachia are grateful to Gohl and ARC for their leadership in the formation of Appalachian Community Capital: “This will be a very valuable source of capital for Appalachian businesses that struggle to access funding,” he said.

ARC will make a lead investment of $3.45 million in equity and operating support, and with its regional partners will help raise an additional $39 million in debt and equity from bank, philanthropic, and public investors.

The Commission has significant experience in supporting development finance institutions in the Region. In addition to its lead investment in Appalachian Community Capital, ARC will contribute a range of resources to the bank’s development, including assistance with creation of a business plan, with formation of the entity as a not-for-profit organization, and with raising capital from bank and foundation investors.