Salt Lake City Challenged on Business Loans Extended to Nonprofits

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October 18, 2011; Source: Salt Lake Tribune  |  As part of its economic development program, Salt Lake City maintains a business revolving loan fund. By rule, the fund excludes nonprofits. But earlier this year the Salt Lake City Council made a one-time exception that allowed the city to lend $600,000 to the Leonardo Museum after its opening had been delayed for months by construction problems.

Bob Farrington, who directs the city’s economic development program, told the Salt Lake Tribune, “Our loan program is geared to business loans, so we would have to take a look at how [lending to a nonprofit] might fit that program intent. . . . The council did make a one-time exception for the Leonardo. If they wanted to do that, it’s something they could consider.”

Apparently the City Council feels positive about the business value of loaning to nonprofits, since they recently unanimously voted to make another loan to a nonprofit—in this case to public radio station KCPW, which was seeking $220,000 in cash to pay off a loan due on October 31. Apparently a default might have threatened its FCC license. But the city’s lawyers have intervened, blocking the radio station loan for now. There is a chance that the city will allow the loan to be drawn from another source than the one already identified. We’d be interested in whether others have found these same restrictions in economic development loans.—Reginald Spears

  • Kate Barr

    As a loan fund that lends exclusively to nonprofits we have run in to this issue many times. The reasons and definitions vary between public agencies. The cities of Minneapolis and St Paul both allow nonprofits to access city small business loan programs, but the State of Minnesota generally does not. While there isn’t clear rationale given in most cases, the criteria that comes up is that nonprofits are employers, which is a goal for most public financing programs, but they do Nnot pay property taxes, which is another goal. The recent program from the US Treasury for small business lending (the Small Business Lending Fund) very clearly defined “small business lending” to nonprofits for “business purposes” such as working capital, equipment, and facilities (but not rental real estate). The nonprofit sector has to continually advocate for recognition as a component of the business economy.