Nancy Homans, Office of Saint Paul Mayor Christopher B. Coleman
February 2, 2012

The Ready for Rail Forgivable Loan Program was launched in May 2011 as a modest “safety net” for small businesses whose sales would be affected by light rail construction. 

Data collected through the first year of construction reveal that the loans successfully mitigated the losses experienced by dozens of small women- and minority-owned businesses in the Corridor.

In total, 82 businesses shared over $1.3 million in loans.  Of the 66 businesses for whom data are available, two-thirds are owned by people of color or women.  Sixteen of them reported pre-construction monthly sales less than $5,000 and suffered, on average, a 47% loss of sales—with some as high as 80%.  For 13 of them, the loan covered all of the sales lost during construction. 

Financed by the Metropolitan Council, City of Saint Paul and the Central Corridor Funders Collaborative, the one-of-a-kind $4 million fund offers loans of up to $20,000 per business to cover lost sales.  The no-interest loans will be forgiven in equal installments over five years as long as the business remains in the Central Corridor.  Businesses that move will be expected to repay the remaining balance.

The program is administered by the Neighborhood Development Center in St. Paul and the Metropolitan Consortium for Community Developers in Minneapolis, both of whom have long established relationships with small businesses, especially those owned by women and people of color. 

Forty-seven of the 82 businesses served were on University Avenue in Saint Paul with the balance split between Minneapolis’ Cedar-Riverside and Stadium Village (27) and St. Paul’s Lowertown/ downtown (7). The individual loans ranged from $1,105 to $20,000.    

Based on the data provided by businesses in their loan applications, we are better equipped to understand how they have been affected by construction.* A few summary conclusions based on the program’s first year:

• Different types of businesses were impacted differently.  In general, bars and restaurants suffered less of an impact than small retail stores.  Average monthly sales for bars and restaurants fell 20 percent during construction while retail stores experienced a 39 percent decline.  Having said that, there was considerable variability within all classes with losses for bars/restaurants ranging from 2 percent to 65 percent and retail stores from 4 to 84 percent.

• The smallest businesses, typically independent retail stores, experienced the greatest impact, but that impact (because the dollar amounts were relatively small) was substantially mitigated by the loan fund. 

• There is variability between geographic segments with respect to loss of sales—Lowertown/Downtown loan recipients reported an average loss of 10% while those on the south side of University Avenue around the Raymond Station posted a 39% average loss.  The explanation for that variability, however, is not readily apparent. (It does not appear to be explained by, for instance, the duration of construction, the residential density of the surrounding area or socio-economic status.)  Part of it is explained by the number of restaurants in a given segment. Stadium Village, for instance, where two-thirds of the loan recipients are restaurants, experienced a lower average loss (21%) than other segments in the Corridor.  Losses for non-restaurants, however, are comparable to those in other segments so the presence of restaurants does not appear to affect the surrounding businesses.  Lowertown/ Downtown St. Paul, by contrast, posted an average loss of 10% that is not explained by the number of restaurants in the area. 

With construction for the first year ending on November 30, applications were accepted until December 31, 2011.  The process will be re-opened after construction gets underway again in the spring.  In the interim, the loan administrators and funders will be reviewing the experience of the first year and, potentially, making adjustments suggested by that review.

Further information on the Ready for Rail Loan Fund is available at http://www.ndc-mn.org/ReadyForRailForgivableLoan. 

* 12 businesses were found to be ineligible to apply for loans, half of which were not able to document any loss in sales.  This analysis does not include data from those businesses or, of course, businesses that chose not to apply for whatever reason.