E3 Financing How-to Guide
The Financing How-to-Guide is intended to help manufacturers and their communities navigate financing and investment opportunities. While this guide provides an overview, there is no "one-way" to pay for E3 activities or attract investment. E3 communities and manufacturers need to think comprehensively and creatively about opportunities to finance diverse aspects of their "ecosystem approaches" to sustainable economic development. Several emergent or underutilized sources of "impact investing" financing, including industrial development bonds, foundation program-related investments (PRIs), and pay-for-success financing, may prove appropriate for manufacturing communities, possibly in combination with other funding sources, including traditional public and private funding.
This How-to-Guide presents a stepwise approach to exploring and identifying financing mechanisms and partners for E3 communities and manufacturers. Planning for financing should occur within the context of assessing your needs and developing your E3 initiative strategy.
- Step 1. Clarify Needs
E3 communities and manufacturers have diverse capital needs; it is important to clearly characterize these needs to match them with funding or financing options. How will the resources be used, what benefits are anticipated, and who might be willing to pay for or re-pay over time for these services and results? Four common needs include:
- Operating resources for intermediary and backbone organizations coordinating the initiative.
- Resources to support scaling and/or sustainability of supporting programs and technical assistance.
- Capital resources to develop or upgrade infrastructure deemed important to implement the E3 plan.
- Access to capital for manufacturers to make improvements and enable development and growth.
Multiple types of funding can be configured to address these needs, ranging from public budget allocations to grants to fee-for-service revenues. In addition, a range of innovative financing mechanisms may also be useful to address specific needs. Exploring the questions below will prepare you to match needs with funding options.
- How much capital is necessary to support the specific need?
- What are the anticipated financial, social, and environmental benefits of this investment? What are the projected financial returns on this investment for investors?
- What are the risks that may affect anticipated outcomes or prospects for re-payment or future financing?
- Do you anticipate that any partners would be willing to pay or re-pay for the services or results over time?
- Step 2. Conduct Partner Landscape Analysis
You should become familiar with the diversity of potential partners in your community, identify which relationships exist and which need to be built, and determine what interest in your approach exists among current partners. The work conducted in E3 communities is anticipated to have multiple benefits. Identifying potential partners who have an interest in E3 outcomes, such as stakeholders, investors, or other actors, will allow you to identify opportunities to leverage your community's work, leverage additional investment, and/or build local support. Place-based community foundations are estimated to collectively issue $5 billion in grants yearly1. In the initial phase of your landscape analysis, cast a wide net to identify potential partners.
Partners can offer diverse support beyond actual financing so it is important to approach partners as more than potential funders. Partners may offer connections to additional financing networks, facilitate relationships with key stakeholders or decision-makers, or offer strategic advice to assist you in planning an effective initiative. Consider partners who may be critical to your initiative not only now, but also in the long-term.
If you have difficulty finding partners, see Step 5 and the tools at the end of this section for links to organizations that can help you identify partners. Questions to consider include:
- Which partners have local expertise and convening power?
- Which partners best understand the challenges and opportunities in your community?
- Which partners can help you with financing or better help your community absorb capital? See Step 3.
- Are there other sector-specific opportunities you can leverage (i.e., energy, housing, geography/place-based)?
- Which partners are particularly good at interfacing between private financing partners and government agencies?
- Are local partners already funding similar work?
- Community Development Financial Institutions (CDFIs) Exit
- Community Development Financial Institution Locator Exit
- Community Foundation Atlas Exit
- Council on Foundations Exit
- Development Finance Agencies Exit
- Find your local utility at Home Town Utilities Exit
1 Democracy Collaborative, "A New Anchor Mission for a New Century: Community foundations deploying all resources to build community wealth," November 17, 2014, http://democracycollaborative.org/new-anchor-mission.
- Step 3. Determine Readiness
Before approaching potential partners determine how you might improve your readiness to absorb capital investments. Consider how to describe your needs and investment opportunities to attract interest from investors, and how can you can enhance the effectiveness of your community investment efforts and your ability to attract investments.
There are several key steps to consider to ensure your community is ready to absorb capital investments. According to the Initiative for Responsible Investing at Harvard University and Living Cities, five core functions are required for successful community investment efforts:2
- Vision and legitimacy to ensure that investments will meet community needs.
- An enabling environment consisting of policies and support tools to facilitate investments.
- A pipeline of deals and projects to support the community goals.
- Management and monitoring of projects to ensure financial and social performance.
- Innovation to strengthen and improve community investments over time.
To support these core functions, consider taking these steps:
- Clearly define your goals, needs, and potential improvement projects (see Step 1). In particular, having a good sense of the expected results and the timeframe is important for attracting investment capital.
- Work with potential partners (see Steps 2 and 4) to identify policies and tools needed to support investment transactions, such as subsidies and incentives, outreach and training, data and analysis, and coordination to boost the demand and effectiveness of community investment.
- Ensure your community's backbone organization has a robust system for managing, monitoring, and improving efforts over time, which will help assure funders about the viability of their investments.
2 Harvard University Initiative for Responsible Investing and Living Cities, "The Capital Absorption Capacity of Places: A Self-Assessment Tool," Version 3.0, February 2013,iri.hks.harvard.edu/. Exit
- Step 4. Engage Partners
Identify and engage diverse financial partners for both short- and long-term needs, planning for partner engagement by clearly articulating your needs and learning about your partners' interests. Successful engagement of partners takes time and thoughtful planning. Do research to understand partners' mission and needs. Remember to engage partners for more than financial gain and have in mind your needs from Step 1. Be prepared to describe mutual benefits and be transparent about what you know and do not know – be clear about risk. Continue to foster your partner networks so that the right partners are engaged at every stage of your initiative. Consider these questions when engaging partners:
- How do your needs and program impacts align with your partners' mission and interests?
- What data or metrics do your partners need to measure investment success? How can you plan for future investment by collecting meaningful metrics?
- What are opportunities to broaden the impact of your work by considering expanding your focus to include elements that align with the ongoing work of your partners?
- Step 5. Explore Different Types of Funding and Financing
Use the data you collected in Steps 1–4 to look critically with your partners at different funding and financing options. Consider whether more than one mechanism should be pursued. It's never too early to plan for future financing needs. Programs with incomplete evidence about expected benefits may need to engage a diverse mix of investors to mitigate the investment risk and build the evidence base. For example, foundations might invest early without an expected return. This limits the risk for future investors as this early investment can help build evidence, including metrics relevant to private equity investors.
SELECTED FINANCING OPTIONS
Three underutilized financing sources your community could consider are profiled below. Other potential sources of funding include, but are not limited to, the following: grants from foundations or government agencies, public budget allocations, public guaranteed lending programs and revolving loans, loans from banks or credit unions, angel investors, venture capital firms, crowd funding, tax credit enhanced financing, and fees for services.
Industrial Development Bonds
Private & Non-Profit Resources
- Community Foundation Field Guide to Impact Investing Exit
- Candid Exit
- Mission Investors Exchange Exit
- Nonprofit Finance Fund, Pay for Success Learning Hub Exit
- Social Finance, Inc. Exit
- Third Sector Capital Exit
- Council of Development Finance Agencies, Federal Financing Clearinghouse
- Database of State Incentives for Renewables & Efficiency (DSIRE) Exit
- Export-Import Bank of the United States
- U.S. Department of Agriculture's Rural Business Development Grants
- U.S. Department of Agriculture's Business and Industry Loan Guarantees
- U.S. Department of Agriculture's Community Facilities Program
- U.S. Department of Agriculture's Rural Business Investment Program
- U.S. Department of Agriculture's Rural Energy for America Program (REAP)
- U.S. Department of Agriculture's Rural Economic Development Loan and Grant Program
- U.S. Department of Housing and Urban Development Community Development Block Grant (CDBG) Program
- U.S. Department of Labor's Employment and Training Administration Workforce Development Grant Opportunities
- U.S. Department of Treasury New Markets Tax Credit Program
- U.S. Department of Treasury State Small Business Credit Initiative (SSBCI)
- Step 6. Combine and Integrate Financing Options
A hybrid or stacked approach to financing your E3 initiative may help meet diverse programmatic needs and garner sufficient support. For example, your initiative may combine grants, subsidized fee-for-service technical assistance, loans, credit enhancements (investments to buy down the interest rates of a loan), and/or tax incentives.
Funders may be interested in different stages or aspects of your initiative and consider it an advantage that you are engaging more than one type of funder. Think creatively and with long-term goals in mind to combine financing strategies.