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Main Street Retailers' Economic Development Tools

I just came across your article on cities proactively helping locally owned businesses. Can you give some examples of incentives and financing tools that cities can use to keep their downtown stores filled? Our struggling town is looking for any new ideas that might be out there. —C.F., Princeton, Minn.

This is a great time to be looking for ideas: Throughout the recession, communities around the country have come up with creative strategies to help support small businesses. From crowdfunding to innovative loan programs, government and private groups have worked together to preserve core shopping districts and historic downtown centers, says Kennedy Smith, principal at Community Land Use and Economics Group, an economic development consulting firm in Arlington, Va.

“The basics are important,” Smith says. “The district’s management program should have and use a current retail market analysis. Any regulatory barriers to downtown business or property development should be removed. The city should be committed to funneling new development downtown, rather than permitting development of new commercial centers [outside the district].” In order to keep downtowns vibrant and provide a built-in local market for small retailers, city zoning should aggressively encourage development of upper-floor housing above downtown businesses, she adds.

Along with those priorities, small businesses often need technical assistance to help them boost sales and develop new distribution channels. Your local economic development agency or business improvement groups should think about scheduling workshops on topics such as online sales, selling on a wholesale basis to local and regional retailers, making local deliveries, and adding vending machine sales, Smith suggests.

Here are some examples of local economic development tools that you might emulate:

Establish a business improvement district. In Pasadena, Calif., the Pasadena Playhouse District Assn. compiles demographic and market analysis, plus information on properties available for sale or lease, that it shares with current and prospective business owners. “We’ll meet with anyone interested in moving into our area, help them get traffic counts, local transaction numbers, and what local rents are going for,” says Erlinda Romo, the nonprofit association’s executive director. “We want to help them make financial decisions based on accurate numbers.”

Her association also works to provide enhanced maintenance and security services, as well as sponsor special events such as public art projects and annual cultural festivals. “In a downtown, whether they are independents or national chains, every business succeeds or goes down together; the businesses are very interdependent,” Romo notes.

Set up forgivable loan programs. In communities that include Mobile, Ala., and Waterville, Maine, certain businesses that comply with particular guidelines—such as staying open a certain number of hours per week—can get five-year forgivable loans up to $50,000, Smith says. “Participating businesses make interest-only payments, with the principal balance reduced by 20 percent each year, thus being forgiven after five years.” Funding for the programs comes through an economic development tool used by municipalities and known as “tax increment financing.”

Subsidize early loan payments. The Winston-Salem, N.C., “restaurant row” program targeted a high-vacancy downtown block, attracting eight new restaurants to locate there. Two local banks participated by putting up 70 percent of the startup capital needed, and the city’s Community Development Block Grant program provided $1.6 million to make loan payments for two years while the restaurants got established so they could begin paying back the debt themselves.

Encourage crowdfunding. Help local businesses raise money through established crowdfunding sites, such as, or by tapping local loan and investment clubs. The owner of Awaken, a coffee shop in downtown Oakland, Calif., “raised around $15,000 in initial capital by pre-selling gift cards that offered a premium to buyers,” says Smith. “Because a significant percentage of the cost of providing the products was the store owner’s labor, the cards were a much better deal for him than a loan would have been.”

Use technology for marketing and promotion. The Irvine, Calif., Chamber of Commerce used to mail out a 100-page “shop local” print directory that promoted local businesses. The booklets got less response in recent years, says Chris Lynch, the chamber’s vice-president of economic development and tourism. The chamber is joining with city government and a local developer to establish a mobile-accessible website that is scheduled to go live this quarter with coupons and listings of local businesses and neighborhood resources, as well as emergency alerts and notices from local schools. The goal “is to get our local community to refer first to this portal for information that is happening locally, says Lynch. “We will then be able to get our local residents to think about shopping locally and not going miles away to find deals.”

Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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