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Native Americans living on reservations across American face challenges in establishing viable businesses, creating jobs, obtaining reliable services, and accessing fresh foods. These conditions are intertwined. Efforts to improve this situation need an approach that addresses more than just one facet, and the Lakota Funds Visit disclaimer page community development financial institution did just that; it was awarded a CED grant to develop new businesses, expand existing ones, and improve individuals’ job skills.
Among the challenges that Lakota Funds faced, poverty is likely the most relentless. The official poverty rate for Native Americans living in reservations stands at over 28%, almost double the official poverty rate of Americans nationwide. Per capita income for residents of reservations is half of the national per capita income rate. The conditions on the vast Pine Ridge reservation of the Oglala Sioux Nation are even worse. At 3.5 million square miles (bigger in land mass than Delaware and Rhode Island combined), Pine Ridge is the eighth largest reservation in the country, but it is the poorest. Its unemployment rate hovers at about 80%, and its poverty rate is 49%. Per capita income in Shannon County, the county that includes much of the reservation, is about $6,300, reportedly the third poorest county in the U.S.
Lakota Funds was created in 1986 by Native American leaders to help address the issue of economic and business development with an understanding that viable businesses are necessary to sustain jobs. The Funds took a multipronged approach, including creating a loan fund, establishing a credit union, providing technical help for business entrepreneurs, and offering financial and life skills training for reservation residents. The Lakota Funds is the first U.S. Treasury-recognized Native American CDFI. Its loan fund portfolio alone has grown to more than $6 million. Its credit union, conceived in 2009, received its federal charter in 2012.
In 2000, with the hiring of a new executive director, Lakota Funds increased its focus on business lending to support new job-creating businesses and expand the few existing firms on the reservation; the reservation had only 13 businesses per 1,000 residents at that time, while the whole of South Dakota had 83 businesses per 1,000 residents. One of the problems within the reservation is that no bank was doing business lending. Since the 2000 expansion, the Lakota Funds have increased business lending 15% a year, while also reducing delinquency among borrowers. These figures suggest that its lending has helped to create 1,000 jobs for Pine Ridge residents.
Growth of the Lakota Funds’s business lending follows a pattern experienced in its other loan programs. Several years ago, for example, the Funds began making Credit Builder loans—small loans to help residents build their credit records and thus qualify for more traditional loans from larger institutions. Often, the borrowers used the funds to pay off high-interest loans they had taken out for household use. This program was one of the drivers for creating the credit union that received its charter in 2012. The credit union, now independent of Lakota Funds, has more than 1,000 members and makes consumer loans, freeing Lakota Funds to target business lending.
The Lakota Funds also created two specialized loan products to help families and other entrepreneurs build their credit while also building business savvy. A tool loan program, begun about 2010, provides small loans of about $1,000 to help people buy tools to become more employable in construction and other fields. It then used the same formula, which included awards of half loan and half grant, to qualified borrowers to support garden loans. With these loans, borrowers could start or expand small gardens, buy fencing or equipment, and get training in farm techniques. As a result, about 20 small farm outlets were created within the reservation.
CED Grant and Program
As the Lakota Funds Executive Director Tawney Brunsch says, “Given our history, the CED grant was a perfect fit for us.” The award of $765,828, made in 2009, enabled the Lakota Funds to expand its business lending and also work with potential employees of businesses receiving loans. The grant, in Ms. Brunsch’s words, “helped us start and expand businesses and build skills toward long-term employment.” One goal of the grant was to create 45 long-term sustainable jobs for low-income individuals.
The organization used a two-prong strategy to implement the CED grant program—lending to new and expanding businesses and coaching for the entrepreneurs. The work largely targeted two types of businesses—fresh foods and construction. The food industry was targeted to increase the supply of fresh food to reservation residents. Construction was a large business on the reservation; a great deal of construction was being done and since 2009 it has generated the most jobs on the reservation of any industry. However, most construction jobs had gone to non-Native Americans living off the reservation.
Lakota Funds recruited several coaches to help local entrepreneurs understand the basics of business. The organization had some experience in key training areas, given its involvement in lending, developing the credit union, and operating programs, such as an HHS/Assets for Independence-funded individual development account (IDA) program. It also sought outside expertise to help entrepreneurs get help in business law, accounting, and specialized business planning.
Lakota Funds established an extensive range of training courses that were responsive to local needs, ranging from accounting, licensing, and business planning to construction skills, fresh food production and handling, and office and retail skills. Some low-income clients also received credit and budgeting training, as well as financial literacy education courses.
With training in place, the organization sought out potential new businesses or businesses ripe for expansion. It had a solid potential set of businesses because it had been one of very few institutions making loans to businesses on the reservation for years. Starting with three initial businesses in the CED program, Lakota Funds expanded its roster to seven.
Lakota Funds had worked with Deadman Hands Company since its start-up as a roadside farm market. The Native-owned company initially established a farm market to provide fresh produce to reservation residents (helped along by a Lakota Funds garden loan). With Lakota Funds help, through this CED-funded project, it expanded into a coffee shop and curio business that catered to reservation visitors, even as it continued to sell fresh food to residents. Along with business training for the company owners, Lakota Funds also helped train new employees in becoming cashiers and servers.
Several other food-oriented businesses benefitted from the work of Lakota Funds under its CED grant. A Native-owned Subway restaurant franchise was assisted to expand into a second location, increasing as it did so from one employee when Lakota Funds started work with the organization to 29 full-time employees as of the close-out of the CED grant. These restaurants have the only healthy fast food offered on the reservation.
Another project success has been among the several construction businesses helped. Half of the firms assisted by Lakota Funds perform construction work. Like all of the Lakota Funds-assisted businesses, these construction firms are Native-owned and concentrate on providing services and jobs located on the reservation and to its residents. One successful company is Ferguson Construction, a start-up company that added four positions during the last year of the CED project. Another successful company, Murdock Electric, provides cable, fiber optic, alarm system installations, and HVAC work. As Ms. Brunsch said, “Murdock has been one of our stars; they have used every one of our programs.” It shows. The company went from 14 employees to 35 at the time of the CED project close-out. In part, it received assistance through a $300,000 line of credit loan (LOC) from Lakota Funds, the maximum amount it currently provides to businesses. This LOC loan allowed Murdock to qualify for bonding so it could seek larger projects.
Lakota Funds’s grant proposal indicated that it would create 45 full-time positions for low-income people and assist three businesses to expand. After three years, it actually assisted seven businesses, which in turn created 75 full-time job positions. Over that same time period, Lakota Funds leveraged over $2.5 million in other, non-CED funds to expand its training and loan funds and trained 63 low-income individuals in job skills. It has, for example, built a new driver education program for truck drivers working with an off-reservation partner.
Why Did This Project Succeed?
Lakota Funds was a major lender to local businesses, perhaps the only one open to many smaller and new businesses. The organization, being Native-run itself, had a cultural affinity with the entrepreneurs with whom it worked. Lakota’s Ms. Brunsch suggests that this contributed to the long-running relationship it was able to form with Deadman Hands, Subway, Murdock Construction, and others that have returned to use more than just one Lakota investment.
In addition, it balanced its lending with training, both for the new owners and their workers. The organization understood that capital is a necessary component for a successful business, but skills are essential as well. Lakota Funds, therefore, used its resources to develop a variety of trainings that business owners needed and from which potential employees could benefit to succeed at available jobs.
Furthermore, Lakota Funds had a handle on the type of partners the businesses would need to survive and thrive. It had good relations with the state Temporary Assistance to Needy Families (TANF) office, the federal Small Business Administration training and small business development center, the tribal college system and chamber of commerce, as well as agriculture and extension services run by the State of South Dakota. These partnerships brought training, connections for the businesses, and also helped the organization get the word out about its program and clients.