Lexington wants to give $5 million to small businesses. Here’s how it works.
The city of Lexington is moving forward with a $5 million forgivable loan program for Fayette County small businesses, despite some council members’ questions about how the program will work.
On Tuesday, a committee of the Lexington-Fayette Urban County Council voted unanimously to move the plan — the second business stimulus program in the past year — to the full council, which is expected to take its first vote at an April 6 work session.
Many council members had questions Tuesday about how the loans will be funded and awarded.
Last year, the first round of city small business stimulus grants of $2.3 million went to 168 businesses. That was a reimbursement program that helped businesses with coronavirus-related expenses, such as adding a patio or buying personal protection equipment.
The goal of that program was to set aside 50 percent for women- and minority-owned businesses.
The grants largely went to white women.
Under the proposal pending before council, up to $5 million in forgivable loans would be distributed. If a business meets employment goals as of Jan 1, 2022, the loan will not have to be repaid. Those employment goals include expanding or keeping jobs or increasing pay.
Those who do not reach employment goals will have to repay the loans.
What businesses are eligible for the COVID loans?
Businesses could receive up to $25,000. The goal of the forgivable loan program would be for 50 percent of the money and loans to go to women- and minority-owned businesses.
To be eligible, businesses must be:
- Located in Fayette County.
- Have no more than 50 employees, except for restaurants, which are allowed up to 100.
- Operating since Jan. 1 or earlier
- Up to date and in good standing with the city and state on all taxes
Nonprofits, limited liability corporations and sole proprietor businesses are eligible.
Commerce Lexington’s Access Loan program, which processed the first round of $2.3 million in grants, will receive and review all applications. Members of the Access Loan committee include bankers and other business leaders.
The money will likely come from federal stimulus funds the city is expected to receive. The city has not said how much money it will receive from the recently passed $1.9 trillion U.S. rescue plan.
Commerce Lexington will consider whether the applicants have received prior funding from state, local or federal small business stimulus programs as part of the application review.
Commerce Lexington received roughly 5 percent of the previous $2.5 million round of stimulus money. Under the current proposal, it will receive 7.5 percent or roughly $375,000 if all $5 million is awarded.
During Tuesday’s Budget, Finance and Economic Development committee meeting, some council members raised questions about the increase in administrative fees.
Vice Mayor Steve Kay said he wants to know details about how that $375,000 would be spent.
“That’s a lot of staff time,” Kay said.
Tyrone Tyra of Commerce Lexington said he worked 12 to 14 hours a day on the city’s first business grant program.
Tyra said Commerce Lexington would also have to track all the grantees to ensure they met the employment goals. That likely means hiring additional staff.
Councilman Richard Moloney said administrative fees on grants are typically 10 percent.
“It’s amazing he is only asking for the 7.5 percent,” Moloney said.
Under what conditions would a business have to repay loans?
Other council members said they would like to see more details about how the program will work before taking a final vote.
Councilwoman Kathy Plomin asked if a business hires three employees instead of the four it had pledged, would it have to repay all of the money.
Councilman Preston Worley, who pushed for the grant and loan programs, said it’s likely if a company only meets 80 percent of its goal, it would only have to repay 80 percent of its loan.
Kay said he also wanted to know more about how the loan committee would rank employee retention verses employment growth in the application process.
Councilman Fred Brown said he wanted to know more about the need for the forgivable loans, given the city’s previous $2.3 million grant program.
“How many businesses are we still looking at,” Brown said.
Worley said focusing on increasing employment or employment goals will help the city.
“In turn, this will help our budget,” Worley said.
The city is largely dependent on payroll taxes to fund road paving, trash pickup, police and fire and the basics of government.
Those payroll taxes have outperformed predictions as employment has rapidly rebounded since an April high of 14 percent unemployment. Eight months into the current fiscal year, those employment taxes are at $140 million, approximately $15 million more than the city expected, data released Tuesday showed.
As of Feb. 28, the city has only collected $57,000 less in payroll taxes than it did at the same time last year, which shows the city’s jobs and payroll taxes are on the upswing.
Worley said the $5 million program is still needed to keep and grow jobs.
“We are focusing these forgivable loans on job retention and creation,” Worley said. “More jobs and more thriving employers mean more payroll and net profit tax for the city, which means more and better services for our constituents.”
Worley said the city’s payroll and net profit tax on businesses are outpacing expectations, but those expectations were low. The city passed its budget in June, during the midst of the pandemic and a sharp decline in the taxes the city collects.
“Programs like our small businesses stimulus in the last budget saved jobs that we were worried we may lose,” Worley said. “Our local businesses are resilient and should be rewarded with an opportunity and the assistance to grow, having fought so hard to survive. “
This story was originally published March 16, 2021 at 4:24 PM.
