New regional bank aims to grow Appalachian economy
MORGANTOWN, W.Va. -- Mike Hurley had a great opportunity: He could multiply sales and staff by converting his metal-stamping business from one that made brackets for the automotive industry into a top-tier supplier of satellite dishes to DirecTV.
He also had a problem: Highlands Diversified Services is headquartered in small-town Appalachia, a place where big banks readily lend money for houses, cars and refrigerators but shy away from business loans. Louisville, sure. But not London, Ky., population 8,000.
"There's a stigma in Appalachia that says, 'You're profoundly rural, you're profoundly uneducated and you're remote, and we're not going to spend the time to get in there and provide you the financing,'" said Ray Moncrief, who stepped in with a $6 million line of credit through a local community development fund, the Kentucky Highland Investment Corp.
Lenders like him, determined to improve the economy, one small business at a time, are about to get a big boost. On Friday, the Appalachian Regional Commission announced the formation of a new central bank to serve them, a go-to source of money called Appalachian Community Capital.
It's being held up as a model for other underdeveloped regions at the Clinton Global Initiative conference in Chicago, where ARC said it will invest $3.4 million to get the central bank off the ground. It's firming up commitments for another $39 million from philanthropic foundations, public investors and large commercial banks.
Over the next 24 months, ARC plans to leverage $233 million in private capital to create a projected 2,200 jobs in the 13 states the commission serves.
ARC is a state/federal economic development partnership created by Congress in 1965 to help build sustainable communities in a region beset by poverty and poor health. Its mission is to grow job opportunities and income, bringing Appalachia to parity with the rest of the nation.
ARC funds several hundred projects a year, ranging from tourism and telecommunications to highway construction and housing. The region itself stretches from Southern New York to Northeast Mississippi, and it's home to about 25 million people.
In 1965, one in three Appalachian residents lived in poverty. By 2008, the number had fallen to fewer than one in five. And while 223 counties were once labeled "economically distressed," ARC says that figure is now 98.
Challenges to competing in a global economy remain, though.
"We've recognized there is a chronic credit crunch in some of these distressed areas," said ARC federal co-chairman Earl Gohl. "This is a way to connect Wall Street with Appalachian Main Street. It gets access and capital into these communities."
The central bank also follows the region's formula for success, Gohl said. Communities with common needs collaborate to create their own solutions.
The 13 community development funds that make up the new central bank's board of directors understand "we can do things better together than we can individually," Gohl said.
Studies have shown that small businesses in Appalachia get loans at lower rates than the rest of the country -- 60 percent less in the most distressed counties. Also, ARC says less than 1.5 percent of professionally managed venture capital each year is invested in the region, which encompasses all of West Virginia and parts of 12 other states.
"We've had banks come to us and say, 'We love what you're doing. As soon as you come to Virginia or North Carolina or whatever, give us a call. We can't support you in that market,'" said Marten Jenkins of Natural Capital Investment Fund in Shepherdstown, W.Va.
Either those banks don't have a "footprint" in West Virginia, he said, or they have minimum loan amounts too large for his clients. They include, for example, the owners of Renick Millworks in a sparsely populated Monroe County town on the state's southeast border with Virginia.
Renick Millworks is a small, family-owned company that reclaims wood to produce unique and antique wide-plank flooring, beams and timbers. Heavily invested in web-based marketing, it also sells old buildings and antique building products from around the country.
"They've created this incredible product and have been able to sell it all over the country," Jenkins said. "We have smart, passionate people here, and with a little assistance and some money, they can do a lot."
Moncrief's much older community development fund began in 1968 as an outgrowth of President Lyndon Johnson's "War on Poverty." He gets requests every day for as little as $500 and as much as $10 million from people who can't otherwise get a loan.
"There's no one who will finance a big piece of equipment unless it's a front-end loader for the coal industry," he said.
Someone has to, though. Where banks see balance sheets that don't hit a certain threshold value, lenders like Moncrief see a few jobs. Maybe a few dozen.
"The old community banker would say, 'Your credit score isn't so good, Joe, but I knew your daddy and your granddaddy, and we need your business here in town.' That's what we do," Moncrief said. "We have stepped into the shoes of the old-time community bank. We look at companies that aren't quite bankable."
Mike Hurley is grateful for that.
Today, Highlands Diversified Services has 260 employees, about 80 more than two years ago, and it's cranking out 2 million satellite dishes a year.
"Like most parts of Eastern Kentucky, jobs are really, really needed here," Hurley said, "and it's been a good thing for the community and a great thing for our company.
"You always have to reinvent. The needs change. The expectations of the customer change. The world economy itself changes."
Reinvention, Hurley said, requires money.
Moncrief and Kentucky Highland "were able to work with us because they understood our needs in this area, and they understood our company," he said. "At the time, I do not believe we could have gotten it anywhere else."