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History
of The Rural Enterprise Assistance Project (REAP)
The rural Midwest
suffered through difficult economic times during the
1980's and early 1990's as a result of the farm crisis.
High interest rates and low prices for traditional farm
commodities caused many farmers to sellout. Consequently,
rural communities suffered as population declined and
demand for products and services was reduced. Rural
communities sought out economic development strategies to
replace the losses suffered due to changes in the ag
economy.
The Center for Rural
Affairs conducted a study of economic development
approaches in the Middle Border states (Minnesota, North
Dakota, South Dakota, Iowa, Kansas, and Nebraska) in 1989.
This study, "Half a Glass of Water", found a
high rate of self-employed individuals in the rural areas.
The Center found that 48%
of all earned income in farm based counties was from farm
and non-farm proprietorships. This was 70% higher than the
comparable rate from other rural counties and five times
the rate of metropolitan areas. Twenty-seven percent of
non-farm income came from self-employment.
The Center determined
that traditional economic development was focused on
factory recruitment. Nebraska has over 400 communities
with a population of 2,000 or less. These communities did
not have the population base to provide workers for a
factory and were, thus, left out of economic development
at the time.
Economic development
programs did not recognize micro businesses (those with
five or fewer employees and lending needs less than
$25,000) as a viable approach to development. For example,
Nebraska passed LB775 in 1987 to provide tax incentives
for large corporations to expand or relocate to the state.
This bill had cost the taxpayers of the state over $1
billion by the year 1996. The rural area comprises 42% of
the state's population but received 16% of the investment
from LB775.
The Center held focus
group meetings of micro business owners to explore their
needs. Three gaps in services for micro businesses were
identified: training/technical assistance, lending, and
networking.
The Rural Enterprise
Assistance Project was started in January 1990 to fill
these gaps (see Diagram 1).
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| Diagram
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Center staff traveled to
several micro program sites throughout the United States
to attend training and observe the process. From these
experiences and extensive reading a preliminary idea for a
service model was created. The concrete idea evolved from
one-on-one meetings with micro businesses, gathering their
input as to how the program should work.
REAP staff traveled to
Cedar Rapids, Nebraska (population 400) in the Fall of
1990 to begin formation of the first REAP association.
Micro business owners and community development staff from
Cedar Rapids had been involved in the initial focus groups
and requested that they be the first site for development
of a REAP association.
Staff made several trips
to Cedar Rapids (2 1/2 hours from Walthill). An initial
group of eight members worked with staff through an
orientation process. This process involved familiarizing
members with lending applications, collecting base line
data on members, developing bylaws for the association,
electing officers, and a thorough understanding as to how
the lending process would work.
REAP asked the community
to make a donation to be used for lending capital to
association members. The community donated $1 for every $2
of REAP money. A total of $7,500 was placed in a local
bank for lending.
Lending
Peer Lending -
In December of 1990 the first loan of $1,000 was made
using a step-up, peer lending model. Under this model the
first loan could be for no more than $1,000 and did not
require collateral or prior training. Members completed a
loan application and made a loan presentation to fellow
members at meetings. Members would then vote on the
approval of the loan. If the loan was approved it then
passed to a Loan Review Committee made up of the
chairperson of the association, a community representative
(the association voted on who this person should be) and a
REAP staff member. If the loan was approved the treasurer
would then write a check.
Members made payments to
the association treasurer at the meeting and the treasurer
deposited the checks in the bank. An accounting of this
activity was forwarded to REAP.
In 1992 REAP made a
decision to apply for loan capital under the Small
Business Administration's Microloan Program. Participation
in this program insured that adequate lending capital
would be available to meet lending needs of members in the
future and provided valuable grant money for delivery of
technical assistance to borrowers.
Under the SBA microloan
program, REAP served as an intermediary with a single bank
account in the Plainview, Nebraska Bank. This required
that REAP make loans directly to the individual borrower,
rather than have association treasurers write the check.
Making this change
provided opportunity for both REAP and the associations.
With the addition of additional associations, REAP staff
were finding increasingly more difficult to track program
money that was located in banks throughout the state. The
quality of reports varied from treasurer to treasurer and
from bank to bank.
The association members
now had access to more money for lending. The policies and
procedures were changed so that REAP would guarantee a
line of credit for loans in a ratio of 1 to 10. For every
dollar the association placed in a loan loss reserve
account in their local bank, REAP would give them access
to $10 dollars of lending capital. The ceiling for loan
loss reserve accounts was placed at $2,500, giving
associations access to a maximum of $25,000. In subsequent
years REAP decided to allow associations to increase
beyond the $2,500 depending on lending needs.
A potential borrower
completes a loan application and mails it to a REAP field
staff for review and fine-tuning prior to the monthly
meeting. At the meeting the borrower does a presentation
to other members.
Direct Lending -
REAP staff made a decision in 1999 to expand the lending
portfolio to provide direct loans to individuals. This
decision developed from experience in trying to meet the
needs of a growing micro sector.
Peer borrower businesses
often grew beyond REAP lending limits, but were not
eligible for loans at the local bank. And in areas where
there were no REAP associations, individuals that could
not access a loan at the bank did not have access to
lending capital.
The direct lending
program was piloted in 1999 and it was decided to make it
a permanent part of the project. Individuals may now
access loans up to $35,000 for their businesses.
Training/Technical
Assistance
In the first years of the program, REAP staff presented a
five session (15 hours) training class to members. This
training normally took place in the second or third month
following association formation.
Topics covered in the
training were marketing, advertising, promotion, goal
setting, customer relations, personality preferences, and
financial management. Association members then took
responsibility for bringing additional training to future
meetings. Associations have had speakers from within and
outside the association speaking on a variety of topics
from selling at trade fairs to legal requirements for
businesses.
REAP sponsors a once a
year annual conference for all members. This conference
provides an opportunity for members to attend workshops on
topics of interest to micro businesses, receive
information on the REAP program, and provide information
for REAP staff on what they would like to see in the
future.
The conference provides
an opportunity for members to network with micro
businesses from across the state - both other REAP members
and general public.
In 1996 four associations
in Southeast Nebraska joined together to plan and present
a one day "REAP Fall Conference" in Nebraska
City. Their main goal was to provide another
networking/training opportunity to micro businesses.
REAP staff provide
one-on-one technical assistance to members at association
meetings, at the business site, over the phone, and at
REAP offices. A valuable technical assistance offered is
the review of loan applications with members prior to
their presentations at association meetings. This provides
them the opportunity to fine tune any questions and gather
valuable input.
Networking
From 1990 to 2000, REAP had formed 49 associations in
Nebraska, Iowa, Kansas, and South Dakota. A total of over
2000 people have participated in associations.
Association members meet
monthly for training, repayment of loans, reviewing loan
applications, etc. REAP staff attend these meetings
quarterly to assist with any questions, serve on the loan
review committee, and bring new information to members.
REAP began hiring field
staff positions in 1993 to make it possible for staff to
reach more distant areas of the state. REAP has divided
the state in five areas with staff available throughout
the state to serve individuals within a two hour distance
of their business. Community contact persons are
volunteers from the community who assist in finding
members and loan loss reserve donations in the early
stages of the association but they do not have a long-term
connection to the association in most cases. Association
members welcome staff visits with ready access to
technical assistance and training.
REAP Women's Business
Center
The Center and REAP staff were notified in January 2001
that the Small Business Administration has approved annual
funding for REAP to establish a Women's Business Center (WBC)
program for rural Nebraska. It's an exciting opportunity
to help REAP enhance its outreach and work with small
businesses across the state. This will be a first for
Nebraska since no other organization has received such
funding for this purpose. The WBC program work will begin
approximately July 1, 2001 to coincide with the available
funding.
In the proposal submitted to SBA by REAP, the WBC service
center was described as a center without
"walls". REAP will use its existing
infrastructure with business specialists located
throughout the state to deliver the WBC services in
conjunction with our current services to rural small
businesses.
Through out the 5 year period REAP expects to serve 400
women currently in business or potential startups. REAP
staff across Nebraska will be heavily involved in the WBC
training activities so they can assist clientele with
one-on-one business technical assistance as needed in
follow-up.
REAP's objective through this program will be to continue
to refine and update its programming to meet the needs of
today's startup and existing women entrepreneurs.
Entrepreneurs of the
Future Camp
REAP members requested that REAP develop a program to
assist youth in their communities in learning about
entrepreneurship. Their concern was that youth were
leaving the rural community without being exposed to
self-employment as a possible career option and that high
school youth needed help in developing businesses that
could provide spending money while in high school.
REAP joined with the Center for Entrepreneurship at the
University of Nebraska-Lincoln to develop an
entrepreneurship camp for high school youth. Entrepreneurs
of the Future Camp was held in 1995, 1996, 1997, 1998,
1999 and 2001. The camp was expanded to a Kearney site in
1998 and future expansion is planned to a third site in
the Panhandle.
REAP Entrepreneurial
Development for Youth (REDY)
In 1996, REAP developed a model to bring entrepreneurship
training to high school youth as part of the high school
curriculum. REAP staff meet with school administrators,
teaching staff, youth, and representatives from the
community to discuss the needs for entrepreneurial
training and help design a model for the delivery of
training and lending to high school youth. A total of
eight schools had worked with REAP in this pilot as of
1998.
This work is continues through the School at the Center
Project. Schools that are interested in offering an
entrepreneurship curriculum are referred to the School at
the Center. The School at the Center and Black Hills
Special Services implement the services that include the
entrepreneur component or REDY (REAP Entrepreneur
Development for Youth).
4-H Youth
Entrepreneurship
In the Spring of 1996, REAP co-sponsored a pilot project
in 4-H youth entrepreneurship with the Cuming County,
Nebraska Extension Service Office. Realizing that schools
would have REDY available in the future, but that not all
schools would participate, staff explored options for
reaching individual youth. Five workshops on basic
business management were conducted for youth who had been
contacted through the 4-H program. Each youth developed a
plan for a business idea based on a favorite personal
skill. An adult mentor was assigned to each youth to
assist in development of the business plan. This
experience was documented for replication by Extension
educators in other areas of the state. During 1997/98 REAP
staff worked with Extension to develop a curriculum for
use in the 4-H program in the future. This curriculum has
been piloted in select counties and will be shared with
all Extension staff at inservice training.
Nebraska Microenterprise
Learning Project
REAP staff developed a survey tool for use in gathering
information from programs throughout the state in 1995,
1996, and 1997. This work, conducted for the Department of
Economic Development, provided valuable information for
educating the public on microenterprise.
Microenterprise
Practitioner Training
In order to respond to more detailed requests for
information on the workings of REAP, staff developed
practitioner training. This training was initially focused
in Nebraska but spread to involve individuals from other
states who were interested in beginning micro programs.
REAP staff conduct workshops at Nebraska Enterprise
Opportunity Network and the Association for Enterprise
Opportunity annual meetings.
Nebraska Microenterprise
Partnership Fund
A goal of the REAP staff from early in the program was to
make work with micro businesses sustainable in the state
so that individuals would have access to services
long-term. In 1993 the project held a meeting of statewide
networks from around the country to gather information for
the development of a system that would work for Nebraska.
The Nebraska Microenterprise Partnership Fund was started
from this work and now serves as an independent statewide
(rural and urban) intermediary for support of
microenterprise programs. This fund makes it possible to
gather larger sums of money that individual programs may
use in covering operational and lending activities.
Nebraska Enterprise
Opportunity Network
During 1994 REAP assisted in training other agencies in
micro program development in Nebraska. It became apparent
that an association of micro program practitioners would
be beneficial to strengthening these programs.
The Nebraska Enterprise Opportunity Network (NEON) was
formed with a membership of 54. This organization provides
staff training, conducts policy work, and provides an
opportunity for networking amongst programs. The 1997
Association for Enterprise Opportunity (AEO) Conference
was sponsored by NEON in Omaha. REAP staff served as
co-hosts of this event.
Nebraska Microenterprise
Development Act
In 1997, REAP played a leading role in passage of the
Nebraska Microenterprise Development Act in the Nebraska
Legislature. This Act provided $250,000 per year for two
years for microenterprise programs to cover both operating
costs and lending pools. In 1999 REAP helped secure
renewed funding for this Act.
During the 2000 Legislative session REAP assisted other
Center staff in successfully passing the Agricultural
Opportunities and Value-Added Partnerships Act. This bill
contained an additional $250,000 per year for three years
for microenterprise programs.
Bank Linkages
REAP has received support from local banks in a variety of
ways:
- Banks often make donations to the local loan loss
reserve to make it possible for the association to have
access to greater amounts of capital.
- Bankers serve on REAP's Advisory Committee.
- The banks often refer new members to the association.
- Bankers have written letters of support to Legislators
to encourage support for microenterprise programs.
Consortia Building
Growth of the REAP project has been facilitated through
consortia building. This approach was first used in
providing business training through consortia with the
Center for Rural Revitalization at the University of
Nebraska and Community Colleges in Columbus, Norfolk,
Lincoln, and North Platte.
REAP has also used a consortia building model to apply for
Community Development Block Grant funds to cover operating
costs for field staff positions. Consortia members
included Development Districts, RC & Ds, community
action programs, county/city governments, and local
economic development organizations.
Major Findings
Through the eleven year history of REAP several
perceptions have changed regarding delivery of services to
micro businesses in rural areas of the Midwest. Among the
findings of REAP are:
- Small, local communities have the capacity to provide
both organizational and capital support for the project.
- Local capital contributions give community and
association members ownership of the local effort. They
become active, creative partners in shaping the local
association and recruiting members. They also assume
on-going responsibility for association development.
- The local contribution also creates an additional
repayment dynamic since members who assist in raising the
local match feel a responsibility for maintaining the
integrity of the loan loss reserve.
- Small town micro and start-up business owners in small,
farm-based communities in rural Nebraska readily accept
group-borrowing methodology.
- Small loans (less than $25,000) can make a major impact
on the profitability of micro businesses.
- A majority of members do not borrow money, consequently,
the program cannot rely on lending revenue as a major
source of operating funds.
- Association meetings provide an opportunity for
networking which often builds the confidence level with
regards to business management.
- Association members are quick to accept responsibility
for association formation and management of proposed
association structures and procedures.
- Group structures and open-to-the-public business
training sessions reinforce community ownership, create
high project visibility, and provide a vehicle for
on-going recruitment of new members.
- Micro businesses have a need for just-in-time technical
assistance. A little information at the right time makes a
big difference for a small business.
- REAP has found it necessary to broaden services as they
learn more about clients.
- There is an ongoing need for training for businesses.
- The idea of entrepreneurship is new to high school
youth. With business management training youth quickly
develop ideas for profitable businesses.
- School administrators, teaching staff, and community
leaders understand and readily embrace the idea of
entrepreneurship training for youth.
- Building consortia with other programs provides added
resources and improves program efficiencies.
- Long-term sustainable funding sources for micro programs
are important if micro businesses are to be allowed the
opportunity to grow.
- As traditional private funding sources decrease support
for microenterprise programs it is vital that states step
forward to support this work.
- Association activity is difficult to maintain. Strong
leadership is key to the success of the local group.
- Association members are receptive to becoming more
involved in policy work. They are willing to take
positions on greater Center committees and boards.
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