PORTLAND, Ore. - It's never been easy to do business in Indian country. Sovereign immunity, an essential right of tribes, inhibits banks from making loans to tribes or tribal members.
Rural lands held in trust make poor collateral. Lack of business experience and non-existent credit history are usually the final blows to many tribes seeking to develop an economic base.
Government funding, grants and internal financing to develop business enterprises have been the main options - a tough and slow way to go.
But innovative financial programs, recently developed by the Affiliated Tribes of Northwest Indians' Economic Development Corp., are helping establish a viable credit base for ATNI's 52-tribe membership.
The Economic Development Corp., a 501 C3 non-profit organization, recently established a Revolving Loan Fund program to serve as an economic bridge between member tribes and lending institutions throughout the Northwest.
Developed by financial consultant Charley Wagner, the Revolving Loan Fund creates a way for banks that would like to be involved in making loans to tribes get around barriers set up by regulatory agencies because of the high-risk credit status of tribes. Calling the program a "delivery system," the Revolving Loan Fund enables the corporation to stand as an intermediary and partner with tribes in business enterprises.
Start-up capital is loaned to the corporation. Because the organization is non-profit, it qualifies for loans under the EQ2 or Equity Equivalent Investment program. The corporation carries the loan as a liability. But the banks, under EQ2, get to carry the very same loan on their balance sheets as an investment.
The corporation then turns around and re-loans the money to the tribe(s) from the Revolving Loan Fund.
"The CRA (community reinvestment) people are happy because you invested in a community development organization that knows how to do business on Indian land," says Wagner, now the corporation's director of banking and financial services. "The risk people come in and say, 'Well, OK, it's an investment. That's fine. ... They don't look that hard at it."
All corporation loans are strictly for affiliated tribes' approved regional development operations.
One of the advantages the corporation has is flexibility. While assessing potential loans to member tribes, it can consider factors a bank cannot. The character of the tribe, the expertise and character of the management of the tribal enterprise, the efficiency of the tribal court system, can be factored into the loan equation by the corporation. Banks and savings and loan organizations are only concerned with credit history, the "numbers" and ease of collection on collateral.
Another advantage is support. Unlike banks that simply loan funds and hope for the best, the corporation works with tribes to supply necessary financial education and advice when needed. Its loans are backed with something that counts - knowledge.
At present, the corporation has four different tribes applying for loans. The non-profit corporation depends on grants and annual fees from ATNI-member tribes to cover costs of running the loan program. But, as loans are established, the income generated by re-lending the monies will quickly become the program's main support.
"The banks get CRA credit if they make below market interest rates loans," Wagner says. "So we're looking at our loans coming in as low as maybe three percent up to six or seven. And then our loan rate starts out somewhere around six and goes up from there, depending upon the risk involved."
While dedicated to making low-interest loans available to tribes, to become a totally self-sufficient operation, Wagner estimates the Revolving Loan Program needs to have about $3.5 million outstanding in its loan portfolio at any given time.
With the first loan being processed within two or three months and plenty of interest from tribes, the program's first benchmark goal of $5 million should be easy to reach, Wagner said.
An added advantage for the fund is other economic programs the corporation has in the works.
As a wholly-owned subsidiary of the Affiliated Tribes of Northwest Indians, its overall purpose is to promote tribal sovereignty through regional economic and community development. Since its creation in 1996, the corporation has been mandated by ATNI-member tribes to focus on loan development, energy, tourism and telecommunications.
"One program actually intertwines with the other," says Donna Lucas, executive director. "The RLF program has taken off really well. ... This year the big push in energy was RTO - the formation of a regional transmission organization. And ...we're looking at applying for a tourism grant for a regional program."
As programs develop, ATNI members can use the Revolving Loan Fund as a ready source for start-up capital. Thus the fund and the tribes support one another.
It is exactly this kind of ground-breaking, complementary regional economic development that can make a difference in the business end of Indian country.