The way Sunrise Banks CEO David Reiling sees it, helping small inner-city businesses in the Twin Cities helps everyone
Sunrise Banks is not your average financial institution. With a focus on empowering inner-city small-business owners in the low- and moderate-income areas of the Twin Cities, the St. Paul–based bank has a social mission that drives its decisions. With the downtowns of Minneapolis and St. Paul on the verge of being connected by light rail, Sunrise Banks is making a concerted effort to encourage economic development along the upcoming Green Line, using its banking and technology savvy to help entrepreneurs who are otherwise underserved. We spoke to CEO David Reiling to learn more about the bank's mission, techniques, and plans.
Is Sunrise Banks a social enterprise?
It's very much a leading social enterprise in the community development bank space. We really have a triple-bottom-line type of focus. So people, planet, prosperity. But most of our doing well and do-good model, if you will, or mission, really comes from the social or community development space.
We're the first B Corp in Minnesota, and so our articles of incorporation do include more than just the shareholders. They include stakeholders, which would be community, environment, employees, et cetera, as well as the shareholder. From there, all our policies, procedures, and practices really get filtered on both a quantitative as well as a qualitative type of measure.
Being a bank, we do a lot of things on the quantitative side, in terms of how we measure performance. But we also measure qualitative factors, as well, so corporate governance, impacting the community, our employee engagement, our environmental stewardship, our stakeholder sentiment, and what we call product integrity.
And we also have another certification when it kind of gets down to those metrics. We are a Community Development Financial Institution, what's known as CDFI. There are only about 90 banks in the country that have that certification. There are actually seven criteria for that, but kind of the two big ones is that, first of all, you need to have a community-development mission. So our mission — to be the most innovative bank empowering the underserved to achieve—is the mission of the institution. The other [factor] is that you have to walk that talk. You have to have over 60 percent of your loans, let's say, or services in low- and moderate-income areas, as defined by the CDFI Fund. We have approximately 70 percent of our loans to date in LMI [low- and moderate-income] communities.
And then we kind of go on from there. We have a Socially Responsible Deposit Fund [SRDF], where people can deposit money and their dollars will go into reinvestment to support affordable housing, small businesses for jobs, or not-for-profit organizations that serve low-income communities.
And so from the social enterprise standpoint, it's just basically ingrained.
How is Sunrise Banks fostering development along the upcoming Green Line light-rail corridor linking the downtowns of St. Paul and Minneapolis?
We have three locations [on or by] the Green Line. We are a New Markets Tax Credit recipient… We just applied for another round of tax credits to really help us not only encourage new businesses to come to the Green Line and invest, but also to retain existing ones. So the idea is really to support and create that environment around the Green Line so people can…use public transportation for what it was meant to be.
Why do you feel it's so important to keep businesses in, and attract them to, the urban core?
I could just say one word: Detroit. We don't want to be a Detroit. Quite frankly, we don't want to be a Cleveland, either. We have a lot of great amenities in the Twin Cities, and one of our best is that we have a vibrant urban inner city that's diverse in its cultures, its restaurants, its people. It's a great place to live.
The fact is that it does take some intentionality in order to continue to foster businesses to continue to reside here and grow and develop and provide them capital and, specifically, taking focus in on those low- and moderate-income communities to make sure that they have the capital necessary to sustain a healthy way to work, live, and play. People don't drive through the city when there's a lot of crime; they drive around the city in those cases. So our focus in on the urban core of the two cities is really to keep that inner city alive and vibrant, as well as preserve that cultural vitality. And there's also other elements then of safety and economic development and jobs and integration of immigrants…There's just a lot of good that comes from it.
What are the challenges faced by entrepreneurs operating in areas underserved by banks?
In a lot of cases, one easy one would be access to capital. There are generally fewer banks or fewer outlets to get capital or investment, whether it's bank debt or whether it's equity when you are located in a low- and moderate-income community. Perceptions of safety, perceptions of different cultures—people have a tendency to say there is more risk there. In some cases, there is and in some cases there isn't. It's really understanding those communities and engaging with them to understand where are places that it is good to provide loans and work on developing those areas that aren't, and working with cities and with nonprofit organizations and really developing the whole inner city.
What are some nonprofits you work with?
We work with a lot of them. We work with Urban Homeworks in Minneapolis, a state-based housing developer. We work with WomenVenture a lot…we have people that sit on their board from a micro-lending standpoint. We had someone who just rolled off theAfrican Development Center. The [Greater] Frogtown Community Development Corporation…
What is the New Markets Tax Credit Program?
It takes a little bit of visualization. We'll use the visual of a pumpkin…So if you think of a typical face on a jack-o'-lantern, where you have two triangles as eyes, and a triangle as a nose, and let's just say you have one square tooth. So in the New Market Tax Credit financing, one of those triangle eyes is going to be an equity investor. Let's just call it US Bank. And for easy math, let's just say we're going to do a $10 million project. So let's say US Bank is going to be one of the eyes and they're going to come up with $3 million. Then in the other triangle eye is going to be Sunrise Banks, and we're going to provide a loan for $7 million. And then we're going to combine the $7 million and the $3 million in the nose to make a $10 million pool. Then we're going to take that $10 million and we're going to make a loan to the square tooth, which is going to be a qualified low-income business.
The benefits, if you will, to that qualified business is that they will receive an interest rate that's below market, interest-only, for seven years. They have an opportunity for some debt forgiveness, or technically to purchase some of their debt back at the end of that seven years. So what that sounds like is…for that qualified business to gain some permanent equity at the end of that seven-year period. And so the way that works is that US Bank, in this particular case, would receive a 39% tax credit, not just on their $3 million, but on the full $10 million. So for the $3 million they put in, they'll get tax credits of $3.9 million over that seven-year period. Now, that's all that they will get. They'll get the tax credits. Their $3 million stays in the deal.
The bank, Sunrise, will get interest payments on its $7 million, and at the end of that seven years the borrower would refinance and pay Sunrise back. And it's that equity portion, or approximately that $3 million, that stays in the business - or can stay in the business, there's an opportunity to do that.
So it's very attractive financing, and it is geared specifically to only qualified businesses and qualified census tracks, so it's very specific. And again, that New Markets Tax Credit program—our new application, a lot of it is centered around the Central Corridor and trying to make loans in that space.
And the New Markets Tax Credit Program is a federal program?
It is. The New Markets Tax Credit program comes out of the CDFI fund in the Treasury Department.
What are examples of small or midsize companies that Sunrise Banks has helped through that program?
The New Markets Tax Credit program financed the Izzy's Ice Cream location [near the Guthrie Theater in Minneapolis]. There's Standard Heating and Air Conditioning [on Payne Ave. in St. Paul], and the Hampden Park Coop [on Raymond Ave. in St. Paul]…
How does the Socially Responsible Deposit Fund work?
It's fairly straightforward. You can open up any checking accounts, savings, or certificate of deposits at the bank, and literally you can choose to check a box. It doesn't cost you anything. It's the same interest rate that you would receive if you didn't. But by participating in the SRDF, what the bank pledges to do then is to use your funds in order to support small businesses, which is really that job-creation factor, affordable housing, and nonprofit organizations, either located in or that serve low-income communities. So we're going to reinvest your money back into those specific purposes.
So it's an opportunity for the customer to specify how their funds are being used by the bank?
Yeah. Obviously we specialize in making loans in those specific areas, so we have good demand there. What we're trying to do is align the depositor's values along with ours and revitalize the community.
What are some examples of how the SRDF has made a positive impact?
The SRDF has been with us a long time. We've had a program called Houses to Homes, in which we finance very screened and qualified rehabbers that would buy, let's say, affordable homes or dilapidated homes, fix them up, and either rent them or sell them. We have a very unique process in order to do that program…In that program, we've financed over 1,500 renovations, generally in the Frogtown, Midway area in St. Paul and North Minneapolis and the surrounding communities there.
The SRDF really provides what we kind of call our meat and potatoes type of lending. So every day when we're calling on customers in the inner city and making loans to the small businesses along University Avenue or Rice Street or Payne Avenue, we're kind of aligning those deposits with those loans and those borrowers.
The bank has received a lot of awards in recent years related to good coporate citizenship. How have those awards helped you with your mission?
You know, it's really allowed us the confidence internally to know what we're doing is recognized. That recognition I think fuels everybody in the organization—not only on good works done, but to look and do the next one. It also has given us a national stage in which to kind of highlight some of our projects, as well as some of the unique programs that we've done, like Houses to Homes or the SRDF.
We received a national Community Reinvestment Act award [in 2012]. We were actually nominated by the City of Minneapolis economic development department, and it was in regards to the New Markets Tax Credit program. We had this innovative way of taking that program and providing access to much smaller businesses than typically could get access to that program…because in the urban core we find we have more smaller-sized businesses.
I would say the awards are…fun. We don't live and die for them, but it is that recognition that's nice to get.
When you say smaller businesses, are you talking about one- or two-person companies?
Yeah, they could be a one- or two-person companies. Probably the average New Markets Tax Credit project…I would say that the average size is probably $15 million or greater. When you get below $10 million, those are considered small deals. We created this pool concept, where if you took that $10 million and then cut it up into some pieces, let's say with five different companies, that's the type of pool that we got recognized for. So we've actually done a New Markets Tax Credit for as low as a $300,000 loan—in a pool, if you will, of about five or six others to make up about a $7.5 million overall pool, but made up of five companies, all quite small.
What are some of the future plans for Sunrise Banks?
We really have two strategies as an organization. Most of what we've talked about so far is what would be our place-based strategy. So more of our traditional banking here in the Twin Cities focused on the urban core branches, et cetera. And that is one very solid and very important piece of our business.
We also have a people-based business in which we really seek to serve the underserved on a national basis. That is really more defined as the un- and under-banked—and a growing space in that is what I would call the unsatisfied, those that are just are not satisfied with traditional financial institutions.
In that particular case, we are in the prepaid card business. We use that prepaid-card platform as you might consider a substitute for a bank account, but it's really slightly different—it's to provide people access to the payment system. Let's say you're an immigrant farm worker, and instead of getting a check and having to go into town and cash your check at a check cashier on a weekly basis, you can get your wages put on a card…the card functions anywhere Visa or MasterCard would be accepted. It's very flexible.
There are all sorts of different ways to use that flexible platform to reach out and find niches in programs to serve the underserved.
Our readers tend to be leaders of small and midsize companies. How should they view Sunrise Banks?
We're basically a perfect fit for them. I was with a customer yesterday. As he put his arm around me, he described us as "the Cadillac of community banks." Here's a small business owner that obviously we do business with. He is in the inner city. He loves the fact that we support the inner city. We are value-aligned. We are two Minnesotans, both in the same community, and we want that community to thrive because that means success for everybody—the neighborhood, the businesses. And so really those small and midsize businesses are our sweet spot and our expertise in terms of how to serve them. And we have a lot of tools, whether it's the New Markets Tax Credit Program or—we know all the city programs, we know nonprofit programs, we are a preferred SBA lender. So we bring a big toolbox for small businesses, not only on the loan side, but also on the cash management side. [We offer] remote deposit capture, where we can just scan your check and send it in for deposit. So we are a bit technology-driven. I think people would be surprised by the amount of technology that we have.
How significant is it that the national headquarters for the Social Enterprise Alliance, or SEA, recently moved to the Twin Cities from Washington, D.C.?
I go way back with [SEA president and CEO] Kevin Lynch. We're both members of the Social Venture Network.
Our bank is also a member of two particular community development organizations that are quite prominent. One is the Community Development Bankers Association, of which I just rolled off as the chair. We are also members of the Global Alliance for Banking on Values, which is a group of about 22 value-based banks from around the world. It's super fun to see the perspective of values-driven banking from around the globe and how people do it in other countries. It's just fascinating.
There are a whole host of networks in the social enterprise space that we intersect with—all the B Corps around the country, as well as all the CDFI organizations. So I kind of spend my time talking to a lot of those.
Minneapolis is really growing in its popularity around social enterprise, and I think that's phenomenal. I think it's great.