Economic deliverance thru the church.

Black churches are bringing the gospel of economic development to inner city communities.

IN THE HEART OF THE MARTIN LUTHER KING JR. historical district in Atlanta lies Auburn Avenue, home of the civil rights struggle, a rich black business legacy and Sunday morning sermons at some of the largest African American congregations south of the Mason Dixon line. A quarter-block stretch of the avenue is lined on both sides by Wheat Street Plaza North and South and its two strip malls that house 10 small business

What makes these malls significant is that they are the product of the Wheat Street Charitable Foundation, the nonprofit organization that serves as the development arm of Wheat Street Baptist Church. All the shop owners in the malls are members of the church and most of the businesses are black-owned. Four of the merchant have been in the mall since it was built over 25 years ago.

Wheat Street has known for some time what many black churches across the country are quickly discovering: that they can be catalysts for the creation of black businesses, jobs and wealth in African American communities. Currently, the Wheat Street church, which doesn't own any of the businesses, dears more than $50,000 annually in rent. But business manager Eugene Jackson explains that it's not all about creating money for the church: "Our mission is about creating economic opportunities for the people in our community."

This brand of Christian capitalism encourages African Americans to pool their dollars to invest in each other and their communities. Unlike a corporation that keeps its profits, church-based business enterprises enrich the neighborhood by providing resources and much needed services like day care, soup kitchens and substance abuse counseling. When once empty storefronts become thriving businesses, property values of neighboring homes increase. In turn, this attracts more affluent residents and other businesses, which are more likely to take an active role in improving quality-of-life issues, such as safety and good schools. At its best, the cycle of inner-city poverty is reversed, creating a foundation for economic empowerment.

THE FRUITS OF GOOD WORKS

Through the efforts of its Charitable Foundation, which was essentially created to separate church and state for tax purposes, Wheat Street boasts more than $33 million in real estate. The church holdings include Wheat Street Towers, a senior citizens' home, and Wheat Street Gardens, a low-income family housing development. The Towers were built in 1973 and the Gardens in 1964, financed with a combination of grants from the Department of Housing and Urban Development (HUD) and church contributions.

The 2,000-member congregation also has a 1,000-member credit union with over $1 million in assets. "By belonging to a credit union, you are paying yourself first because you are saving and growing what you earn," says Ben Logan, a 52-year-old accountant who has been a church member for 40 years. "Besides, If you go to a commercial bank, you're nothing but a customer. If you join a credit union, you become an owner and share in the proceeds through interest dividends."

The church's involvement in developing real estate and creating a credit union came about under the leadership of Wheat Street's Rev. William Holmes Borders Sr., who was the church's pastor from 1937 to 1988. "His vision was to make religion pragmatic," says Jackson. "It's not enough to have worship service on Sunday. The church had to meet the needs of its members and their community."

Now, Wheat Street is looking to acquire and develop land once again. "As opportunities and resources become available, the church plans to build additional housing and retail space," says Jackson.

ACQUIRING PROPERTY

For a church to acquire and develop real estate is no easy feat. It requires business savvy and a keen understanding of the city bureaucracy, attributes that the leader of any church must have to be a successful change agent. A good example is the Rev. James Wallace Edwin Dixon II, senior pastor of the 2,500-member Northwest Community Baptist Church in Houston. Churches interested in acquiring real estate can benefit from the lessons that Dixon learned while mastering the art of the deal.

The church's budget under Dixon, who took over as pastor 16 years ago at the age of 18, has increased from $50,000 to $ 1.5 million. Under his leadership, Northwest has engineered the construction of a 36,000-sq.-ft. shopping center, home to several small businesses including the Deliverance Grocery and Deli Institute Inc., a grocery store training initiative. The church also owns a drug rehabilitation center, and in 1990 purchased 22.6 acres of land, at a price of$955,000, on which it will build a 3,000-seat sanctuary, community life center and Christian educational facility.

Churches that want to duplicate Northwest's success should begin with a biblically-based vision for the church and community, Dixon advises. Never rush to make a purchase and never buy under pressure, he adds. "I think we get in too big a hurry because we're excited thinking about how we want to use the land and the good it will do." While these are noble ambitions, they can work against the buyer, he says. During negotiations, it is critical to be professional, polished and, most important, prepared. Once an acquisition site has been found, learn everything about the property and the surrounding neighborhood through public records and/or by talking to long-time residents, he continues. Find out how many times the property has changed hands, including when and why it was sold and the last price it went for. "When buying property, you have to become a student of real estate," Dixon counsels.

Always have the church's future growth in mind when buying a property, Dixon suggests. "Churches often make the mistake of investing in too little real estate, becoming landlocked into a financial obligation that ultimately won't meet their needs."

After you've settled on a location, never pay the original asking price. Agents are sometimes willing to lower the price of properties, especially if the buyer must renovate or develop the building or land. You can use your cost of renovation as leverage against the price. So the ability to skillfully negotiate a business transaction is essential, says Dixon, because it can mean a potential saving of thousands of dollars. If church representatives are not astute businesspeople, they will be vulnerable to property sellers.

"People will say, `I'm a Christian, too,' to get in the door and then rape churches financially," says Dixon. If a pastor feels uncomfortable haggling, it is wise to bring in a consultant or find a volunteer in the congregation who is skilled in negotiating and can best protect the church's interests.

When the economic development committee of Northwest's nonprofit organization, Excel-Eco Community Development Corp., had zeroed in on the shopping center site, it learned through tax records that the Federal Deposit Insurance Corp. owned the property. The sales tag was $1.2 million. Critical to the negotiating process was a package of information put together by the committee demonstrating the positive effects that the purchase would have on the neighborhood. Exerting a negative impact on property values in the area, the long-vacant location had become a hazardous site, attracting vandals and drug addicts. To buoy its position, the committee obtained letters of support from various elected officials and community leaders. In the end, Northwest paid only $200,000 for the property.

Northwest contracted a group of builders who belong to the church to renovate the site. Their involvement ultimately led to the formation of the Excel-Eco Construction Co. Now, the construction company and other Excel-Eco Center businesses owned or co-owned by the church and its members contribute 10% of all profits back to Northwest. That money is then recycled into the church's other endeavors.

SETTING UP A NONPROFIT CORPORATION 

In some instances, a church is the last best hope for a deteriorating neighborhood. The social safety net that disadvantaged people have long depended on for survival is quickly dissolving. "We've realized that the political-social model we've been operating on in the last 30 years is bankrupt," explains the Rev. Floyd H. Flake, senior pastor of the Allen A.M.E. Church in Queens, New York, and U.S. congressman for the Sixth District of New York (which includes Queens). Flake and other ministers realize that the need to create businesses that can provide jobs and social services in poor communities is more critical than ever since President Clinton signed the controversial welfare reform bill last year.

When Flake became Allen's pastor 20 years ago, he had several ambitious plans regarding housing and education. "We realized we were sitting in the middle of an area that was deteriorating, and the only way to protect our investment was to begin buying other properties," Flake recalls. The church was already in the process of building an apartment complex for senior citizens, using federal loans from HUD. Initially authorized to build 100 units, Flake was able to have it increased to 300 by working with the local congressman, Rep. Joseph Adabbo. The church created the Allen Housing Development Fund Corp., which owns and manages the housing development as well as 10 other nonprofits that perform various kinds of community services, such as a resource center for battered women and a home care agency. Allen also has an impressive portfolio of undeveloped real estate, and renovates buildings and rents out space to local businesses.

Setting up a nonprofit corporation is a necessary first step for any church that wants to provide community-based services. It's as simple as filing an application with the state for a federal ID number and federal tax exemption, a process that takes approximately four to six weeks. Once that's completed, find programs that fit within your organization's mission through requests for proposals (RFPs) from government agencies. "You're much more productive if you decide what you want to do and then find the appropriate agencies," says Allen's chief financial officer, Edwin Reed. These announcements, which look much like help wanted ads, can be found in daily newspapers and online. Once your organization becomes better known to the agencies, Reed adds, you can make friends who will alert you to upcoming RFPs so you don't have to rely completely on the newspaper. "That's a really big advantage," he explains.

The next and perhaps most critical step is writing the proposal--which can make or break an organization's chances of actually getting a contract. "There is a whole cottage industry of people and nonprofits that help organizations write proposals. Prices vary, and they don't give breaks to churches," says Reed. However, "depending on the size of your church, you may find people in your congregation who are capable of writing proposals," he points out. Take advantage of members who are willing to volunteer their services because "in the beginning, you're doing all the legwork and have no staff or funds," says Reed. When Flake began Allen Housing Corp., he had only a part-time secretary and relied heavily on volunteers.

It's also important to have seed money, which often comes in the form of tithes, to get your program up and running. "You may get a program approved and funded, but if there is a delay in the state or city budget, you may not see any money for months," Reed warns. Of Allen's 11 nonprofits, the home care agency is the largest of the group and the only one that requires bank financing. When Medicare switched from city to federal funding, the federal government encouraged all agencies to get a line of credit because of scheduling and fiscal delays. In this case, says Reed, the government was very supportive by talking to local banks. In addition, the biggest pitfall for nonprofits is the inability to do effective financial reporting, he emphasizes. "Get a good accountant" is his final word of advice

CREATING NEW FINANCIAL RESOURCES

For South Central Los Angeles, which is still recovering from the 1992 riots, First A.M.E. Church has become a vital source of funding for local small business owners. "We certainly suffer from poverty, but what we really suffer from is poverty of opportunity," says Mark Whitlock, executive director of A.M.E's FAME Renaissance Program. (The unemployment rate among black men in South Central L.A. is 35%.)

In 1992, First A.M.E. developed FAME Renaissance, which includes about 13 different community services. One is the Business Resource Center, which has a revolving loan program for entrepreneurs who wish to start or expand their own businesses. So far, the program has made 60 five-year loans for a total of $1.4 million. All payments go back into the loan program so that the center can continue to provide financing. Using a $2.4 million grant from the U.S. Department of Commerce, the center also administers a Financial Restructuring Assistance loan program for businesses that are recovering from the Northridge earthquake.

According to Linda Smith, director of the First A.M.E.'s Business Resource Center, the riots following the Rodney King incident forced many people to recognize that they needed to participate in the efforts to rebuild their community. "There were hundreds of us. We realized that we're part of the problem and therefore part of the solution." She was one of 15 people who served as volunteers on the first loan committee, which included professional bankers like Smith, entrepreneurs and members of other community-based organizations. "You must bring in that professional expertise because the credit process is more than just handing out loans," says Smith. As with traditional lending institutions, the loan committee requires borrowers to submit business plans and all relevant financial and tax records. "There is a whole administrative process that is very labor-intensive and time-consuming," she adds.

The initial $1 million for the revolving loan program came from the Walt Disney Corp., which had put out an RFP. "They recognized that one of the primary causes of the social ills in our community is a lack of economic development and good jobs and that job creation requires more than just getting a big company to hire people," Smith recalls. "It also means nurturing small business development so they can, in turn, nurture growth and hiring from within their own community."

The original proposal guidelines stipulated that 30% of the money go to start-ups and 70% to existing businesses that could not qualify for bank financing. The average loan in 1993, the program's first year, was $10,000. Applicants must provide a comprehensive business plan with the same supporting data they would submit to any lender. This prepares them for the time when they must seek credit from conventional sources. "We see ourselves as a bridge or an interim place where they can go when they can't meet bank underwriting criteria," says Smith. "We give them the tools or know-how, so that in two or three years, hopefully, they can begin to access the conventional sources of bank financing."

Once submitted, the paperwork is reviewed by the center's staff and reduced to a five- or six-page report that summarizes the history of the business, the business plan and the acumen of the principles involved. An applicant must also make a brief presentation to the loan committee. "The consensus was that character was a key component in the process," Smith says, especially since many business plans fail to meet conventional underwriting criteria. "We look past the traditional benchmarks to determine if it will be a good or bad loan." Bringing in the person behind the plan provides a more complete picture and helps the committee decide whether the applicant really knows the business, has the ability to implement the plan and the tenacity to stay with it in the face of difficulty. Sometimes, after a presentation, the committee realizes that the person facing it did not really write the business plan. Other times, the committee votes to approve a loan it might otherwise have declined.

The successful implementation of the revolving loan program enabled FAME to compete for and win a Commerce Department grant, which helps businesses that were hurt by the earthquake but denied assistance from the Small Business Administration. "Micro lending in itself is not sufficient to meet the needs of an underserved community, but it's a stepping stone you can build on for the next opportunity," explains Smith.

There has been some debate among black clergy over whether churches should become involved in business activities. "I believe we should give people a hand up, but churches should not go into business," says the Rev. Dr. W.T. Snead, president of the National Missionary Baptist Convention. He prefers to assist people on an individual basis, keeping his group's focus on the business of saving souls. For many ministers, however, the romance of poverty is dead. "Most people don't want to face it, but the Bible says more about money than salvation, which is a very piercing truth," declares Dixon. "God is not offended by our having money."