Breaking Ground
Kermit Billups, Executive Vice President and Co-Founder, Greenline Ventures
By Darryl Hicks
9 min read
When it was founded in 2004, Greenline Ventures was one of the earliest adopters, and today remains one of the most frequent users, of New Markets Tax Credits to invest in small businesses in underserved communities throughout the country.
Greenline Ventures has deployed $2.5 billion in NMTC financing across 155 businesses and projects across 32 states – including $139 million in rural areas. These investments have created over 30,000 jobs in low-income neighborhoods.
Co-founder and Executive Vice President Kermit Billups has been involved in many of these transformative projects assisting with transaction structuring, tax credit syndication, debt financing, origination, underwriting and NMTC compliance.
Prior to his involvement at Greenline Ventures, Billups worked at Capmark, Honeywell, IBM, Legg Mason and Stephens Inc.
Tax Credit Advisor sat down with Billups to get a more in-depth look at Greenline’s investment activities.
Tax Credit Advisor: Does Greenline Ventures invest in communities all over the country or specific regions? What potential new areas are you looking at in 2024?
Kermit Billups: Greenline Ventures is active all over the country. I come from a structured finance and affordable housing background. We initially operated under the nationwide footprint of the GMAC umbrella, so we still have contacts that span the country with whom we continue to work. We’re headquartered in Denver, so we do a good chunk of work in Colorado, but also in the southern states, like Florida, and the Midwest. We just invested in a pork processing plant in Fremont, NE, which is about as rural as it gets.
TCA: What types of projects do you find most appealing?
KB: Our focus is funding operating businesses, not real estate projects. We occasionally do real estate, but we try to provide the really hard-to-get, non-real estate-based funding. Working capital, equipment and especially inventory financing is difficult for small businesses to get but that’s what fuels growth in early-stage businesses. We don’t have an asset class per se that we focus on because our programmatic mission is to achieve impacts through the creation of community-appropriate, quality jobs in low-income communities. We’re looking to create these jobs through small business investment with a specific focus on minority- and women-owned businesses. Urban and rural areas have the same problems. Rural areas lost industrial and agribusiness employers that they were dependent on, while urban areas lost the automakers and steel. As a country, we lost those economic engines and so urban and rural areas are facing similar problems. We’ve got to figure out a way to get capital more effectively to small businesses where the growth is. The kind of capital that is needed is beyond just the real estate base. These businesses are cash-flow, credit-constrained, collateral-constrained, and they need real inventory and working capital.
TCA: It sounds like you invest in the types of small businesses that can help underserved communities grow and prosper.
KB: Yes, that’s where the growth is. If you look at black-owned businesses, for example, the American Community Survey data say there are roughly three million in the United States. If you look specifically at “employer-based” businesses, meaning businesses that have paid employees, that number shrinks to about 140,000 black-owned businesses. Of the 5.7 million or so businesses in the country, all businesses that have paid employees, less than three percent are black-owned. If you think about the impact of taking those businesses that don’t have paid employees, what would it take to grow them to a revenue level where they do have paid employees, that’s generally when you hit $250,000 to $300,000 in annual revenues that companies start hiring. The United States government is one of the largest employers of African Americans. If you look at the private sector, you might think it’s Wal-Mart or Amazon. When you really think about it, the largest employer is that collective group of small businesses. Of those 2.8 million or so black-owned businesses that don’t have paid employees, if you take just ten or 20 percent of them to the point where they do have paid employees, that’s a huge employment increase.
TCA: What attracted you to the NMTC program initially? What important lessons have you learned over the past 20 years that have helped improve your NMTC executions?
KB: What I liked all along was the inherent diversity of people in the room and the flexibility of the tax credit. Rarely do you see a program that has big banks, small banks, large nonprofits, small nonprofits and faith-based groups talking together in the same room. There’s also a diversity of asset classes that it can work across. It’s not a healthcare program or a manufacturing program, but NMTC works across all those asset classes efficiently. When you look at disasters, such as Hurricane Katrina, NMTC is a highly efficient vehicle to help support disaster relief, because it works across many different asset classes. You can also get the subsidy delivered quickly, so I’ve always liked the flexibility of NMTC. We looked at it initially for housing but then saw the real impact was that it could more effectively capitalize small businesses.
TCA: What noteworthy trends are you currently seeing in the marketplace? Are there any precautionary measures that you’re considering for 2024 to address a potential mini-recession or ongoing interest rate hikes?
KB: Rate hikes have an impact on our portfolio of small businesses, which operate at razor-thin margins. Rate hikes affect a business’ underlying economics and fundamentals. Small business costs are increasing. Suppliers’ costs are increasing. The below-market funding that we deliver to these businesses provides an opportunity for growth.
TCA: Greenline Ventures manages three investment funds to make investments in underserved communities. What are the main differences between these funds?
KB: I would break out the categories a little differently and say we have two primary NMTC funds or products that we use. One fund provides a minimum of $100,000 up to $4 million, while the second NMTC fund is designed for businesses that need $4 million up to about $15 million. The third fund is a non-NMTC fund that allows us the ability to look at impact-focused businesses that, for whatever reason, don’t qualify for NMTCs. Some businesses are too small, or too early stage, or they don’t have the sophistication to actually receive an NMTC-type investment. Maybe the business needs something like a line of credit, which is really hard to do for compliance reasons under the NMTC program. Trucking, for example, is an asset class that’s hard to qualify for NMTC investments because your assets are moving. To qualify for NMTCs, an asset must be located in a low-income community. With a trucking business, your assets are moving all over. Those kinds of businesses are harder to qualify for NMTCs, but they also provide quality jobs for low-income people. Those are the kinds of projects we want to look at and help businesses grow to the point where they can receive an NMTC investment. A lot of women- and minority-owned businesses and disadvantaged rural businesses need help qualifying under the NMTC program and we can help with that.
TCA: What distinguishes Greenline Ventures from other capital investment providers?
KB: We are willing to take the time to sit with businesses that may be less sophisticated, maybe in a rural area, who don’t have a lot of lawyers and are less familiar with complicated federal and state programs. They may not have the infrastructure. You have to really look through cash flows. Sometimes you have to do a lot of work with a business to figure out if they qualify for an investment and to help them put a structure in place to receive the money. We’re willing to do that kind of work to help grow companies and the communities they serve.
TCA: How do you find these businesses?
KB: We have contacts within Housing Finance Agencies, different groups that are focused on helping low-income communities and faith-based organizations. It takes an active focus on speaking to the people that we know. In most of the communities that we’re familiar with, we subscribe to the local newspapers. A lot of local media organizations are struggling for revenue and showing that they have a readership. It’s important, I think, just from a general news perspective for us as a company to help the local news sources that are trying to provide coverage in their areas. We try to subscribe to those newspapers because local communities need local sources of information. As a national player, we need to have the ability to look and listen to those local sources to find out what’s going on in those communities.
TCA: What was your favorite NMTC project in 2023?
KB: We provided funding to Beloved Community Services Corporation, a faith-based nonprofit, to support their efforts to renovate Thurgood Marshall’s elementary school. I like this project for several reasons. The project sponsor is truly visionary with a mission to fully understand the history behind our low-income communities. There are many elements of our history that have not been forgotten, but rather overlooked and not well compiled. The project is about bringing back the real estate but more importantly, it’s about building capacity with Beloved Community Services Corporation. Although the sponsor is a nonprofit, our mentality is to look at it like a business – an early-stage, cash flow and collateral-constrained business in need of growth capital to acquire assets in support of its mission. We want to provide capital to put a mission-focused group, like Beloved, on a path to becoming the next Local Initiatives Support Council (LISC). Thurgood Marshall, as many know, was the first African-American U.S. Supreme Court justice. Many folks don’t know that he grew up in Baltimore – my hometown. But I am going to mention some other names: Eleanor Roosevelt, Sammy Davis Jr., Rosa Parks and Mary McCloud Bethune. And some Baltimore-specific names: Clarence Mitchell Jr., Parren Mitchell and Juanita Mitchell. All of those people have what I would call “overlooked” connections to this specific project and neighborhood. Baltimore has a deep and rich history of civil/human rights activism and of producing balanced leaders. There is a reason why the NAACP is headquartered in Baltimore, and that reason traces back to this neighborhood. Marshall should be to Baltimore what Dr. King is to Atlanta. Our funding is helping a wonderful nonprofit sponsor to highlight that community connection while building its capacity to do additional projects.
