Steve Radley and Erik Pedersen, president and vice president of External LinkNetwork Kansas, discuss rapid deployment of emergency small business credit during the COVID-19 pandemic with Kansas City Fed Senior Community Development Advisor Dell Gines. They share how they leveraged the Network Kansas statewide entrepreneurship ecosystem, and their partner network to provide emergency capital to 340 entrepreneurs across the state in a span of three days. This interview was taped April 6, 2020.

Dell Gines: Thank you both of you for taking the time today with me, I have Steve Radley, Erik Pedersen, president and vice president of External LinkNetwork Kansas. And we're going to talk about the rapid deployment of credit and just as a qualification as usual, the views in this presentation don't necessarily represent the views of the Federal Reserve Bank of Kansas City nor the Federal Reserve Bank System. So first of all, I'd like to tell you all, you know, thanks and I appreciate you coming in to do this recording at such a challenging time. Can you all tell us a little bit about what Network Kansas is to give the listeners some context into how you could do what you did with the loan fund?

Steve Radley: Yeah, I'll go ahead and start. Thanks for allowing us to talk a little bit about Network Kansas and share what we've been doing Dell. Network Kansas was created about 15 years ago and I think the best way to describe us is two networks. We have created a network of over 550 partners across the state. And we define a partner as any nonprofit or government sector resource that provides some type of business building service to small businesses and entrepreneurs. And we created that when we first started, and then I'll let Erik just share a little bit about a partnership that we started with local communities in 2007.

Erik Pedersen: Happy to, thank you Steve and I echo what he said, thank you Dell for this and the work you're doing across the nation helping people get through this. In 2007, we started the entrepreneurship community E-community. And essentially what that is, is we select communities each year it's a competitive process. It's grown to be 64 now that we work with, and we allocate an amount of funds to them that they have complete decision-making control over who they loan that that money to. There was a matching component that has to match with a bank or a certified development company or USDA. But that that loan fund gives us a seat at the table with that community. We ask them to have a local group that will meet and discuss the entrepreneurial environment in their city or County and our staff will be present. And so it helps us partner on other initiatives as we go forward. So that's a, that's a high level overview of, of the E-community partnership.

Dell Gines: That's great because I think it's going to set kind of the framework for the conversation around the loan process that you did where you deployed, and you all can correct me if I'm wrong at any point, about $5 million to a little bit over 300 entrepreneurs in the span of less than a week, a week or so ago as of this recording. And so can you give us a little bit of overview of that process? I believe it was the HIRE, that's what they called it, the HIRE fund and it was geared around hospitality and restaurants in Kansas. Can you tell us a little bit about how that originated and why you were chosen, and a little bit about the number of loans that you were able to deploy over that short period of time?

Steve Radley: Let me talk a little bit about how it started and I’ll let Erik talk about a kind of post announcement in that process. But we got a call from the Kansas Department of Commerce the week before around a Tuesday at 11 o'clock. Patty Clark, Deputy Secretary said that they wanted to use some of their funds that they normally use for attraction based (economic development) what they call a closing fund. They wanted to deploy $5 million in hospitality to restaurants, primarily restaurants, hotels, and event centers across the state. We had a call at 11 by three or four o'clock we had developed our first draft of an application. I think the most important part of that is that we already had systems in place. Of the documents we used in the closing of these loans, only one document was created new and that was the application itself. We basically used our statewide program application, which is also used a lot by our E-communities to launch the program. We worked with commerce, tweaked the application based on what Secretary Toland wanted and had it ready by that Friday for the announcement. And that's kind of where we started.

Dell Gines: They called you on Tuesday and said we want to do this and you were able to get it up and running by Friday?

Steve Radley: Yeah, we were ready to take applications by Friday. In the end, quite frankly it was because of our two networks. We have a partner network and an E-community network that we can rely on to help us with this process.  Erik, you want to talk a little bit about once we launched it?

Erik Pedersen: Yeah, I'm happy. So, it was launched on a Friday morning at about nine the governor had a press conference to announce this program. And the original intent was that the $5 million that it had already been determined it was going to be 36 month loans, 0 percent interest. And the original intent was loans up to $20,000 for each business that applied. If you do the math, that allows about 250 businesses to be assisted. The program was launched about 9:00am, 9:45am on a Friday morning, and Steve and I went up for the press conference and then we got in our car and headed back to begin executing the plan. By the time we got back, we had already received almost enough applications to completely fill the bucket.

Erik Pedersen: We made a decision that $15,000 would be the amount of money that the most that any business could get to at least allow us to say yes to about 340 businesses. Spread it out a little bit more anyway. What we did was we utilized our community network and our partner network as Steve said.  We were instructed by the department of commerce that the $5 million should be allocated $2 million to the Kansas City Metro area, $1 million to Sedgwick County, which is the Wichita Metro area, and then $2 million for the rest of the state. And so we put together a point person and a team in Wichita also in Kansas City. I'll explain that in just a minute.  Then each of the community coaches were over a portion of the rest of the state, the region that they work with the communities in.

Erik Pedersen: So where a network became so important was that when I said a team, Dell, let's use a central region for example.  (Our local) E-community coach, she reached out to four or five E-community point people, economic development directors, chamber directors that were in her region.  She had the ability to look at an application from the business in that region and find somebody that probably knew the business, knew about the business, or more than one person and have a quick conversation about the business and the and the ownership of the business. Were there any obvious red flags? Was the use of funds credible and have that kind of conversation? Well, as the number of applications grew and grew and grew, and I should mention by the end of this there were over 1400 applications we received, the process was tweaked a little bit. Steve and I reviewed every application that came in quickly to make sure it met the higher eligibility, which was a you mentioned a little a little bit ago, was the Hospitality Industry Relief Emergency fund. It was restaurants, bars, hotels, event centers were the primary target.

Erik Pedersen: Steve and I would review each application and make sure it met that criteria, then if, if it did, it would go to one of those teams, the Kansas City team, Wichita team or the four regional groups for the rest of the state.  Then because of the overwhelming volume and the short period of time to execute the plan, the goal was 72 hours from the time it was launched, to have decisions made. Two of those days were a weekend. So what we did, we ended up doing with the referral center (a Network Kansas website application), we logged in every application that came in, in a timestamp order. Then we worked through them and in the order they were received first come first serve. If they met the criteria, then they were, they were approved.

Dell Gines: Real quick, so the referral center was a preexisting Network Kansas utility, right?

Erik Pedersen: Yes, that's actually the very first thing Steve and I did when we were hired in 2005 was create a referral center to take calls and network across the state with resource partners. It's been in existence 15 years.

Dell Gines: Then once both you and Steve vetted them and then that allowed them to go to the teams after being plugged into the referral center to start the second process on a first come, first serve basis of underwriting.

Erik Pedersen: Correct. Steve and I entered them by date stamp, logged them into the system, then farmed them out to the appropriate team.  The team worked their way through the list on a first come, first serve order until the funds were depleted.

Erik Pedersen: Behind the scenes Christie from our financial accounting side had set up all of the loan documents, promissory notes and DocuSign. When a loan was approved, we would send out an approval email and then we would send the documents via DocuSign and get those back and then implement either an ACH or automatic deposit of the funds or a manual check. One of the important things behind the scenes of this, and I'll let Steve talk about this, is how we handled the administration of the loans across our partner network.

Steve Radley: I might also add, Dell, that it ended up being over 20 partners that helped us evaluate, and they did that work over the weekend. We didn't wait till Monday. That was work that they were doing over the weekend too. I think that's important about how our partners really stepped up. We all worked over the weekend. We didn't, we didn't have to ask anyone, they just assumed that.  The other piece of this was, okay, the first thing is, so the DocuSign, we hadn't done DocuSign, but we realized how are we going to close all these loans? You can't, you're not supposed to even meet with people. So every document that was part of the process was converted to DocuSign which made it really streamlined. We quickly realized too, that Network Kansas was going to have to close the loans. In our normal process we give those to the partners and the partners close the loans.

Dell Gines: A real point of clarification. So, when you say 20 partners, who are you referring to as a partner?

Erik Pedersen: So, for example, let me use Cierra again. She had four or five people on her team that were partners. It might be the economic development director in a particular community or a chamber director or somebody like that that. She's worked on developing a team across her region that had the breadth and the depth that the likelihood of her being able to get an application from any community in the region and somebody knowing the business, was pretty high. So by partner I meant economic development director or someone like that.

Steve Radley: The Kansas SBDC (Small Business Development Corporation) helped out too. Some of them advised, some of them actually help make the decisions. They were instrumental and it made it a much more in-depth process for such a small period of time.

Dell Gines: To pick up them where we left off. You mentioned Network Kansas and that you recognized you had to be the one that closed the loans.

Steve Radley: Yes, because it wouldn't work, it wouldn’t be fast enough. The DocuSign allowed us to basically put the paperwork together, send it to the entrepreneur, they signed it via DocuSign.  This is the nice thing about DocuSign, as soon as they sign it comes back to us. Erik was the signer for us, so we kind of developed a quick process in order to do that. The second part of that though is, so one of the things that we recommended the commerce was, you know, you can't give them a loan and then ask for payment the next month. Right. So we, we recommended four months deferred before the first payment. Well, the nice thing about that is it also bought us some time. In our history we've done over a thousand loans and in one week we did three hundred and forty-five.

Steve Radley: We have a partner network that also administers loans for us and we have over 40 partners that have signed our administrative agreements to administer loans. I'll give you an example. I called Great Plains Development Corporation out of Dodge City and said we were going to need you to administer in other areas outside your region. They said glad to. We quickly identified for every County of the state and administrative loan partner we identified 18, 16 are going to be administering loans. Great Plains Development Corporation is an example of one that works with our statewide loan programs and E-communities. Southeast Prosperity Foundation on the Southeast side does a lot. And then Erik's E-communities will do a lot of administering too.  We even have a few banks that are administering loans for us as well.

Dell Gines: So the administration side is just, they will be the ones that actually house the loans, process the payments, monitor the loans?

Steve Radley: They will send us the payments. Yeah. They will collect the payments and they've done it. They're already doing it for us. Within the first 60 days our referral center is going to call every business and check on them, make sure they know who their administrative partners are. We put it in their documents, but we're going to make sure and let them know when their first payment's due, but we'll call them and let them know and just to make sure. So that's the thing about our infrastructure that that allowed us to be able to do this and allow the deal to provide us some decent customer service on an ongoing basis too.

Dell Gines: With the ACH process as soon as the loan was DocuSigned, you all could prep it for the ACH or the manual checks? So literally one of the entrepreneurs in the hospitality industry could could've got funding by Tuesday?

Erik Pedersen: Yes. It was, it was very, very smooth. Christy would send out the document to the business via email and then when it came back signed, it would immediately dump into my email and I would get an application and I could go in and over my own DocuSign and I could do it on my phone. I didn't even have to be at my office. I could DocuSign the two places that were required by me. There was an ACH form that was part of the promissory note package that they signed. When I pressed finish, it was done and it would go back to Christy alerting her that this one's done and she could put it into that day's batch of ACH to send off to the bank.  Then the next morning the funds would hit that particular business’s bank account. So yeah, it was that quick with, with ACH.  Probably, I don't know of the 340 or 345 businesses, Dell, I'm betting 90 percent did ACH. 

Dell Gines: So, on the backside, the account that it was attached to, was it the State’s, Commerce Department's account or your account?

Steve Radley: What I might add that are our bank was very helpful. They normally only allow $150,000 I think and we were transferring over a million dollars a day for a couple of days there, I think three days. Then what we told the entrepreneur is if you don't choose to ACH, then we will send a check on Friday.  So the ones that did not choose ACH, we sent a check that Friday.

Erik Pedersen: Literally for practical purposes, 90 percent of the individuals, so from the time that you all have the first conversation (with the Department of Commerce), 90 percent of the funding was deployed to the entrepreneur within a week. So, Tuesday you started the conversations and by the next Tuesday the ACH process, 90 percent of that $5 million was deployed.

Erik Pedersen: Pretty close.

Steve Radley: I want to add one other thing that was and I just give props to our referral center. So we had some stragglers that weren't signing about 30. I think our first number was 39 we identified on Wednesday. Our referral center, we had them calling and checking in. Some of them, believe it or not, had applied and then said, well, I'm not sure if I want to do it. We kind of had to give them a, hey you sign by five or we're moving onto another client. But by Friday that number had gone to three. The ones that you know, we had trouble with are getting our referral center was able to contact them and get in touch with them.

Erik Pedersen: And what was nice about the process that was in place, Dell, is that there were some that that did not need the money. They had applied, they had been approved and they didn't need it. But because we had gone through this process, we were able to then just utilize the same first in, first out and then go to the next one in line that was in that particular region. Cause once again we wanted to abide by Commerce's wishes of $2 million Kansas City, $1 million in Wichita, $2 million elsewhere.  Find the next one in line in that region and if they fit then then they were approved. The embedded process allowed us to just continue on down the line, next one, next one, next one until we had exhausted the funds.

Dell Gines: This is another underwriting question. So outside of first in, first out of your regional teams across the 16 or however many partners you had taking a look at this and saying, okay, well I know this business industry is probably closed or they have some other red flag so we want to move outside of the queue.  Were there any other underwriting requirements that you had, like proof of income, credit scoring or anything of that nature?

Steve Radley: No and that was one of the things that we had to figure out quickly with the Secretary of Commerce. I talked to a CEO of a major bank.  The SBA process is going to have to be less than normal on due diligence. But our process was, is it a business that fits the criteria of hospitality? And there were some nuances to that even where Secretary Toland shared with us that a lot of times these restaurants or businesses that were gathering places.  So, he wanted to really hit hard on the hospitality side of this thing. And so it was mainly the hospitality piece. The first in, first out. Erik, was there any others that I'm missing?

Erik Pedersen: No, just like I said, because of that on the ground network we could look at, is it a good business, good owner? Are there any red flags we need to be aware of? Part of the application was what is their intended use of the funds. Were those, you know, credible. I can't think of a better word. Were they credible?  The volume of the number of apps that came in and the time frame that we had to deploy it, that was about as deep as we could go.

Steve Radley: The taxes. That was the one I was thinking. We made sure they weren't in arrears on taxes to the Department of Revenue.

Dell Gines: What was the biggest challenge for you in this process of going from pretty much A to B in a week?

Steve Radley: I would say adjusting on the fly and being okay with that and realizing that you were going to disappoint some people. When you can only lend to 345 businesses and you have to say no to a bunch more, we got some nasty grams and things like that.  We had to adjust and keep our attitude right and understand that we're going to be some unhappy people. But I will say that that probably the one thing that I learned the most through this process was how critical, if you've heard the phrase, but things happen at the speed of trust. Having two trustworthy networks that trusted us and we trusted them was the critical piece in it. And it held up in a pretty intense week of work.

Erik Pedersen: I would echo that. Everything he said I think is right.  The first part was what jumped into my mind is that we had a process in place early on because we didn't know what was going to come out of this volume wise.  We had a process to maybe try and select the best X number of apps, but the volume and the time frame just did not allow that to happen.  So, to shift on the fly, to utilize a trusted network to with Commerce’s blessing, incorporate a first come first serve, as long as the criteria was met, that that shift on the fly on a Saturday morning, quite frankly, that was not easy. But, because of the people on the ground that we had in place, it really happened pretty easily to be honest with you.

Dell Gines: Now that you've been through this and you've kind of seen a general flow that works and some of the challenges, what would you recommend to other cities or states? I've already started seeing them in the marketplace that are looking at rapid deployment of capital during this time. What would be some of the key things that you would recommend they think about prior to launching a or expanding their loan fund to get capital out?

Steve Radley: Well, for me, I think in the current environment I think that you have to understand that your due diligence is different and create a system where you can find people that you trust.  When all this is hopefully over, I think that the number one weakness in the federal system is the lack of distributed networks.  I think what we proved is you can have a distributed network of partners and if you, but you have to trust them, you have to empower them. I think that that, those are the types of things that on the federal side that everyone should be looking at is what are the systems in place for something like this in the future.

Erik Pedersen: I agree. You know, we have said over and over and over that we, we operate via relationships and it really came true on this.  It wasn't a, hey, who can we think of and can you call them and introduce yourself and explain what we're trying to do and enlist their help. We have the relationships all across the state with our partners in our communities.  Oftentimes it was a text or a quick call and they were on board with us. So yeah, that distributed network and that relationship. I mean, everything we've tried to do really paid off in that short period of time.

Dell Gines: I definitely really appreciate what you're all doing in an awfully short period of time for the state of Kansas.  I think you all know being partners with the Federal Reserve in the past for years now, I think we're going back on five or six years. I always told you that Network Kansas is a great example of a statewide ecosystem. I think this process pretty much shows how you can leverage those networks and that ecosystem to do things rapidly in a crisis that may be difficult in other states or in other types of structures. I thank you for your advice and your time today and hopefully this will benefit some of other cities and states across the nation as we all work together to address this crisis. So I would like to tell you both how much I appreciate you and thanks for the time.