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Loans Help Laid-off Employees Find New Careers

September 1, 1992
Related Topics: Downsizing, Featured Article
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When Malcolm (Mac) and Cathy Phillips first thought about owning their own business, they never expected their current employer, the Tennessee Valley Authority (TVA), to loan them the money. Yet that's exactly what happened in January of this year, and the Phillipses opened the doors to Highland Home Center, a home decorating store, in a suburb of Knoxville, Tennessee.

The couple had worked for the Knoxville-based TVA since the mid-1970s as engineering associates in nuclear construction. In May, 1991, they both received notices informing them that their jobs were being terminated.

TVA, the federal agency operating the nation's largest public utility provides resource and economic development programs to residents of the seven-state Tennessee Valley area and has approximately 20,000 employees. The company's response to its need to downsize was the Employee Transition Program.

"Previously, TVA would give you a 30-day notice, and you'd be out the door," says Jim Raines, manager of the Employee Transition Program. "This is an employee-focused program," he adds.

Surplused employees have the option of attending the Employee Transition Program with full benefits, at full pay for six months after they receive their notice. The program's goal is either to retrain employees for other jobs within TVA (it has a 40% placement rate) or to assist them to find jobs elsewhere. There are 11 centers that offer employees a variety of options.

Employees have personal computers at their disposal, receive training in a variety of software packages (from DOS to Harvard Graphics), and have the opportunity for in-depth skills' assessment. The Employee Transition Program also provides a major job fair, a reference library, interview rooms, counselors, a copier and a fax machine and resume preparation information. Two days after receiving termination notices, employees take a mandatory course called "Coping with the Stress of the Job," which is presented by a licensed psychologist.

The retraining program is extensive. For example, nuclear engineers can be retrained to become environmental engineers, or construction engineers can become hydraulic engineers. The program also requires individual counseling every 30 days to see how people are progressing in their job search. What distinguishes the program, however, is its Small Business Loan Program.

Mac and Cathy Phillips are two of the 1,500-plus employees who have benefited from TVA's Employee Transition Program since its inception in January 1991. They're the first of three to receive small-business financing from the Small Business Loan Program. Currently, there are 31 applications pending. Eighteen requests have received preliminary approval; six already have been funded.

"We discovered that many individuals would like to start a business," Raines says. "The intent is to give employees the opportunity to apply for a small-business loan and participate in an intensive 40-hour training program [taught by an attorney] on what they need to know before they get into business." The course covers taxes, accounting procedures and business practices.

Simple-interest, fixed-rate loans for as long as 10 years are typical. The loan process requires two steps. First the employee submits a preapplication form that identifies the amount of money an applicant thinks is needed (loan requests range from $5,000 to $750,000), and proposes the type of business that interests the applicant. A team of three people read the application and run a credit review. Once that step is accomplished, the applicant completes a business plan. In most cases, the applicant must attend a small-business training class, which generally helps him or her finalize the plan. If someone has considerable previous experience in the area, TVA might not require the class. Most of the time, however, self-employment is a big change from what TVA employees are accustomed to, so they're required to attend the class.

According to Jim West, HR development specialist and manager of the Small Business Loan Program, the payback is fairly flexible. "We're willing to be flexible to respond to individual needs. Typically, in a situation in which business cash flow is stable from the early months, it would be a simple-interest loan having equal monthly payments," he says.

"But the beginning of the payments may be delayed to allow people to get on their feet in the business," West continues. "If the projected cash flow isn't great in the first year or two, but it looks as if it will be much more substantial in later years, we might set up a payment schedule in which payments the first year or two would be lower, graduating to larger payments throughout the life of the loan."

There are several requirements that must be met for an employee to receive the loan. The obvious one is credit-worthiness. The employee must be able to service the debt. West and his committee, which includes two other managers, then send the proposal on to the credit committee for final approval. The committee consists of TVA's treasurer, a CPA and a manager of the economic development program. They look at the business plan and the projected cash flow.

West, who has an MBA and has managed a loan program for another arm of TVA, says, "We require that the business proposition be sound. This is why we re-quire people to submit a business plan—so that they look at all the financial issues of the start-up of a small business."

Finally, TVA requires the individual either to have former business experience (in a closely related business) or to go through the business-training class. Only people in the Employee Transition Program are eligible for loans. If an employee finds a permanent job in TVA, he or she becomes ineligible for the loan.

"It makes me feel good to be able to provide to people this source of concrete assistance in their careers," says West. "Although we try to be responsive to employees who are having their jobs eliminated, there are so many things with those folks that depend on what they put into it. It's gratifying and makes me feel good about TVA as an employer, to know that it has created a visionary program to assist displaced employees."

Clearly, the employees benefit. Mac and Cathy Phillips, for instance, have the chance to follow the entrepreneurial urge that they felt in the late '80s.

"We feel wonderful about being in business for ourselves," Cathy says.

Mac adds, "It's something we can do together. We see progress or the lack of progress immediately. When you work for someone else, you always have someone else telling you what you can and can't do. Sometimes you can't use good ideas because nobody cares. I like the idea that we have the freedom to run things as we think they need to be run."

Although they each had worked for the TVA for many years and had a lot invested in the company, both felt positive about the way in which the termination process occurred. "I don't know if I could find anyone anywhere else in the world, who's been laid-off and given six months on the payroll to find another job," says Mac. "And a loan to go into business to boot," adds Cathy.

Raines says that TVA—as well as the employees—benefits greatly from the program. If TVA tried to recruit an environmental engineer, it would pay $20,000 to $25,000 in recruiting and relocation costs. The company now spends about $3,000 to $4,000 to retrain a TVA employee. Obviously, this benefits the local economy as well.

"Here's a person who has a master's degree in electrical engineering and is unemployed. Now TVA is retraining her to go back into the work force and become productive as an environmental engineer. TVA is a major employer in the community. When TVA retrains, it helps the community," says West. "It's just good business," he says.

Personnel Journal, September 1992, Vol. 71, No. 9, pp. 77-80.

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