By Carolyn Said San Francisco Chronicle
WWR Article Summary (tl;dr) Two Bay Area nonprofits are expanding their microlending programs. Microloans are relatively small loans that have a social as well as financial mission.
San Francisco Chronicle
Money is crucial fertilizer for small businesses, but many entrepreneurs -- especially women, people of color and low-income groups -- lack easy access to loans.
That's particularly problematic because studies show that most job creation happens at small enterprises.
Two Bay Area nonprofits, San Francisco's Working Solutions and San Jose's Opportunity Fund, seek to address this dilemma.
Now both are expanding their already prolific lending, seeking to reach additional underserved entrepreneurs through what the financial industry calls microlending -- relatively small loans that have a social as well as financial mission.
Their loans have acted as catalysts for all kinds of businesses, largely in the Bay Area: restaurants and cafes; boutiques and other shops; florists and bakeries; purveyors of coffee, desserts, baked goods, yogurt; bike shops and makeup suppliers.
Working Solutions and Opportunity Fund recently saw their founding CEOs turn the reins over to women leaders.
Working Solutions CEO Sara Razavi and Opportunity Fund CEO Luz Urrutia both find motivation from their own immigrant experiences. And the two enterprises collaborate: Working Solutions focuses more on early-stage startups while Opportunity Fund handles companies with more of a track record.
Working Solutions, which celebrates its 20th anniversary this year, plans to issue 1,000 microloans and disburse $30 million -- up from 700 loans and $18 million to date -- by 2021 or sooner.
"Our model is to be the first to believe in (entrepreneurs) and allow them to up their debt as their capacity grows," Razavi said. "If the fire catches, they grow."
Loans average $26,000 and repayment is a robust 96 percent. By contrast, only about 82 percent of Small Business Administration-backed loans are repaid, according to a NerdWallet study of loans awarded from 2006 through 2015.
Razavi credits extensive coaching and lots of one-on-one support for that high rate.
"It's more of an intimate relationship than the big banks," said Patty Rodriguez, founder of SF Parking.
She received a $25,000 loan from Working Solutions after being turned down by conventional banks shortly after starting the company in 2011. The money allowed her to buy revenue-reporting equipment mandated by San Francisco.
"It made it possible to continue," she said. "I don't know if I'd still be operating without that loan. I was so new then that other lenders rejected me."
Her five-employee company manages the employee parking lot at San Francisco International Airport.
Over the years, she's employed an estimated 200 people, both part and full time (parking is a high-turnover business), with an emphasis on offering jobs to previously incarcerated people to help get them back on their feet.
Razavi said some of her dedication stems from her own background. Her family emigrated from Iran when she was 10. Her single mother, an executive back home, worked as an interpreter and opened an Orange County bookstore specializing in titles from the Near East and Indian subcontinent.
"But she couldn't quite find her footing here," Razavi said. "That's why I got interested in this kind of social impact investing."
Luz Urrutia, CEO of Opportunity Fund, likewise was inspired by personal experience.
Even though Urrutia's first U.S. job was as a management trainee at a bank, her own employer turned her down for a credit card. As a new transplant from Venezuela, she lacked a credit history.
"I sat there and thought, 'One day I will build a financial services company that provides affordable, responsible solutions for people who don't have access to credit,'" Urrutia said. After years doing just that at for-profit banks, she joined Opportunity Fund in 2017.
"Our mission is to drive economic mobility by providing affordable capital and responsible financial services to determined entrepreneurs and communities," Urrutia said.
She describes the 25-year-old organization as the country's largest nonprofit microlender. It makes 3,000 loans a year, supporting over 5,000 borrowers at a time, with $152 million in its portfolio under management.
About 85 percent of its business is in California, heavily concentrated in the Bay Area.
Now it's trying to provide $1.2 billion to small businesses by 2023 and to expand both in California and nationwide.
Besides its loans, Opportunity Fund invests about $175 million in commercial real estate projects that benefit communities, such as buildings for San Francisco's Compass Family Services for homeless and at-risk families, Oakland's Native American Health Center and Berkeley's David Brower Center.
The entrepreneurs' repayment rate is 97 percent. An even more impressive statistic: Some 94 percent of the borrowers' enterprises remain in business two years after first receiving a loan, twice the national average for small businesses.
"These are borrowers who may not have traditional documentation, or no credit or thin files," Urrutia said. "No one's lending to them, they don't have what traditional lenders need."
Brenda Buenviaje, for instance, had worked as a chef for years but lacked business experience. When she wanted to open her own restaurant in 2007, not just banks turned her down but "friends, co-workers, my own parents were like, 'No thank you,'" she said. Opportunity Fund said yes, taking out a lien against her condo to secure the $100,000 loan.
"It felt miraculous, because the failure rates for restaurants are so notoriously high," Buenviaje said.
She used the money, along with a small business loan, to buy and renovate a restaurant on Polk Street that became Brenda's French Soul Food.
Three years later, she'd repaid the loan when the space next door became vacant. She borrowed from Opportunity Fund again to expand, and then again in 2014 to open a third location on Divisadero Street.
She and her wife run three San Francisco restaurants (Brenda's French Soul Food, Brenda's Meat & Three, and Libby Jane Cafe), which employ about 100 people (up from four when she started), and are eyeing a fourth spot in Oakland's Temescal district.
"It's been an all-around lovely experience," she said. Opportunity Fund's "mission is to help small businesses grow communities, and that's exactly what they did."
Urrutia said the multiplier effect is a big part of the fund's impact.
"Every loan we do creates or supports three jobs," she said. "Every dollar we lend out creates $2 of economic activity through increased wages, spending, tax revenues. The impact of these small business loans is significant."
Like Buenviaje, Ana Poe lacked business experience and also had no credit history. While working as a dog trainer, she fabricated a leather collar for her rescue dog Paco.
Customers asked for their own versions and soon she had a brisk side gig. At a certain point, she decided to turn it into a Berkeley store with an online component, but she needed capital for tools and machinery and to buy supplies in bulk.
Opportunity Fund started her out with a six-month, $1,000 loan to help build her credit, then a $5,000 loan and then a $10,000 one. It worked with her on a repayment program it calls EasyPay.
A portion of every storefront sale went to pay back the loan, instead of having a fixed monthly payment. "If business is slow, you don't get dinged for being late," she said. "It's really flexible, and it's nice not to have to worry."
In total, she borrowed $65,000 from Opportunity Fund, all of which she's now paid back. Paco Collars grosses about $500,000 a year and employes five people. Poe thinks she won't need any more loans.
"Opportunity Fund made us financially stable," she said.