CDFI Small Business Lending: Its Our Time

Transcription

1 CDFI Small Business Lending: Its Our Time Roberto Barragan, President VEDC VEDC 1

2 Introduction VEDC is the largest non profit small business lender in Metro LA Largest SBA Microlender and EDA RLF in CA. Sponsor of SBA 504/state guarantee lender Sponsor of federally chartered credit union and SBA 7 a lender VEDC 2

3 A CDFI in a Credit Crunch World Financial Crisis Skyrocketing Demand Bank Support SBA, State, CDFI Support Why VEDC? VEDC 3

4 Financial Market Crisis Dec. 2007: Recession Officially Begins August 2008: Lehman Bros fails - Credit Markets freeze, TARP happens Oct. 2008: SBA Secondary Market Stalls; SBA volume drops 50% Oct 2008: After big losses, BofA dramatically curtails 7(a) lending Nov 2008: Chase buys Wamu Dec. 2008: Wells acquires Wachovia Feb. 2009: ARRA passed; SBA volume rises Jul. 2009: CIT ( Major 7(a) lender) denied federal bailout VEDC 4

5 Small Business Credit Demand March 2009: Amex cuts credit access April 2009: HELOCs are frozen nationwide May 2009: BofA buys Merrill Lynch September 2009 Goldman Sachs announces 10,000 Small Businesses October 2010: Starbucks announces OFN Create Jobs effort December 2010: Small Business and Jobs Act VEDC 5

6 Federal Government Saves State Small Business Programs $164 million given to support guaranteed lending and loan loss reserve program Loan guarantee limits increase to $2.5 million 11 small business financial development corps receive minimum program support CalCap program struggles with insufficient bank participation VEDC 6

7 Increasing Small Business Support from for CDFI Fund Obama Administration increases CDFI support by 500% to $250 million US Treasury Financial Assistance Program is increasingly focused on job creation and business assistance New Markets is focused on Commercial Real Estate, no small business lending Large focus on national intermediaries and financial institutions BEA grants limited to banks, not credit unions VEDC 7

8 Why VEDC? Significant due diligence focused on loan portfolio performance: Loans above $50k:>5% delinquency NCOs at under 2% over the past 2 years Loans below $50k: 14% delinquency NCOs at under 4% over the past 2 years Comprise 30% of VEDC portfolio Entire portfolio delinquency currently under 8% Portfolio Management Software combined with exp. credit administration, inc bankers on loan committees VEDC currently manages $24 Million in loan capital with 40% net assets and 4% loan loss reserves VEDC 8

9 Bank Support Oct 2008: GE Money $500k in microloans made; Dec 2008: Merrill Lynch: $1 M low interest loan for microlending; all lent by Feb 2009 Aug 2009: US Bank: $2 million EQ2 for microlending: all monies lent within 12 mos. Oct. 2009: BofA: $ 1M Accion LA program approved May 2010: Goldman Sachs: $7 mm loan and $1 mm grant: $5 mm lent to date. Sept. 2010: Wells Fargo $1 mm loan, lent in 90 days Dec 2010: Chase $5 MM grant, VEDC goes statewide VEDC 9

10 Other Bank Support Currently maintains referral programs with Bank of America, Chase, Wells and Citi Chase: Financial support to Access to Capital Center in LA, inc denial referrals Citi: Statewide downtown ATC program w CALED BofA: Microloan program support Wells: Supports statewide WTM US Bank: SoCal microloan program VEDC 10

11 SBA Support SBA 504/ARRA changes result in VEDC st year experience of $20 M lent SBA 7(a)/ARRA changes result in $1.5 M lent by VEDC sponsored credit union SBA Microloan program receives additional $750k in loan capital SBA Primes approves $200k to VEDC for entrepreneurial support VEDC becomes Community Advantage lender VEDC 11

12 VEDC Statewide Expansion Chase makes $5 million grant to VEDC to expand lending statewide: $50 million in lending in 3 years Referrals from Chase branches (denials) and area nonprofits and chambers VEDC hires FT BDO to originate loans in Bay Area Secures MOU with 30 organizations statewide to originate loans VEDC hires VP of Lending w prior bank experience VEDC establishes VP of Marketing and Communications to establish brand strategy VEDC enters into MOU w CALED to operate statewide EDA RLF using dormant state money VEDC 12

13 Where s the Money Expos Access to Capital Events hosted by VEDC bringing together banks, government and local organizations Workshops and business speakers Loan pavilion: Bank loan officers meet with application ready borrowers San Francisco: 250 businesses San Diego: 300 businesses LA: 900 businesses VEDC 13

14 VEDC as Small Business Lender: Market rate lender Focused on 3 Cs (credit, collateral and cashflow) and lend on 2 Intense underwriting and closing processes focused on cash flow and collateral perfection, respectively Credit elsewhere: restaurants, startups Diverse portfolio w extensive experience in underserved markets Strong collection practice and history VEDC 14

15 What this means Realization that there are few small business lenders nationally, We need more not less lending, especially to small business in light of tighter credit conditions Banks are under close regulatory attention and will continue to limit small business lending for the next months So they need to invest in local and regional mechanisms to support small business lending With tighter budgets, cities and counties need to outsource small business lending to CDFIs VEDC 15