EASTERN BANK AND ACCION EAST

CASE STUDY: NO IS NOT THE ANSWER EASTERN BANK AND ACCION EAST Introduction Small businesses are a key source of economic activity and growth in the United States, and account for 99.7% of all employers and employ half of the nation s private sector workforce. According to the Small Business Administration, small firms pay 44%of the total U.S. private payroll, generate 65%of net new jobs and hire 43%of high tech workers. Yet over half lack access to basic financial services. Often, their capital needs are too small for bank financing ($10,000 or less) and their credit is blemished or non- existent. Low- to moderate- income and minority small business owners are further disadvantaged by a lack of access to business education. These individuals require an understanding of business fundamentals, including marketing, bookkeeping, tracking cash flow and navigating the financial and regulatory marketplace. Yet education is often expensive and many face language or cultural barriers that further diminish their prospects for education and capital access. Oftentimes, they do not know where to seek capital or how to manage growth. The SBA offers a number of programs to help businesses access traditional and nontraditional capital. In Massachusetts, Eastern Bank is one of the preferred lenders for SBA loans and has been named the number 1 SBA Lender for five consecutive years. The SBA also provides microloan funds to specially designated intermediary lenders, which are nonprofit community- based organizations with experience in lending as well as management and technical assistance. These intermediaries administer the Microloan program for eligible borrowers. In Massachusetts there are over half a million microenterprises (businesses with five or fewer employees), but only nine dedicated micro lenders (including Accion). That amounts to sixty thousand microenterprises per micro lender. In 2012, Accion was recognized as the Small Business Administration s Microlender of the Year for providing more microloans than any other microlender in the state of Massachusetts. The Need for Microfinance Background Eastern Bank Accion East Partnership In 1994, Pedro Arce was on the board of Working Capital (now Accion East) a local micro lender based in Cambridge, MA. Historically, microfinance institutions like Working Capital and Accion have served immigrants, minorities and women. One region the microfinance organization has always served has been Lawrence, Massachusetts. Pedro s mother was one of Working Capital's first borrowers. She owned Discount Dry Cleaners on Essex Street in downtown Lawrence. Despite paying off her mortgage, several auto loans and holding her savings account with a local community bank since 1970, her business loan application

was declined by a local bank. Luckily, Working Capital was able to provide her with a loan to buy a modern ironing board and clothing racks. After five successful years in business, she sold her company. The new owner qualified for an SBA loan after opening the Lawrence shop. Pedro witnessed firsthand the impact a micro lender can have on a community and has supported micro lending ever since. In 1996, Accion and Working Capital merged. Although Pedro is no longer on the board, he has advised and supported Accion throughout the years. Creation of Partnership Pedro Arce launched a Denovo Bank- Veritas Bank in 2008 and sought to incorporate risk mitigation of its loan portfolio by outsourcing higher risk loans. As a part of the business plan, Accion would absorb lending risk for small business loans that had strong potential but could not qualify under the bank s traditional lending criteria but because of the recession, he was not able to get Veritas Bank going. Thereafter, Pedro Arce met Joe Riley, Executive Vice President of Retail and Business Banking at Eastern Bank, about joining Eastern and opening a branch in Lawrence, MA. Pedro advocated for Accion to be kept as a partner to serve the underserved population of the local business community. The concept was to have Accion provide micro business loans to clients that did not qualify under the Bank s lending criteria with the hopes of converting the microloans to SBA loans within a few years. In 2011, Pedro set up a meeting between Paul Quintero, CEO of Accion East, Ana Hammock, Vice President of Lending of Accion East and Joe Riley, EVP at Eastern Bank. This meeting cemented the Eastern and Accion relationship and sparked discussions on ways to institutionalize the partnership. All parties agreed that the biggest partnership push would begin in the Andover, Lowell and Lawrence areas. As clients were added to the Accion portfolio from the partnership, buzz surrounding the relationship multiplied. Today, Accion presents at the annual Eastern Regional Manager Meeting, engaging with Eastern Bank Managers across the 90 + Branches of Massachusetts. Since August 2012, Eastern has referred 159 small business owners to Accion. These business owners received guidance from Accion staff on topics including business financing best practices, credit building and understanding the lending landscape. They were also invited to special programs and workshops offered by Accion and provided with information on how to best prepare to access capital. Additionally, 1/3 of these small business owners received extensive one- on- one financial counseling. Finally, 15 have gone on to qualify for Accion microloans worth $99,000. This partnership has assisted Eastern Bank in keeping their deposit relationships because they do not have to say no to a business loan applicant and instead can alert clients of a second look opportunity with Accion. How the Partnership Works Each Eastern Bank branch employee receives training from Accion staff regarding Accion s lending requirements. Accion brochures are kept in every Eastern branch and Accion partners are sometimes co- located within Eastern branches. A client is referred to Accion when they do not qualify under the bank s program parameters. 2

If the client meets Accion s requirements, Accion will lend to the borrower and Eastern Bank continues to have a deposit relationship with the client. If they do not meet Accion s minimum requirements, they will still receive in- depth one- on- one business counseling from an Accion staff member on subjects including credit, cash flow management, record formalization and business planning and will be referred to an organization that can help them. If they have limited or blemished credit, Accion s in- house credit counselor will help them analyze their credit report and dispute inaccuracies, at no cost to the client. As the relationship grows, the client has an easier path to becoming a bankable prospect. Either way, customers expectations of good service are met as a result of the partnership. The Eastern Bank and Accion partnership makes a difference in the lives of Massachusetts small business owners by helping them start or grow businesses that support their families, create jobs, and revitalize neighborhoods. Partnership in Action Client Profile: Luminaries Business and Services Located just off Moody Street in Waltham, Massachusetts, Luminaries Business and Services attracts customers looking to purchase their first cell phone, pay their utility bill, make long distance phone calls, print resumes or send money orders and wire transfers. This impressive array of services is not accidental: Yillian, who arrived in Boston from the Dominican Republic ten years ago, understands the complex needs of her immigrant clientele. Sometimes they don t know how to fill out forms, or write cover letters, and I can help them with that I know what that s like. Yillian is constantly striving to keep her merchandise and services current and attractive to her customers. However, when the phone companies she had distribution deals with opened their own stores and canceled agreements with her, it jeopardized her business and livelihood. It was stressful, because suddenly I did not have the necessary cash flow to operate my business the way I did. I needed liquidity to maneuver, especially with a new business. Yillian needed a loan in order to adapt her business to the change. She approached Eastern Bank to inquire about her options. With damaged credit and a young business, Yillian s options were limited. Fortunately, her Eastern Bank contact assured her that not all doors were closed. Thanks to the close partnership between Eastern and Accion East, Yillian was provided with information about Accion s loans and financial education programs, and a referral for assistance. After receiving advice and support from Accion, she was quickly approved for a $5,000 loan. Recently, Yillian purchased new phones and accessories. She was thrilled with the level of support she received from Eastern and Accion. Yillian recently shared that the walls of her business are orange and blue- colors that remind her of the sun and the moon, the hope and the light she wants Luminaries to be in the community. With Eastern and Accion s support, Yillian can continue to be that beacon for her community. Client Profile: Café Azteca 3

There were no tacos for sale in Lawrence, Massachusetts before Antonio and Mary opened Café Azteca eighteen years ago. Their restaurant served more than delicious food, it offered a cultural and community experience. The murals and poetry on the walls were painted by local Mexican artists and provided by a nonprofit art organization. In 2012, Antonio and Mary realized growing their restaurant would require additional advertising and new equipment. To pay for this, they needed a loan. Unfortunately, unexpected health insurance costs had left them with a negative net income the year before and made them ineligible for a traditional loan. Fortunately, Eastern Bank referred Antonio and Mary to Accion. At Accion, they worked with a loan officer to build a strong application for financing and were quickly approved for a $20,000 loan to upgrade their restaurant. They also received one- on- one counseling to discuss their marketing capacity and pricing structure. Today, Mary, Antonio and their employees are delighted that they can continue to share their food and culture with the community. This confirms that a focus on productive partnerships, like Eastern and Accion, has allowed us to serve entrepreneurs in Massachusetts more successfully than ever before. Eastern Bank Lending to Small Businesses Founded in 1818 and based in Boston, Eastern Bank is the largest and oldest mutual bank in the country, with $9.5 billion in assets and more than 100 branches serving communities in eastern Massachusetts and southern and coastal New Hampshire. Eastern Bank offers banking, investments and insurance all under one roof, and prides itself on working harder to understand its customers needs so it can deliver these services in a committed and personal way. Eastern Bank, which includes Eastern Bank Wealth Management and Eastern Insurance, is a recognized leader in corporate social responsibility and for its advocacy on behalf of a number of social justice causes. In October of 2013, Eastern Bank outpaced larger competitors to rank as the No. 1 U.S. Small Business Administration (SBA) lender in Massachusetts for the fifth consecutive year. Eastern Bank was also named the No. 1 SBA lender in New England for the fourth consecutive year. Eastern Bank made 431 SBA loans in Massachusetts totaling more than $22 million, according to the SBA s Boston District Office. In addition, Eastern ranked No. 1 in the origination of 504 SBA first mortgage loans for the third consecutive year with 19 loans worth $12.2 million. The rankings are issued annually in October, based on the number of loans originated by banks in the SBA fiscal year, which runs Oct. 1 to Sept. 30. Eastern ranked No. 1 in the number of SBA loans originated and dollar amount in Massachusetts. Eastern s 450 SBA loans created 669 jobs and retained 1,387 jobs, according to SBA data self- reported by the bank. Eastern Bank is proud to lead Massachusetts and New England in lending to small businesses, which create jobs and keep our economy moving forward, said Richard E. Holbrook, Chairman and CEO of Eastern Bank. We are focused on helping businesses and consumers succeed that s our role in the market and it should be the role of every bank. 4

Although Eastern Bank is only the state s fifth largest bank based on deposits, it launched an extensive education program for its staff about the many advantages of partnering with the SBA in its mission to repeat again as the No. 1 SBA lender in Massachusetts and New England. SBA loans are intended to help businesses that may not qualify for conventional loans get the funds they need to start, grow and expand. In 2001, Eastern Bank s experience with processing and servicing SBA- guaranteed loans earned it the designation as a preferred lender, allowing it to speed up the loan approval process significantly. Starting in 2008, Eastern Bank placed a greater emphasis on providing SBA loans, including the addition of an SBA specialist to its team of business banking professionals. Accion East Background Accion East is a 501(c) (3) nonprofit microlender, a certified Community Development Financial Institution and a sanctioned lender in the SBA s microloan program. Accion s lending model is the result of over 50 years of successful micro lending around the world, more than 20 years lending domestically and more than a decade of serving low- to moderate- income, minority and immigrant entrepreneurs in New England. Accion has pioneered a number of achievements and innovations in the field. It created and launched the first online loan application in the microloan space, making capital and financial education available to underserved entrepreneurs across the country, regardless of their location. Accion was among the two original partners who brought Kiva's peer- to- peer lending model to the U.S. Accion is one of the five most productive micro lenders in the country today, based on Aspen Institute figures. Accion received the 2012 SBA Micro lender of the Year Award in Massachusetts. In 2013, we were inducted into The Social Impact Exchange s S&I 100, an index of the top 100 nonprofits creating social impact. Accion has a four- star rating from Charity Navigator for fiscal management and commitment to accountability and transparency. Since the inception of Accion s Boston lending office, it has served over 1,400 low- income, minority and immigrant entrepreneurs who cannot access the capital and financial education needed to launch or grow their microenterprises. In turn, these businesses have created and sustained over 5,000 jobs in their communities. Accion East Impact Accion is an industry leader in measuring the impact of its work. Every year, the Aspen Institute conducts a Micro Tracker Survey to measure the impact of Accion East s program on clients businesses, incomes and wages. This study has consistently shown that its programs have a profound impact on the businesses and lives of our clients. According to the 2013 survey, Accion East: Creates Jobs: Accion East businesses create and sustain an average of 4.3 jobs. Helps Businesses Expand: Accion East businesses experience a 16% increase in business revenues within one year of receiving a microloan. Keeps Businesses Open: 97% of Accion East businesses are still open one year after receiving a loan. Improves Quality of Life: Accion East business owners experience a 25% increase in take- home pay. 5

Helps Families: 85% of Accion East business owners report that their business improves or stabilizes their household. In 2014, the Aspen Institute released a groundbreaking report, which presents a first- ever look at the quality and state of microenterprise jobs based on in- depth interviews with employees of Accion East businesses. The study, Microbusinesses, Gainful Jobs 1, found that beyond earning stable wages, microenterprise employees overall had high levels of job satisfaction, citing features such as job security and flexibility, the opportunity to learn new skills, a supportive work environment and a launch pad to the next stage of their lives. The study also revealed that the microenterprise industry opened the door to employment for populations who traditionally struggle to enter the workforce: minorities, young adults with a high- school education and seniors. The study reinforces the necessity of providing business development opportunities. Developing borrowers skills helps to not only sustain their employees but also creates meaningful jobs in the community that will help grow their businesses. The breadth of Accion s micro lending and financial education work is only made possible through a strong network of local partners, like Eastern Bank. These partners refer potential or declined applicants to Accion and provide forums, materials and expertise at Accion financial education events. 1 http://www.gainfuljobs.org/ 6