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Small business not just another special-interest group

This article first appeared in the San Francisco Chronicle on April 9, 2015.

Chronicle business columnist Thomas Lee should be embarrassed to have his name grace “Debunking the moral superiority of ‘small businesses’” — a column clearly written by someone who doesn’t understand small businesses. Our groups don’t always agree on policies affecting small businesses, but we do agree that small businesses are the foundation of our economy, and lumping them into one narrow, ideological box buys into a long-standing myth that many in the political sphere would have everyone believe.

The unfortunate truth is that lawmakers often advance policies that favor large corporations over Main Street. And here’s where Lee missed the boat: the good reputation of small-business owners is often hijacked by these very lawmakers to justify policies that have no benefit to, and in some cases harm, America’s entrepreneurs.

Small businesses are politically, socially and economically diverse. While they want to be heard on the issues that are important to them, they are hardly monolithic in their views. Lee buys in to the false notion that small-business owners are lockstep in their support of policies — a view unscrupulous lawmakers and lobbyists have spent a long time trying to foster.

Let’s debunk his points:

•He calls small businesses “just another special-interest group with an agenda — whether social or economic.” Small businesses too often find their needs being subordinated to those of big business. For example, the tax loophole that allows big businesses to relocate their base overseas to avoid taxes allows large companies to undercut small businesses on cost — an enormous advantage. Yet, when it comes to remedies, politicians often claim small businesses would be hurt by the very changes that would fix it. Why? It all comes down to money. In the 2014 midterm elections, deep-pocketed corporations, and the special-interest groups they support, shelled out hundreds of millions of dollars to elect candidates to office who might push policies that help their bottom line. But small businesses have limited resources, which means they can’t compete with large businesses when it comes to campaign donations. Sure, politicians love to tout their small-business support, but in reality that support has become little more than a feel-good bromide they use to check a political box.

•He also gets it wrong when it comes to small businesses’ impact on the economy. Lee argues that the long-held belief that small businesses are our nation’s biggest job creators has been misrepresented. To that we say, small businesses represent more than 99 percent of employer firms. They employ half of all private-sector employees and they pay around 40 percent of the U.S. private-sector payroll, according to the Small Business Administration Office of Advocacy. And last year, ADP Research Institute found small-business job creation outpaced that of big businesses — a trend that isn’t unique to 2014.

Frankly, it’s counterproductive to attack the potential of a powerful economic force that can help bolster the economy as a whole. Small Business Majority’s opinion polling found 82 percent of small-business owners already pay more than the minimum wage and 55 percent offer health coverage to their employees — even though 96 percent have no obligation to do so under the new health care law.

Small employers recognize the importance of nondiscrimination policies because they help companies attract and retain bright employees and because it’s simply the right thing to do. In fact, the majority of small businesses support enacting federal and state policies protecting all workers from discrimination, regardless of sexual orientation or gender identity.

It’s unproductive to try to downplay our nation’s job creators as just another group lobbying politicians for their special interests. Instead, take issue with those trying to appropriate small businesses’ good name in an attempt to gain political points and pass harmful policies. Let’s give our nation’s entrepreneurs the respect they deserve.

John Arensmeyer is the founder and CEO of Small Business Majority. Claudia Viek is the CEO of the California Association for Micro-Enterprise Opportunity.

VEDC – 36 Deals per Staff

Brandon Napoli, VEDC“We have an operational plan that has helped us gain efficiency,” says Brandon Napoli, Valley Economic Development Corporation’s Director of Microlending. “We have agreements on who does what and how long each step should take. We can monitor when things get off track.”

With this operational plan in place, VEDC’s micro loan program has surpassed all its California CDFI peers in staff efficiency. They averaged 35.5 loans closed per full-time equivalent (FTE) staff person last year – with little automation. “We’ve had a pretty manual process up to this point,” says Brandon.

VEDC has become the largest non-profit business development corporation in the metropolitan Los Angeles area. Their programs include:

  • SBA Women’s Business Center
  • San Fernando Valley Financial Development Corporation
  • Pacoima Development Federal Credit Union
  • Los Angeles Business Source Center

With a staff of 8.5 FTE in the microloan department (including 3 underwriters and shared support staff), Brandon’s team closed 302 deals last year for a total of $2.3 million and will close about 270 this year. Their total portfolio is $4.6 million. They have one product: a microloan from $1,000 – $50,000, with a term of 3-5 years and a rate of 7.75 to 9.75%.

Each staff person defines weekly goals and the department defined a process that guides how often, how quickly and on what basis to talk with an applicant:

  • a quick assessment of an application,
  • a call to the borrower the next day to request documents,
  • two days to underwrite once documents are received, and
  • then approvals the same week.

“We try to only contact each borrower twice,” says Brandon. Their approval process operates like clockwork every week. Brandon can approve deals up to $10,000. He has Tuesday and Thursday meetings with his supervisor to approve deals between $10,000 – $25,000. For deals greater than that, there is a two-day approval turnaround from VEDC’s CEO Roberto Barragan.

Brandon’s lending staff has the benefit of an in-house business training program run by VEDC. His team trains the business technical assistance staff, who help with applications by gathering documents and working on other business development needs of borrowers. Brandon estimates that half of their deals come through or are assisted by the training program.

Brandon feels that their success is due in part to good messaging and communication to prospective borrowers, so clients know what is expected. The application, which comes with a welcome letter and examples of success stories, is two pages. The application, a credit report and a couple months bank statements is all the VEDC underwriters need to quickly assess the loan on the client’s ability and willingness to pay it back.

VEDC isn’t resting on their impressive efficiency. This year they plan to further automate their system by creating a customized CRM system to track each applicant, import bank statements and generate documents automatically. In addition, VEDC is talking with FundWell, an online marketplace that pre-qualifies applications and matches them with lenders. FundWell presented at CAMEO’s January 2015 Microlending Forum.

With the additions of a fully integrated CRM system and FundWell feeding the pipeline with pre-qualified deals, we are looking forward to learn what VEDC’s microloans per staff will look like in 2016.

Brandon Napoli is the Director of Microlending for VEDC. VEDC’s mission is “to create and sustain jobs and businesses in our communities by providing high quality small business services…to enrich communities by making small business dreams a reality.”

Micro Lending Academy: Loan Capital Projection Worksheet

Loan Capital Projection Worksheet

CAMEO has developed a tidy spreadsheet tool to project how much loan fund capital you will need based on loan volume, interest rate and loan loss. On this webinar you will receive a copy and see how it works. We’d like to get your feedback as well, to see if we’ve structured it to meet your loan fund operational needs. Our microlending guru, Susan Brown, will host. This MicroLending Academy webinar is appropriate for all lenders or technical assistance providers who are thinking about a loan program.

Watch and listen to the Webinar (39 minutes)

About the Presenter

susan-brownSusan Brown‘s job is to provide you with facilitation, guidance, information, support and collaboration to make your work effective, connected to your values and aligned with your goals. Economic justice and values-driven economic development have been her primary focus during her entire professional life.  She brings these long-standing passions to her work along with an eclectic set of life experiences to provide a mature, in-depth perspective to individual and organizational change and growth.

Excellence in Microlending

The MLA newsletter is chock-a-block with articles, resources, technology, success stories, interviews, and big picture ideas on all Lending Academy features. This edition revolves around excellence in microlending.  What are the key factors of success? What are standards of practice for California microlenders? What can we do to scale microlending to meet the unmet demand resulting from banks scaling back their small dollar loans?

In this Issue…

  • Excellence in MicroLending Step One – Assessment
  • Success Story:  Accion San Diego – Combining Growth and Mission
  • MMS Update: Who are the Borrowers?
  • Best Practices: Impact Investing to Scale Up Microlending
  • Research:  Who Are the Credit Invisibles
  • News


Excellence in MicroLending Step One

 1000947586CAMEO’s long-standing commitment to building California’s microlending sector is the force behind many of our recent programs:  Kiva and Accion Texas partnerships, the training series last October, Claudia’s many successes in building resources for lending, to name a few.

Our latest program, Excellence in Lending (EiL), focuses on the program elements needed for a high-quality loan fund poised for growth.  Using Kiva’s Field Partner metrics as a starting point, we created an assessment that will be the basis for a rich discussion at our 2015 MicroLenders Forum at the Federal Reserve Bank of San Francisco this week – January 15.  Fifteen lenders filled out the survey and we’ve compiled the aggregate data.

At the Forum, we’ll be asking participants what they think of the results.

  • Are there areas that the industry as a whole should address or improve?
  • Are there areas where establishing performance metrics make sense?
  • What needs to be in place for a CDFI to successfully scale up to, say, 200 loans per year?

Read Susan Brown’s blog post about what the assessment measured and what topics showed a wide variety of standard of practice.

Success Story: Accion San Diego – Combining Growth and Mission

1000947586And speaking of excellence- last edition we looked at the three lenders – Opportunity Fund, VEDC and Accion San Diego – who make up 75% of loans made by the CAMEO network of microlenders.  Over the next few newsletters, we’ll profile those organizations to see how they grew.

Our first interview was with Elizabeth Schott, CEO of Accion San Diego and CAMEO’s board president for 2015.

“We have averaged 15-30% portfolio growth over the past several years and project continued growth rate for the next five years…. We don’t just make loans. We change communities and local economies,” says Elizabeth Schott.

Susan Brown asked Elizabeth what were the key elements that set the stage for this success in her latest blog post.

Technology: MMS Update -

Who Are the Borrowers

Three new members are joining CAMEO’s MMS project in 2015 for a total of seven particpating organizations: Mission Economic Development Association (MEDA), the Economic Development & Financing Corporation of Mendocino County, and Fresno CDFI (thanks to generous funding by Union Bank.)

The Accion Texas staff will also rollout a much improved online application. The new version is streamlined and easier for borrowers and loan officers to navigate, and is now available in Spanish as well as English. Entrepreneurs who are interested in applying for a loan can visit CAMEO’s California Microlending Online page for more information.

Now that we have a year of data, we’re wanted to know what MMS borrowers looked like. MMS offers a robust set of demographic tools, and CAMEO will be taking fuller advantage of these program features in the coming year.  Check out Andrew’s blog post that summarizes who the MMS borrowers are.

Contact Susan Brown if you’re interested in learning more or participating.

Best Practices: Impact Investments to Scale MicroLending

Access to reasonably priced capital for entrepreneurs who can create opportunity for low-income communities is a well-know problem.  The CAMEO network and other microlenders who do provide good terms for small dollar loans are handicapped in the sense that many times these loans are not profitable.   Joyce Klein, Director of the Aspen Institute Microenterprise Fund for Innovation, Effectiveness, Learning and Dissemination (FIELD), wrote about the “opportunity to use impact investment to build the strength and scale of market relevant, mission-driven lenders” in a recent Aspen publication.

Research: Who are the Credit Invisibles?

About 54 million people in the United States have no credit standing, i.e. they are “credit invisibles (video).  This means that their economic behavior is outside what the three major credit rating agencies measure, not that they don’t participate in the economy.  Maybe they’re renters who pay phone bills and utilities – but those activities aren’t looked at by credit agencies.  This article examines different efforts by nonprofits, government and social enterprises to bring visibility to the credit invisibles.

In one such effort, Credit Builders Alliance and Experian analyzed the impact of loan repayments being reported to them by CBA members (nonprofit lenders) with positive results.  However, microlenders can use more assistance to help report to the credit bureaus.


The Underground Economy

Thanks to Small Business California for this information.

The underground economy is one in which employees are paid on a cash basis thereby eliminated the cost of taxes and workers compensation.

The Labor Enforcement Task Force put out a Fiscal Year 2013-2014 Report about the underground economy in California. Here’s a smattering of results they found.

  • Agriculture where 72% of the businesses looked at were out of compliance
  • Automotive where 94% were out of compliance
  • Beauty Salons where 72% were out of compliance
  • Construction where 81% were out of compliance
  • Garment where 87% were found out of compliance
  • Manufacturing where 71% were found out of compliance
  • Restaurant where 75% were found out of compliance.
  • Other where 74% were found out of compliance.

The Labor Enforcement Task Force (LETF) welcomes referrals and leads on underground economy activity from both employers and employees. The public can contact LETF by any of the following methods:
LETF Public Hotline: 855 297 5322
LETF Email Address
The new LETF Online Referral Form

CRA Resources

for Bankers & Community Development Practitioners

Do you know your local bank’s CRA rating or where to find it? Could you write a performance context for your bank’s next CRA exam? The San Francisco Fed is pleased to offer resources for those looking to expand their understanding and application of the CRA.

cra-ratings-tool CRA Ratings Search Tool  The CRA Ratings Search Tool allows you to quickly and easily locate CRA evaluations for state member banks regulated by the San Francisco Fed. Beyond the ratings themselves, the performance evaluations (PE) contain valuable information about an institution’s CRA activities and assessment areas. The search tool allows you to filter by bank size and geography and directly links users to a bank’s two most recent PEs.
Community-Development-Data-Guidebook-cover Community Development Data Guidebook The Community Development Data Guidebook is meant to serve as a “how to” for those interested in conducting more robust community development research. This type of community-based research, often termed performance context in the regulatory world, is critical to bankers looking to make impactful investments and loans pursuant to Community Reinvestment Act (CRA) requirements.
Understanding-Community-Development-Needs-through-the-CRA-Performance-Context-cover Understanding Community Development Needs through the CRA Performance Context

This working paper attempts to demystify the performance context and establish its strategic value to the CRA process. The paper explores new opportunities for strengthening the performance context as a community development tool, from the perspective of both bankers and regulators.

For more, please visit our CRA page.

Claudia Talks DIY Economies at IEDC

Healthcare Reform and Small Biz

What Healthcare Reform Means for your Micro-Business

Health care continues to be an important issue for small business owners. The Small Business Administration and Small Business Majority are committed to helping businesses navigate the changes and opportunities in health care through the Affordable Care Act 101 webinar series.

Small business owners can learn the basics of the Affordable Care Act and how they can enroll in small business health insurance marketplaces. Other topics discussed include insurance reforms, the small business health care tax credit, and employer shared responsibility provisions. SBA representatives help small business owners understand the facts of the Affordable Care Act so they can make informed decisions about providing health insurance for their employees.

What the Healthcare Law Means for your California Small Business



Learn more about how the new health care law affects small businesses.

For more information visit Covered California.

Profile – Accion San Diego

Combining Growth and Mission

Susan Brown, CAMEO’s microlending guru, interviewed Elizabeth Schott, CEO of Accion San Diego and CAMEO’s board president for the first installment of our series profiling California’s most prolific microlenders: Accion San Diego, Opportunity Fund, and VEDC. Here’s Susan’s profile:

We have averaged 15-30% portfolio growth over the past several years and project continued growth for the next five years…. We don’t make loans. We change communities and local economies. –Elizabeth Schott

This impressive growth is combined with her commitment to a high-touch lending process that amounts to “more of a movement than a set of transactions.”

Accion San Diego is a member of the Accion Network, worldwide leaders in micro-enterprise development. Launched in May of 1994, Accion San Diego’s mission is to create economic opportunity for primarily low-to-moderate income business owners who lack access to traditional sources of credit. Through business loans and support services, the lender strengthens the roots of emerging entrepreneurs and helps them to thrive in their communities, creating social and economic change.

Accion offers two main products to entrepreneurs in San Diego County:

  1. The Quick Loan, $2,000 or less, has a 48 hour turn-around time.
  2. The Complete Loan, from $2,001- $75,000, has a turn-around time of approximately 2-3 weeks.

They closed 209 loans in 2013, and will close around 270 in 2014, with an average loan size between $11,000 – $12,000 and a current portfolio of $4.4 million. Their self-sufficiency ratio (percentage of operating expenses covered through earned revenue) has increased from 38% in 2007 to approximately 60% in 2014.

Schott saw an opportunity to meet increased market demand in 2008-10 — when banks tightened lending to small entrepreneurs. This has become an ongoing strategic objective. She notes three organizational pillars she has pursued to support this objective:

Increased focus to raise program revenue and loan capital. A growing portfolio, along with 10%-19% interest rate, has provided increased earned revenue to support operations, as reflected in their nearly doubled self-sufficiency ratio. Schott has also focused on building successful and diverse relationships with key stakeholders and funders providing a broad base of grant revenue for operations and programs. As for increasing their loan fund capitalization, ASD has received four back-to-back CDFI loan fund grant awards.

Investment in technology and infrastructure. ASD has upgraded their portfolio management system to offer more-detailed, real-time reporting which informs management and outreach decisions. In addition, the staff, now out-fitted with remote technology (smart phones and laptops), are not tied to their desks, but rather spend their time in the field generating deals while still responding to new inquiries, answering borrower questions and gathering loan documents. ASD is also participating in a pilot with the Accion Network to automate some of the assessment and underwriting process, “without losing the personal touch” so critical to their mission. This in-the-field approach combined with remote technology generates high productivity, with approximately 17 deals closed per FTE staff member in 2014.

Investing in The Team. “We have invested a lot in our people, which has a direct correlation to our growth,” says Schott. ASD provides all staff flexibility accessing training opportunities for professional growth. They have restructured their staffing to provide career ladders within ASD and they plan to continue building this as future growth occurs.

“People can join ASD at an entry position, and see a next step for their career path within the organization,” says Schott. They also invest in ongoing, bottom-up team building activities, offering opportunities for staff at all levels to design and lead activities to build employee engagement and highlight those who have gone above and beyond. “Managers underestimate the power of small things that can lead to an increase in productivity and retention of valuable staff.”

a next step for their a career path within the organization for themselves right here,

When asked what she sees as important future focus for the CDFI microlending industry, Schott notes, “We have to invest in tracking data capacity to demonstrate our effectiveness. I can’t tell you how often funders comment that they love to see all the results we pack into our annual report. This is what will set us apart when competing for future funds.”

Excellence in MicroLending Step One

by Susan Brown

CAMEO’s long-standing commitment to building California’s microlending sector is the force behind many of our recent programs: Kiva and Accion Texas partnerships, the training series last October, Claudia’s many successes in building resources for lending, to name a few.

Our latest program, Excellence in Lending (EiL), focuses on the program elements needed for a high-quality loan fund poised for growth. Using Kiva’s Field Partner metrics as a starting point, we created an assessment that included:

  • Marketing
  • Product Design
  • Technology Use
  • Portfolio Management
  • Underwriting
  • Approval Process
  • Servicing
  • Risk Management
  • Earnings, Liquidity, Capitalization
  • Delinquencies and Collections

Fifteen of CAMEO’s 28 lending members responded. We compiled the aggregate answers, and have created confidential reports to each responding organization so they can see how they stand compared to their peers.

We will use the assessment responses for the morning portion of our 2015 Microlending Forum on January 15. The assessment yielded rich content for discussion. Some topics that show a wide variety of standards and practices are:

  • Use of technology
  • Staff time in the field
  • Servicing practices
  • Loan volume per FTE staff
  • Portfolio at Risk definitions
  • Use of State Guarantee programs
  • Risk rating practices
  • Interest rates charged

At the Forum participants will discuss what they think of the results: Are there areas that the industry as a whole should address or improve? Are there areas where establishing performance metrics make sense? What needs to be in place for a CDFI to successfully scale up to, say, 200 loans per year?

Ginger McNally, Senior Vice President for Strategic Consulting at Opportunity Finance Network, will join us to give us her take on the results, relative to the CDFI small business lending trends she sees around the country.

We look forward to our members’ participation in this discussion to digest the results and plan future direction for meeting the need for small and microloans in California.