Latest Blog Posts

CAMEO Members Host Etsy Classes in Santa Cruz

The Santa Cruz Sentinel featured a front-page story this morning on the Etsy classes offered by Santa Cruz County, and several CAMEO members were mentioned as supporting the event! There are over 400 Etsy sellers in Santa Cruz County, and more than 90 county residents signed up to take the classes.

Barbara Mason, Santa Cruz County’s economic coordinator, contacted Etsy after learning Santa Cruz County has 400 active Etsy sellers. She didn’t expect a call back from Chief Executive Officer Chad Dickerson. Bottom line: Santa Cruz County is the fourth in the nation to offer craft entrepreneurship classes.

About a dozen organizations including the Central Coast Small Business Development Center contributed funding or time to make the classes possible. … Pricing will be covered this week along with resources such as El Pajaro Community Development Corp., an incubator, Opportunity Fund, which makes loans of up to $5,000, and micro-lenders associated with the California Association for Micro Enterprise Opportunity.

(read more)

 

Women’s Small Business Ownership Act

Senator Maria Cantwell (D-WA) has introduced the Women’s Small Business Ownership Act of 2014. The bill nearly doubles funding for Women’s Business Centers, increases federal contracting opportunities for women-owned small businesses, and increases microlending.

From the bill summary:

Women’s Small Business Counseling:Currently, there are 107 local non-profit organizations that host the Women’s Business Centers located throughout most of the U.S., which help more than 150,000 clients annually and is overseen by the SBA Office of Women Ownership. This legislation would reauthorize the Women’s Business Center program through fiscal year 2019 and nearly doubles funding authorization from $14.5 million a year to $26.75 million a year, while establishing clear rules and metrics to evaluate the success of each center.

Women’s Small Business Contracting:This legislation would authorize sole source awards to women-owned small businesses, creating parity for the Women-Owned Small Business program in terms of federal contracting opportunities. Under current law, women-owned small businesses are not eligible for sole-source contracts from the federal government. The federal government has a goal of awarding 5% of federal contracts to women-owned small businesses. This goal has never been reached and this bill will help the federal government meet that target. Had the goal been achieved, is it estimated women-owned companies would receive another $4 billion in federal contracts each year.

Access to Capital: The legislation would allow lenders in the SBA Microloan to increase overall lending capacity from $5 million to $7 million and improve the program to better meet the needs of borrowers through offering more flexible loan terms, improved technical assistance, and reallocation of resources to high performing lenders. The SBA Microloan program allows intermediaries to issue loans up to $50,000. Current law limits micro lenders from spending more than 25% of the technical assistance on a potential borrower. This provision was originally included in the pilot program legislation to make sure intermediaries did not use all of their technical assistance funds to assist businesses that did not have the potential to become borrowers. Your legislation eliminates this requirement to better assist prospective borrowers and provides lenders with more flexibility.

You can help support the bill by following the Senate Small Business Committee on Facebook and Twitter.

Barriers to Women’s Entrepreneurship

Barriers-to-Women's-Entrepreneurship21st Century Barriers to Women’s Entrepreneurship
Majority Report of the U.S. Senate Committee on Small Business and Entrepreneurship
Maria Cantwell, Chairwoman

Published 23 July 2014
Key findings from the report include:

Women entrepreneurs still face challenges getting fair access to capital. Only 4 percent of the total dollar value of all small business loans goes to women entrepreneurs. The report proposes expanding microloans and makes SBA’s Intermediary Loan Program permanent to provide more capital to women entrepreneurs.

Women entrepreneurs still face challenges getting equal access to federal contracts. The U.S. Government has never met its goal of awarding 5 percent of federal contracts to women-owned business. If they did, women-owned businesses would have access to marketplace opportunities worth at least $4 billion each year. The report proposes changing federal law giving women-owned businesses the opportunity to win sole source federal contracts.

Women entrepreneurs still face challenges getting relevant business training and counseling. Although Women Business Centers are in nearly all 50 states and they successfully provide specialized counseling and training to women business owners, these centers have not been re-authorized since the 1990s and funding has remained flat for the same time period. The report proposes reauthorizing and funding the centers to provide adequate training and business counseling to women entrepreneurs, especially low income women.

Read the report.

The report was the focus of a Senate hearing also held on July 23, 2014 – Empowering Women Entrepreneurs.

Women’s Economic Priorities

Women's-Economic-PrioritiesWomen’s Economic Priorities
U.S. Women’s Chamber of Commerce

Published July 2014

Women are an important force in America who have, for too long, been undervalued and underrepresented in political leadership and policy making.

Our multi-decade march into the American workforce, business ownership, household leadership and consumer spending has elevated women into true leadership of the American economy. And now, we are also The Majority Vote.

However, even with our sizeable contributions to and influence on the American economy, we recognize there is much left to do to support women’s economic opportunities, independence, security, values and family well-being.

The purpose of this report is to highlight the contributions of women to America, outline our current economic condition and state clearly the types of federal budget and policies that are vital to support Women’s Economic Priorities.

The new role for women’s economic and political leadership has begun as we focus or influence, detail specifically our contributions to America, our views and needs and strongly assert our influence through aligning our votes with those who support us. We call upon America’s political leaders to answer our call.

We are students, workers, mothers, business owners, retirees, consumers and The Majority Vote.

We are the New American Leadership.

(read more)

Growth of Microlending: Disruption, Adoption

This 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 the disruptive changes that are popping up on a regular basis and providing challenges and opportunities for our sector.

In this Issue…

  • State of Microlending, June 18 Meeting with CDFIs
  • News: Alternative Lenders Abound
  • MMS Update: Working Solutions Adoption and Growth
  • Dealing With Disruption:  Revenue-based Lenders
  • Best Practices:  Small Dollar Credit Tool
  • Success Story: Pedro Zerpa, Fusion Peruvian Grill
  • Training Opportunities

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State of Microlending, CDFI Meeting June 18

Wells Fargo, CAMEO and number of California CDFIs gathered in Sacramento on June 18th for a dynamic conversation about the state of microlending in the Golden State. Hosted by Wells Fargo’s Community Development Manager Tim Rios and co-sponsored by CAMEO, the goal was to identify challenges and solutions to expanding CDFI lending activity.  CAMEO and the Wells Fargo Community Development team were there to ask questions, listen and gain understanding of the needs of California’s CDFI community.

News

Technology: MMS Update -

Disruption Necessitates Change

Working Solutions understood early that the onslaught of new online lenders meant that they’d need to do something to compete.  So they joined CAMEO’s Microlending Management System (MMS) last year and are on track to double their number of deals this year.

Susan Brown talked to the organization’s executive director, Emily Gasner, and reports that Working Solutions gets a gold star in adopting MMS, but there were some bumps in the road that they had to overcome.

To learn more about how MMS can help make you more competitive with new online players, contact Susan Brown!

CAMEO thanks Rabobank for understanding that microlenders face challenges and competition from new industry players.  Rabobank supported us in the rollout of our MMS program.

Dealing with Disruption: Revenue-based Lending

The combination of online technology and investors who seek higher returns has created a flood of online business lending companies.  Navigating the space is challenging, even for an experienced borrower.  Rates, loan structures, fees, terms, etc can be hard to discern from the websites.  To that end, we will try to keep members up-to-date with current trends.  CAMEO wants to provide you – our business development and training professionals – with this information so you can help your clients determine which funding opportunities are most appropriate.

This month Shufina took a look at revenue-based lenders – those lenders whose repayment structure depends on revenues and receipts – one subset of small-capital, short-term lending that takes careful analysis to understand.

Best Practices:  Small Dollar Capital

The Center for Financial Services Innovation published a new guide – The Compass Guide to Small Dollar Credit.

  CFSI convened a network of expert advisors to develop a set of guidelines and best practices for high-quality small-dollar credit as part of their Compass Principles program.  The Compass Principles are aspirational guidelines to assure quality innovation and execution in financial services – services that enable people to transact, borrow, save and plan in ways that are beneficial to the consumer and profitable for industry.

Even though these guidelines are for consumer credit, the recommendations apply to small-dollar business credit.  The guide can be used as a framework for assessing your product and as a tool for training your staff and clients.

Success Story: Pedro Zerpa, Fusion Peruvian Grill

Pedro Zerpa ran his restaurant, Fusion Peruvian Grill, for three years, when he realized that he could increase his bottom line by adding a bar. He obtained the liquor license, but needed money to build out a bar area. Due to some past credit problems, Pedro was not eligible for a bank loan. He had his loan check in hand nine days after Working Solutions’ MMS loan system approved him.

Training Opportunities: 10,000 Small Businesses Financing Initiative

microbusiness trainingOFN and Goldman Sachs have committed to helping mission-driven small business lenders grow to better serve small businesses by launching the Goldman Sachs 10,000 Small Businesses Financing Initiative. This program kicks off with three identical workshops offered by OFN across the country, starting in late July.

The curriculum combines innovative approaches to marketing, culture, technology, operations, and leadership with elements of the Goldman Sachs 10,000 Small Businesses program for entrepreneurs adapted for small business lenders.  We here they might waiting-list only.

CAMEO’s Individualized Learning Program for Trainings and Professional Development can be used to partially defray trainings, workshops and events that help develop leadership and improve operations of our member organizations.  Learn more on how to access this member benefit as well as other training opportunities.

Revenue-based Lending

Written by Shufina English

The combination of online technology and investors who seek higher returns has created a flood of online business lending companies.  Where there once was  a handful, there now are dozens, hundreds maybe.  Navigating the space is challenging, even for an experienced borrower. Rates, loan structures, fees, terms, etc can be hard to discern from the websites. CAMEO want to make sure that you – our business development and training professionals – keep up with this proliferation and help your clients determine which funding opportunities is most appropriate. To that end, we will try to keep members up-to-date with current trends.

For our first look into the this very vast arena, we look at a subset of business lenders whose loans are based on revenues and receipts. They offer small-capital, short-term loans.

Today, we look a four such lenders, including CAMEO member Opportunity Fund.  And while there may be other lenders, the same methodology can be used to analyze them. The chart below shows how much money it would cost a business owner to borrow funds from these lenders.  For comparison, we assume a $10,000 business loan for 12 months, and the borrower pays the average fees.

When reviewing the costs of short-term funding, we mostly talk about fees, not interest rates. The inconsistent terms can be confusing, even deceptive in some cases. But nevertheless, for our borrowers protection, we need to calculate the actual amount that the borrower will need to pay back over the time of the loan and need to do so in annualized terms, so that borrowers and their business counselors can compare it to the business’ margins, which is an annual calculation. Without that apples-to-apples comparison, a business owner can’t make an informed and productive borrowing choice. Borrowing at a annual rate that exceeds a business’ margins, will sink a business and rob it of its profits.

In the case of both On Deck Capital and Kabbage, a typical borrower can expect to pay back the principal (amount borrowed) + 15% of the amount borrowed. Based on these numbers, borrowing $10,000 will cost $11,500. However, the interest rate is not 15%. In fact, the effective annual interest on these loans can be up to 60% depending on terms!

The inconsistent terms can be confusing, even deceptive in some cases. But nevertheless, for our borrowers protection, we need to calculate the cost of capital (whatever its called) in annualized terms, so that borrowers and their business counselors can compare it to the business’ margins — which is an annual calculation. Without that apples-to-apples comparison, a business owner can’t make an informed and productive borrowing choice. Borrowing at a annual rate that exceeds a business’ margins, will sink a business and rob it of its profits.
The difference between the amount paid back and the effective annual interest rate is primarily due to two factors.

  • The period for repayment in this example is six months, and not a year.
  • The borrower is paying back the principal throughout the term of the loan / merchant cash advance.

In other words, if you average out the amount owed during the life of loan it’s about half of the original amount taken. Problems arise for borrowers who do not effectively predict their receivable cash flow because the penalties for insufficient funds accumulate daily and are added to the principle.

Analysis

Kabbage is acceptable for the 1 or 2 person eBay, Amazon, or Etsy merchant, who has a CLEAR understanding of their cash flow and sales cycle, and ideally will qualify for a lower interest rate. Although Kabbage’s fees are higher than the others, they are approximately half the cost of a traditional merchant cash advance, and can be considered for the online business owner who needs cash immediately for a business growth opportunity.

Opportunity Fund’s Easy Pay is best short-term loan provider for small businesses in this category.  Opportunity Fund’s EasyPay product is appropriate for brick and mortar businesses and businesses that have trouble getting loans from traditional banks. A loan from Opportunity Fund is approximately half the cost of any national competitor, and approximately a quarter the cost of a traditional merchant cash advance.  Business owners will realize a lower cost of funds by taking a longer payment plan.

Paypal Working Capital offers the cheapest source of funds to small businesses.  However, the amount of available capital is tiny and requires the client receive lots of payments via Paypal.  The maximum amount one can borrow is 8% of annual Paypal collections.  For example, if the client does $15,000 in revenues per month or $180,000 per year through Paypal, the maximum amount available to borrow would be $14,400  ($180,000 x .08).

 

On Deck Capital Kabbage Paypal Working Capital Opportunity Fund
(Easy Pay)
Type of Business Online and Offline Online merchants that collect via PayPal or sell through eBay, Amazon, or Etsy Online merchants that collect via PayPal Offline
Value of loan $5,000-$250,000 (typically $30,000-$35,000) $500-$50,000 $1,000-$20,000; capping at a maximum of 8% of annual PayPal sales $5,000-$100,000
Length of Loan 3 to 18 months (typically, 6) 6 months 3 to 11 months, depending on the plan 12-48 months with no prepayment penalty
Origination Fee / Fee Deducted From Funds 2% None None  5%
Cost of Funds Typically 15% of the amount borrowed for a 6 month loan 8% – 24% of the amount being borrowed 3%-10% of the amount borrowed; the shorter repayment term, the lower the rate 8.5% – 15%
Collection Process Deduct fixed amount from bank account on a daily basis 6 monthly payments with the first two being a greater amount A fixed percentage from 10% – 30% of funds deposited into your PayPal account A fixed percentage of credit and debit sales, no more than 10% of overall sales
Credit Building Opportunity Yes.  You build your credit score. No No Yes.  You build your credit score.
Cost of Funds for $10,000 loan for 12 months  $3,460 $3,200 $1,300 $1,760
Notes Assumes 2 six- month loans @ 15% with 2% fee Assumes 2 six-month loans @ 16% (average between 8-24%) Assumes 1 eleven-month loan at 10% and 1 one-month loan at 3% Assumes 1 twelve-month loan @ 12% (average between 8.5 – 15%)

Reflections on CAMEO’s 20th Anniversary

Gwendy Donaker Brown of Opportunity Fund looks back at our 20th Anniversary Celebration, and teases apart some of the themes of the day:

As a lifelong Californian, I always take special pride in meeting people from the far flung corners of our state who are hard at work building a strong local economy. Two of the seemingly contradictory things I learned at the event were the importance of staying centered and focused, even while changing with the times.

It is a challenge to simultaneously stay focused on your community (however you define it) and be nimble enough to refine what you do to as circumstances evolve. Perhaps the most important thing is to separate what is simply noise from the relevant and important trends that impact your community.

(read more)

State of Microlending in California

Wells Fargo, CAMEO and a number of member CDFIs gathered in Sacramento on June 18th for a dynamic conversation about the state of small business lending. Hosted by Wells Fargo’s Community Development Manager Tim Rios, and co-hosted by CAMEO, the goal was to identify challenges and solutions to expanding CDFI lending activity. CAMEO and the Wells Fargo Community Development team were there to ask questions, listen and gain understanding of the needs of California’s CDFI community.

a cool fifty thousandTim opened the meeting by asking “How is your CDFI doing and what are your most pronounced challenges and needs?”

The overall answer was, “We’re doing well, loan volumes are increasing, but could really use some additional resources to grow.”

The group specifically cited the need for equity capitalization to improve leverage. “We need strong balance sheets to borrow against” was the refrain. There is also a need for funding for operations and improved technology infrastructure. There continues to be a shortage of sources for loan loss reserves, which results in fewer loans made. Well-structured debt capital, i.e. larger EQ2s, is also needed, but requires CDFIs to have more assets on their books. Foundations that could provide loan guarantees for small business lending have not stepped forward since Fresno Regional Foundation facilitated a million dollar EQ2 with Wells Fargo. Geri Yang agreed to explore this potential resource with the California Philanthropy Roundtable

The group would like better collaboration with TA providers, to increase capacity to screen for loan eligibility and coach clients through the loan process. Opportunity Fund is sponsoring a bill that would allow CDFIs to pay referral fees, which CAMEO will be promoting in the coming year.

All the CDFIs stated they work hard to create close ties to their branch loan officers, and would like to see referrals from banks institutionalized in bank operations. Although bank referrals have been an issue for a long time, only Union Bank seems to have successfully achieved this. VEDC reported that 60% of their borrowers are referred by banks and 50% of these referrals get loans.

Many referenced the potential benefits and pitfalls of the new wave of online lenders, and some have seen borrowers who need to be refinanced out of poorly-structured online debt. Online lenders are entering the micro loan space because of a gap in products. There is not enough capital for micro lending, plus borrowers are looking for faster turn-around. CAMEO plans to address this issue, and build upon the initial analysis provided by Opportunity Fund and other organizations.

Regarding the close-out of CEDLI, CDFIs expressed concern that the CEDLI capital is no longer available. Because Wells Fargo served as the agent bank for CEDLI, it was suggested that WFB work to direct the millions of dollars of ongoing loan repayments to their CDFI partners. Claudia and Marc Nemanic agreed to explore this with Tim Rios. It was generally agreed that the manner of closing out CEDLI did not reflect well on Wells.

Tim and his team agreed that as next steps they would address the themes and gaps expressed during this meeting.

The participating CDFIs were: Emily Gasner, Working Solutions; Roberto Barragan, Valley Economic Development Corporation; Kerry Doi and Namoch Sokhom, PACE; Gwyneth Galbraith, Opportunity Fund; Salam Nalia, Fresno CDFI; Debbie Raven, Valley Small Business; Debra DeBondt, Opening Doors; Marsha Bailey, Women’s Economic Ventures; Scott Lewis, OBDC; Marc Nemanic, 3Core.

Growing and Evolving with MMS

Thanks to Susan Brown for this article.

WorkingSolutionsWorking Solutions (WS), based in San Francisco and serving the nine Bay Area counties, joined CAMEO’s Microlending Management System (MMS) last year and put their first deal through the system about eight months ago. Since then, their loan volume has grown significantly. In the year prior to using MMS, WS closed 50 deals. They are on track to double the number of deals this year, about 18 months of being fully on-board the program.

Working Solutions gets a gold star in adopting MMS, but there were some bumps in the road that they had to overcome.

“We had evolved our former loan process over many years. We liked it and we were used to it,” said Emily Gasner, WS Executive Director. “It’s not easy at first to change your process. MMS gave us a push to grow, shift and improve our systems.”

There were several elements to the change.

Integrating Software. While it doesn’t take long to learn the MMS software, it does take time to integrate it into your process.  When staff first touch a deal, they naturally use the old process and tack on MMS at some point in the middle.  It takes time for staff to let go of the old process and start the deal using MMS. Until then, the staff used both MMS and the legacy process. Under these circumstances, staff wonder why they are doing this extra work.   WS leadership led the way, initiating conversations to eliminate the duplication and streamline using MMS.

Risk assessment. WS had historically used an interview assessment process for screening. MMS offers an automated risk assessment process, called Auto Review. It took time getting used to automating a process that was done previously by staff members. Now WS staff start with the risk assessment as the starting point after receiving an application.

Underwriting criteria. MMS is built on an underwriting grid that differed from WS’ legacy process. At first, a different take on the deals was jarring as WS staff were skilled underwriters. Again, with communication and leadership, MMS staff began to learn more about and accept MMS underwriting criteria.

Underwriting process and communications. “We were used to jumping into our own underwriting assessment as soon as we had an application,” said Agnes Cheung, WS Director of Business Lending. “It took time for us to get used to handing it over to the MMS underwriting team, rather than do it ourselves.” WS is now in the process of honing communications with the Accion Texas underwriting team to further speed up the turnaround time.

Online Application. WS recently launched their loan application online, allowing prospective borrowers to apply on their own. This will further reduce staff time on entering the application into the MMS system.

Emily and Agnes also cite CAMEO’s role as liaison, trainer and convener of peer learning calls in assisting in their transition.

Even though the adoption of MMS necessitated many organizational changes, the WS team knew it was something they had to do in light of the new wave of online lending. “Being in the Bay Area, we are in the heart of the online lending explosion,” said Emily. “We needed to automate and turn deals faster to stay competitive.”

WS is leading the way in innovation and technology adoption.

20th Anniversary Recap

20th-anniversary-CAMEO-4c-vertical-smallThanks for Joining CAMEO at our Annual Member Meeting and 20th Anniversary Celebration.

Over 100 people helped us celebrate two decades of micro and building wealth in our communities!  We had a great day of learning, inspiration and fun.  During the morning, we heard about community level factors that are correlated with microbusiness and what that means for policy; we discussed the need for our sector to sit at the economic development table and re-imagine a new collaborative system; and we learned the proof that micro is BIG.  At lunch Judy Wicks inspired us with her story about creating an alternative economic development system by staying in one place, by truly engaging in local economic development.  And of course all of our award winners – Wells Fargo, Scott Hauge, Forescee Hogan-Rowles, Sheilah Rogers, Alfredo Garcia and Patty Rodriquez proved once again why we do the work we do.  And then in the afternoon, members gathered to discuss how to remain calm in the face of the disruption that we face. Finally, we kicked back and enjoyed connecting with our colleagues.

Thanks to our generous sponsors for making this event a success.

Event Sponsors
First Republic Bank, AT&T, Pacific Western Bank

Table Sponsors: CDC Small Business Finance and Renaissance Entrepreneurship Center

Half Table Sponsors: 3CORE, Accion San Diego, Arcata Economic Development Corporation, Community Action Partnership of Sonoma County, El Pajaro Community Development Corporation, Federal Home Loan Bank of San Francisco, Fresno Community Development Financial Institution, Opportunity Fund, Pacific Asian Consortium in Employment, The Prosperity Center, Ruby Road Leadership, TMC Development, Valley Economic Development Center
West Company, Women’s Economic Ventures, Working Solutions.

2014 Agenda

Morning Program

The New Labor Market, panel and conversation moderated by Lena Robinson, Regional Manager, Community Development, Northern California, Federal Reserve Bank of San Francisco

20th Anniversary Lunch

  • Keynote: Judy Wicks (bio), author of Good Morning, Beautiful Business of and Co-founder of Business Alliance for Local Living Economies (BALLE)
  • Faces of Entrepreneurship Awards
    • Proclamation Recognizing CAMEO – Assemblymember Jose Medina
    • Micro Business Champion – Wells Fargo Bank
    • Hero of Micro Business – Scott Hauge (bio), Small Business California, founder
    • Founders Award – Forescee Hogan-Rowles (bio), RISE Financial Pathways, President and CEO and Sheilah Rogers (bio), CAMEO co-founders
    • Faces of Entrepreneurship Award – Patty Rodriguez, SF Parking (Working Solutions Client) and Alfredo Garcia, Watsonville Diesel Company (El Pajaro CDC)

Afternoon Program

  • Member Meeting
  • Ignite Micro – Dealing with Disruption
    • Andrew Cole: Truth About California Micro Sector
    • Shufina English: Facts about Banking That Make You Go Hmmm…
    • Naldo Peliks: Stirring Up Entrepreneurial Training
    • Working Solutions: New Partnerships for a New Day
    • Boku Kodama: Creative Curriculum for New Markets
  • Light the Fire! response, a facilitated discussion

Speakers
Connie Evans Todd Greene dell gines photo Judy Wicks

from left to right: Connie Evans, Todd Greene, Dell Gines, Judy Wicks

Award Recipients
Scott Hauge Forescee Hogan-Rowles Sheilah Rogers

from left to right: Scott Hauge, Forescee Hogan-Rowles, Sheilah Rogers