Pool Created for South-Central L.A. Loans : Credit: Twenty-three banks respond to federal pressure and unite to make $10 million available to minority-owned firms.
With prodding from federal regulators, a new minority business loan program was unveiled Tuesday in South-Central Los Angeles that will make $10 million available to small businesses that do not qualify for conventional funding.
Funded by 23 California banks, the program reflects the pressure lenders are feeling from the Clinton Administration to increase mortgage and business lending to minorities. Although the amount of funds just announced is relatively small, government officials are hopeful that programs like it will proliferate.
Called the Southern California Business Development Corp., the program is a “community development corporation,” a legal vehicle that has been gaining favor among banks as a way to lend more in underserved inner cities. The higher risk of the loans is offset by special tax and regulatory advantages given banks by regulators.
The SCBDC is the first community development corporation in Los Angeles and the first multi-bank CDC in the nation, said Richard P. McNish, the corporation’s president. Lead providers of the pooled funds are First Interstate Bank and Bank of America. The pool will make loans averaging $100,000 to retail, manufacturing and service firm applicants, McNish said.
The Administration is in the process of putting more teeth into the Community Reinvestment Act, a 1977 law that requires financial institutions to serve the needs of communities from which they draw deposits.
But the CRA is short on specifics, leaving banks and thrifts scrambling to devise ways of meeting its spirit if not its specific guidelines. CDCs, which have largely been ignored by banks since their inception in the late 1970s, are therefore receiving more attention from compliance officers at banks and thrifts.
The SCBDC becomes the largest of several inner-city business loan programs that have developed since the 1992 civil disturbances. Rebuild L.A. (now known as RLA) runs a small business loan program, the Community Financial Resource Center operates a business start-up and expansion loan program, Pacific Coast Regional Inc. makes loan guarantees to minority businesses and the Coalition for Women in Economic Development makes business start-up loans.
The typical small business targeted by the program has from two to 15 employees and has a government contract in hand, McNish said. But the applicants typically would have weak credit history, inadequate collateral and minimal profits, making them unacceptable credit risks by conventional loan standards.
As with many of the low-income mortgage loan programs that financial institutions are beefing up, the new business loan program has a strong education and counseling component. The SCBDC staff will work with applicants to develop credit histories, market research and business plans, said Hugh Loftus, First Interstate Bank’s vice president for community development.
First Interstate is assigning one of its loan officers to the program for a year to help screen and counsel applicants, Loftus said.
