No Pain, Big Gain With New Loan Plan : SBA simplifies process for minority business owners.

When Raul Armendariz set out to get a $50,000 loan to expand his thriving tax service, he had no idea the process could be so pain-free.

But within 30 days Armendariz had a check in hand to buy a copier machine and upgrade the computers in his East Los Angeles office.

“I thought I would have to go through a lot of red tape,” said Armendariz, 36, who has had his own business since 1991. “What surprised me the most was how fast they did it, especially because they’re a government agency.”

Armendariz was one of three minority business owners who obtained a loan through the Small Business Administration’s new Minority Pre-Qualification Loan Program, which doled out its first three checks in Los Angeles last month.

The objective of the program, said district Director Alberto G. Alvarado, is to give more loans to minorities and women.

For the 1994 fiscal year, the SBA district office--which covers Los Angeles, Ventura and Santa Barbara counties--gave out 1,110 loans for a total of $410 million. Of those, 100 went to Latino business owners while 30 went to African Americans.

In the 1995 fiscal year, the SBA gave out 610 minority loans out of 1,550--an improvement, but not enough, Alvarado said.

“It’s no wonder people feel disempowered with those numbers,” Alvarado said. “We needed to focus on loaning to minorities and on making smaller loans, and we think this program will have a major impact in our lending.”

As someone who grew up in Boyle Heights, Alvarado understands the difficulties of small business owners, especially minorities, in applying for a loan.

“Traditionally banks don’t have loans for minorities . . . the history of access to capital shows a lack of inclusion for those particular groups,” Alvarado said. “But a lot of it is lack of exposure, so what we’re doing is educating bankers on that this is a good business opportunity and these are good loans.”

Traditionally, someone who is interested in applying for an SBA loan first goes to a bank that processes the application and approves it subject to SBA review. If it is approved, the SBA guarantees most of the loan amount.

With the minority pre-qualification program, the applicant first goes to an intermediary rather than the bank. The intermediary--a consultant or nonprofit jobs agency--puts together an initial synopsis of the borrower’s credit, charging a fee to the borrower. If the SBA finds the borrower eligible, they issue a commitment letter with which the applicant can then go to a bank.

The streamlined process has had overwhelming response, said Richard Duarte, owner of Correa, Duarte and Co., a small-business consulting firm and one of the intermediaries working with SBA on the program.

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“We’ve had some 40 to 50 individuals asking about the program since it began in July,” Duarte said. “Traditionally, we wouldn’t have that many responses in such a short period of time.”

To date, Duarte’s Alhambra office has submitted two loan applications to the SBA; six more are in the works.

They are small loans, less than $100,000, which is significant, Duarte said.

“I think banks are finally recognizing there are a lot of good businesses [among minorities] and that all businesses started small,” he said.

Ray Sakaida, general manager for an intermediary in Monterey Park, puts it more bluntly.

“I have been in the lending business for many years and I’ve seen numerous applications prepared by minority businesses that probably could have gotten SBA approval but couldn’t get past the banks,” he said.

“This program lets us be the direct conduit between the SBA and small businesses.”

Applicants must have an excellent credit rating, must be able to invest 30% of the money needed out of their own funds, and entrepreneurial or managerial experience is desirable. But, Duarte said, each application is unique.

Armendariz had a small but thriving tax business when he applied for his loan but many applicants are starting up businesses for the first time. On the other end of the spectrum are people like Robert Milton Jr., general manager of an engineering firm in Pasadena, who obtained a $250,000 loan--the maximum under the program--for working capital and to add staff.

Most important, people like Armendariz plan to use their loans to continue growing in their communities.

“Sure, I could move elsewhere and my clients would probably follow me,” Armendariz said. “But I like being in the community. I went to high school in East L.A. and I wanted to open my business here. In other parts of town there’s a lot of [tax preparers] with a lot of experience. But I don’t see very many here.”