Credit Where Credit’s Due
The ranks of small businesses owned by women are growing by 70% a year throughout Southern California, and major banks are launching billion-dollar lending programs to help them.
Wells Fargo has a $1-billion-a-year loan program for women-owned small businesses. Bank of America last year set up a $3-billion-a-year small-business loan program, expecting 40% of the loans to go to women-owned companies.
The aim is outreach for new customers, not social work. The big banks have developed computerized procedures that allow them to cut administrative costs and thus make small loans profitably.
But female owners have a record of not considering large banks when they need financing.
“Why invite rejection?” is an attitude born of past encounters with bankers, admits Lucile Reid, executive vice president of Wells Fargo. “But we’re trying to change that.”
Wells formed an alliance a year ago with the National Assn. of Women Business Owners. Bank of America recently linked up with Women Inc., an organization that offers advice to entrepreneurs.
The banks’ efforts reflect how much a growth market female owners have become and how hard it has been for women to borrow money--even in California, which has more women-owned businesses than any other state.
Catherina Bertaina was a case in point. Five years ago, Bertaina founded Colonial Home Care in the city of Orange. Her company sends staff to help convalescing or elderly sick people with meals, shopping and other chores. The business is a success, now employing 250 home visitors and taking in more than $1 million a year.
Bertaina, now 38, had founded Colonial on a loan from her father, but she was turned down for bank loans even as her business was taking in $100,000 a month. The usual explanation was that her service business had no physical collateral that a lender could take in case of default.
What Colonial had, however, was classic small-business training. From age 12, Bertaina worked Saturdays and summers in her father’s Los Angeles jewelry store. She had owned and run two gift shops and was raising a daughter of her own.
Finally, a year and a half ago, Wells Fargo came through with a $10,000 credit line. And that has made a big difference, Bertaina says. Why did she need credit if the business was bringing in so much cash? Because borrowing on the credit line and paying back establishes a credit history and confers status with suppliers.
“I can order 10,000 brochures costing $8,000, and the printer will do the work without cash in advance because I have a bank line,” Bertaina says.
Nancy Edwards, a graphic designer in Riverside, experienced a change in bank attitudes five years ago. She needed financing to buy computer equipment to adapt Nancy E. & Co., her then 6-year-old graphic design business, to changing technology. But numerous lenders had turned her down.
Finally, she and her partner, wearing blue jeans and prepared for yet another rejection, walked into a Wells Fargo branch on a whim and found a loan officer who wanted to know about their company. Ultimately, he loaned them $30,000 for computers.
What has changed in recent years is that banks discovered a growth field in making $2,500-to-$100,000 loans to small businesses. They took a lesson in simplicity, reducing paperwork to a one-page loan application and relying on computerized credit scoring techniques that base judgments on actuarial probabilities of loan repayment.
“The loss experience is not greater than it is for middle-sized business loans,” reports Janet Garufis, who heads Bank of America’s Pasadena-based small-business lending services.
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Ironically, the seemingly cold, abstract scoring system opened the way for women to get more loans because statistics were not broken down by gender. When analysis is done on gender lines, female credit history turns out to be no different from that of male borrowers, but women-owned firms stay in business longer on average.
“I think they might be more careful,” says one banker.
The designation “woman-owned”--meaning a woman owns and makes major decisions in the company--only gets lenders to take another look at a borderline loan application. More important is that banks now see women as founders of growing companies. The first loan in B of A’s alliance with Women Inc. was a $71,000 credit to the proprietors of Creative Kids, a West Los Angeles child-care company, so it could open a second location in Encino.
And banks are a big improvement over some notorious lenders. Geraldine Eckhardt founded Blind Cleaning Express in 1989, putting up $40,000 gained when she and her husband sold a ski cabin. The capital was needed for ultrasound machinery to quickly clean window blinds for offices, stores and homes.
The Los Angeles-based business, which now does about $300,000 in annual revenue, took off. Husband Robert came into the company full time, and the Eckhardts thought of franchising the blind-cleaning service.
“A good idea in theory, stupid in practice,” Geraldine Eckhardt says. Worse, the Eckhardts borrowed money from loan sharks to launch the franchise idea. “We borrowed from leg breakers,” says Eckhardt, the daughter of a New York City homicide detective. “But that’s all right. The money was there when we needed it, and we paid it back.”
Blind Cleaning Express got safer credit five years ago, a $25,000 loan from Wells Fargo against the business equity. As a result, the company is expanding.
Does having a women-owned designation help the business?
“It’s an expedient,” Geraldine Eckhardt says.
In other words, it no longer hurts. Could be that the world, including its banks, grows smarter?
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Gaining Ground
The number of female-owned companies that call Southern California home have increased markedly since 1987. Number of women-owned companies for three Southland metropolitan areas, in thousands:
Los Angeles/Long Beach Metropolitan Area: 314.4
Orange County: 100
San Diego Metropolitan Area: 89.9
Source: National Federation of Women Business Owners
