Micro-Loans Make a Difference in Pacoima

Can a restaurateur from Thailand make a living selling pad thai and Southern fried chicken in a largely Latino neighborhood of L.A.?

The federally funded Los Angeles Community Development Bank, which makes loans to businesses in economically strapped neighborhoods such as Pacoima, is betting $20,000 that the answer is yes.

Through its micro-lending program, the bank, the federal government’s largest loan fund, has given a $630,000 shot in the arm to 37 Los Angeles-area small businesses, including Wendill’s Restaurant, a tiny Pacoima eatery that for five decades was Wendill’s Chicken House.

While helping lift the fortunes of these financially challenged companies, the program also provides some measure of comfort for the bank itself, which could use some good news.

Earlier this year, the bank, which is not a commercial lender, acknowledged that 60% of its total portfolio consisted of “problem loans,” whose borrowers were a month or more behind in payments, had bounced a check, or were experiencing cash-flow or other problems.

In the micro-loan program, in which the maximum loan is $25,000, only 11% of the portfolio falls into that category, according to bank officials.

Some Pacoima business leaders contend that bureaucracy and extensive paperwork requirements exclude some businesses that would otherwise benefit from such a program.

Still, low delinquency rates, and testimonials from contented business owners, make the loan program look like a pretty good bet.

“I love this community development bank program,” said John Rooney, president of the Valley Economic Development Center, whose Van Nuys-based agency serves as an intermediary, finding and pre-screening potential borrowers. Through the targeted efforts of the center, nearly half of the money lent in the regionwide program has gone to businesses in Pacoima.

“It’s one of their best programs,” Rooney added. “It’s innovative, it’s effective and it’s making a difference.”

For Wendill’s owner Anek “Ming” Nantachai, the $20,000 micro-loan he received eight months ago made the difference between a B grade and an A when the Los Angeles health inspector visited his chicken house-cum-Thai food spot late last year.

“Before, I don’t have enough refrigerator and the vegetables are not fresh enough,” said Nantachai, who purchased the longtime chicken spot in 1988 and later added spicy dishes from his native land.

“The inspector complained. I got a B.”

With the loan, Nantachai bought a new refrigerator, an ice maker and a new ventilation hood for the stove.

The program that began in 1997 is designed to serve five Los Angeles-area regions within a federally designated empowerment zone.

Businesses in Pacoima, parts of South-Central, East Los Angeles, downtown and some unincorporated parts of the county are eligible for loans under the program.

But as a practical matter, nearly half of the money lent out in the program has gone to one area--Pacoima.

“The LACDB has come under fire for not meeting loan objectives,” said a recent report produced by Roberto Barragan, vice president of business lending with the VEDC, whose center initiated 28 of the 37 loans funded through the program. “But Valley businesses have been big winners in the LACDB micro-loan program.”

Officials with the bank said that those unsymmetrical statistics are due largely to the very focused efforts of the VEDC, which receives a fee for each loan funded.

Rooney said his nonprofit agency, which serves as an intermediary to screen, scrutinize and ultimately recommend loans to the bank, has aggressively marketed the program to businesses in Pacoima. In addition, VEDC was among the first of the program’s six intermediaries to begin selling businesses on the loan program.

“Pacoima is a very good market” for the program, said Rooney, noting that California Federal is the only bank with a branch in Pacoima, which he said is home to a “thriving community of manufacturers and light industry.”

“So there’s a lot of pent-up demand.”

Working with the Pacoima Chamber of Commerce and a network of business outreach groups, the Valley Economic Development Center has launched “a whole effort to really laser in on Pacoima, to bring micro-loans to qualified businesses there,” Rooney said.

One of those businesses was 3-year-old Industrial Stitchtech Inc., one block from the Pacoima border in Lake View Terrace. The company makes soft goods such as backpacks and fanny packs.

Ed Perez, president of the company, said he used the $25,000 he received late last year to expand and buy equipment including a hydraulic press (for cutting material) and a computerized sewing machine (“which is more efficient”).

With the company’s increased efficiency, Perez estimates that sales this year will more than double compared with last year: going from $180,000 to nearly half a million.

“In the past I’ve had to turn away business because I couldn’t handle the demand,” said Perez, noting that before he purchased the new equipment he could not accept orders of 5,000 or 10,000 units if the goods were needed quickly.

“Now that I’ve gotten a bit bigger and stronger, we can handle those orders,” said Perez, who added that all 13 of his employees, including two hired to satisfy requirements of the loan, live in Pacoima.

Both Perez and Nantachai said they have had no difficulty paying back the loans.

But that’s not a uniform experience. Though there are some troubled loans in the micro-loan program (four of the 37 are being closely watched), delinquencies and defaults are much more common in some of the bank’s larger loan programs.

D&D; Western Wear in Pacoima has defaulted on a loan of $420,000 to the Community Development Bank and is now in foreclosure. The two sides are trying to work out a plan to save the deal, with the VEDC acting as an intermediary.

“If they can make this work out, it’ll be great,” owner Abel Diaz said.

Diaz and others complained about the extensive reporting requirements attached to community bank loans. He said that to obtain the loan last year, he incurred an unexpected cost of nearly $9,000 to cover an appraisal.

Hector Perez, owner of 5-year-old Hyton Concrete in Pacoima, is planning to take out another loan this week to pay off his micro-loan, which he describes as a “pain in the butt.”

“I have to pay an accountant to give them [the bank] records monthly, and they’re constantly sending more paperwork,” said Perez, whose staff consists of himself and one part-time worker.

“There’s a lot of bureaucracy,” said Hector Perez, who is not related to Ed Perez. “They want to see what’s become of their investment, but now I have to pay twice a month to go to an accountant.

“The costs are big. It’s too many things for a small loan.”

Joseph Gray, who twice served as president of the Pacoima chamber, said the micro-loan program is pretty good, but he worries that “too much bureaucracy” keeps out some businesses.

“So it doesn’t really reach down as far as it’s publicly reported to do,” said Gray.

“Oh yeah, it’s true, we can’t argue with that,” said Barragan. He said because the Community Development Bank is government-funded, it is under extensive regulation “covering everything from environmental issues to historic preservation.”

While the requirements force some shopkeepers out, more typical, at least among the micro-loan borrowers, are business owners such as Nantachai, who spends his days whipping up plates of pad thai (pan fried noodles) and Southern fried chicken, using a recipe from generations ago.

“I used to apply for loan before [from banks], but they turn me down,” said Nantachai, who imagines that without the cash infusion from the community development bank, his business would have continued to just tread water.

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Making Connections: To learn more about the Los Angeles Community Development Bank’s micro-loan program, call Roberto Barragan at the Valley Economic Development Center, (818) 907-9977.

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Valley @ Work runs each Tuesday. Karen Robinson-Jacobs can be reached at Karen.Robinson@latimes.com