Borrowers Work Together in Center’s Peer-Lending Program
The Community Financial Resource Center provides small-business loans and business development counseling and assistance to economically depressed neighborhoods in Los Angeles. Backed by the city of Los Angeles, the U.S. Commerce Department and roughly 40 banks, the not-for-profit organization makes loans from $500 to $250,000. Last year the group launched an innovative peer-lending program overseen by CFRC’s Isabel Duran, who explained how the program works:
Question: Who is eligible for loans through CFRC’s peer-lending program?
Answer: Many people in Southern California cannot get traditional bank loans, even small-business loans, because they’re already in debt, have a bad credit history or are just considered a bad risk for one reason or another. We have money for loans for the kind of people who can’t go to the bank, and you don’t need a business plan to get it. You don’t have to put up collateral; we’re not going to look at your tax returns and we’re not even going to look at your credit history. All we need is identification to make sure you’re who you say you are and a Social Security number. The loans come in a stepladder form. The first step is for $500 and goes up from there to $5,000. We’re not asking for any financial information; these are all character loans.
Q: What are the requirements for getting a loan?
A: The main requirement is you have to form a group with other businesspeople who are also looking for a loan. You form a group of anywhere from three to eight people and each person receives a loan for the same amount. The group is basically responsible for overseeing the loans and how they will be paid back. The group can be people that you know or people that you meet at one of our get-togethers. Once you have a group in place, we’re going to train you on how to be better managers of your business and how to work in a partnership.
This partnership does not affect your own business; it’s strictly a step to get to the money. But it will help you learn to work with other people toward a common goal. You’ll learn how to run a group and how to manage people. We’ll also show you how to do budgeting and how to do a quick, mini business plan. The group is going to meet regularly, and we’re going to show you how to review these mini business plans in order for you to feel comfortable that your partners in the group are going to be able to make their loan payments and for them to feel the same way about you.
So the group becomes a loan committee, and the members are going to review each other, and we’re going to show you how. Remember these are character loans and the group members have to realize that they need to know each other’s characters by how people come through during the meetings, how they do their homework and how they present their business ideas.
Q: What does the training consist of?
A: The training is 6 1/2 hours where people have a chance to get to know one another if they don’t already, and we give them an idea of what this group concept is and how to prepare a small-business plan.
Each of them needs to prepare his or her own business plan, which in effect becomes the application for the loan. We also teach them how to review the business plan to see whether that person’s business will be able to make money to make the loan payment. They need to have a product or service they can sell to the market to make money. We’re helping them focus on what they need to do to make that money.
The flip side to this is they also learn how to work as a partnership. They elect officers for president, secretary, treasurer, etc. The president has to be in charge of calling people to make sure they’re going to show up to the meetings. The secretary keeps minutes of the meetings and that sort of thing. Prior to getting the first loan, they’re going to meet once a week. After the loan, it’s mandatory twice a month.
They also have business-building homework. We have 20 self-taught modules on things such as how to do a budget, how to price their products and services, how to watch their costs. I facilitate it and make sure they understand the concepts. This is a replication of a program called Working Capital that was initiated in Massachusetts. Now it’s out in five states, and in 1997, it won the presidential award for micro-enterprise. We started it last July.
So far we’ve had three groups with a total of 14 people complete the $500 step. They’ve paid off their first loans and are getting ready to apply for the next round, which is $1,000. Later rounds are for $1,500, $3,000 and $5,000.
As part of the formation of the groups, they have to write their own bylaws. One of the mandatory bylaws is they have to make their payments on time by a date they get to choose. They can decide whether to pay off their loans in four or six months. They can decide whether to assess a penalty for late payments and how many meetings a member can miss before he or she is expelled. They do all that, and then they work on and review their loan requests.
After they approve each other, I make the check request to the CFRC controller for the funds based on their loan decision forms, their business plans and confirmation that they have opened a bank account as a group. As part of the policy of the program, they have to put 10% of their loan into the bank account as part of an emergency fund. So now they’re acting like a lender, and they decide how to use that emergency fund.
The key to this program is to make the payments on time in order to progress to the next step. I’ve got these three groups getting ready for the $1,000 level, and they’re talking like big partnerships now. They have to reapply for the next level and this time they need to have numbers and documentation showing how their business is doing.
Q: What types of businesses are participating in the program?
A: We have a truck driver who wants to distribute fish sausages. We have a woman who does gift baskets, and she’s been able to increase her sales with her loan. We have people who have a bad credit history and are here primarily to restart their credit history. We can help pretty much anybody who has an idea that can be sold to the rest of the group. We have an introductory meeting for the program on the last Wednesday of every month, and it’s open to anybody.
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To reach Duran or for more information, call (323) 233-1900. Introductory meetings on the Capital Partners program are held at CFRC offices at 4060 S. Figueroa St., Los Angeles.
