Growing Network of Lenders Helps Minority Entrepreneurs
The lending crunch now underway presents immigrant business owners with special problems--and they have plenty of good options when dealing with them.
Federal and state law, of course, prohibits commercial banks and other lenders from discriminating among their borrowers on the basis of color, creed or national origin. But many immigrant entrepreneurs don’t speak English when they come to California from such places as Asia and Latin America, and this can prove an obstacle to lining up conventional debt financing for their businesses, particularly in tough times.
Why? Because getting a bank loan means putting together a loan package containing documents ranging from a business plan to tax returns and personal financial statements, a daunting task for even a native-born business owner. For the immigrant entrepreneur who understands neither English nor American business practices it can be overwhelming.
It can prove even more difficult in tough times, when every jot and tittle can count against you.
The good news for immigrant entrepreneurs from China and Korea is that there is a thriving network of lenders targeting their needs, including a number of community banks rooted in those countries familiar with business practices there and here. Many big banks and other lenders also seek out immigrant business owners with special marketing efforts.
The good news for immigrant entrepreneurs from elsewhere in Asia and from Latin America is that, although there is no similar network of niche banks targeting their needs, they still have plenty of resources, as do native-born American minority entrepreneurs.
In particular, Southern California teams with nonprofit economic development organizations aiming to help minority business owners, no matter what their ethnicity or country of origin. (To plug into these nonprofits, check with the Regional Business Assistance Network of the Los Angeles County Economic Development Corp. at (213) 236-4858; you also can find a listing via the LAEDC Web site at www.laedc.org/ bap.html. And check with local government on the city and county levels, and with the small-business loan officers at most banks.)
For the immigrant entrepreneur, this network of nonprofits and lenders can open the door to the mainstream American financial establishment, according to Linda Wong, director of the Los Angeles Manufacturing Networks Initiative, a unit of the Community Development Technology Center in Los Angeles, a nonprofit economic development organization.
“Banks can’t discriminate, but some know more than others about certain industries and about certain ethnic communities,” Wong said.
“Most lenders use an arithmetic formula to determine credit rather than develop a personal relationship with the borrower. Minority-owned banks still focus on relationship banking, and they also know the culture of the first-generation immigrant. That makes a key difference.”
Wong cited a study of minority business borrowers funded by the Merrill Lynch & Co. Foundation last year that found entrepreneurs from China and Korea use conventional bank financing far more routinely than immigrant business owners from Japan or Vietnam. Among the 202 Chinese American business owners surveyed, 44% used conventional bank financing as a source of business capital and 35% used trade credit. Fully 94% of these entrepreneurs were foreign-born, mostly in Taiwan or Hong Kong.
Of the 203 Korean American business owners in the survey--all foreign-born--43% used conventional bank financing.
By way of contrast, among 103 Japanese American business owners, only 19% used bank financing, and among Vietnamese entrepreneurs, 16% did. Sixty-nine percent of the Japanese American and 99% of the Vietnamese entrepreneurs were foreign-born.
Among Latino entrepreneurs, of whom nearly seven in 10 were foreign-born, 38% used bank financing. Black business owners used bank financing even less frequently--32%.
“I suspect the reason why the numbers are higher for Chinese and Korean businesses is that there are more Korean- and Chinese-owned banks that make loans to business owners within these two ethnic communities than there are Vietnamese- or Japanese-owned banks,” Wong said, citing such institutions as East West Bank in San Marino and General Bank, Nara Bank and Hanmi Bank, all with headquarters in Los Angeles.
East West Bank launched an effort a year ago to line up its business customers with loans from the U.S. Small Business Administration, marketing the program through Chinese-language newspapers and recruiting Timothy L. Weaver, then an SBA loan specialist with Bank of Hollywood, to run the effort as vice president.
Since then, the bank has booked about 30 SBA loans, primarily for working capital, with an aggregate value of about $5 million, or an average of $167,000 per loan--a good number for many small businesses, according to Weaver. Weaver financed most of the loans through the SBA’s pre-qualified loan program, under which nonprofit organizations act as intermediaries to screen minority and other applicants for eligibility.
The nonprofits involved in this program serve as intermediaries in more ways than one, Weaver noted; they run credit checks on applicants, help them prepare their loan packages and submit them to the bank for final approval.
“Any business owner faces a challenge in obtaining a lending partner,” Weaver said, “particularly if it’s a start-up or young business. And for the minority or immigrant business owner, it can be pretty difficult to get through the SBA requirements.
“Most people understand what the term ‘business plan’ means, but they don’t know how to put one together. This can be especially true for immigrant business owners, for whom language can be a challenge.”
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Recent Financing and Insurance columns are available at https://www.latimes.com/finin. Juan Hovey can be reached at (805) 492-7909 or at jhovey@gte.net.
