L.A.-area lender gets cash infusion
After nearly running out of money in its small-business loan funds last month, Valley Economic Development Center Inc. of Van Nuys says it is getting $16 million to enable it to continue to lend to Southern California firms caught in the stubborn credit crunch.
Most of the money -- $15 million -- is coming from the city of Los Angeles. Last week, Merrill Lynch & Co. said it would supply the group with $1 million.
Center President Roberto Barragan said he also was working with two major banks to secure capital: Wells Fargo & Co., to set up a $1-million loan fund for local firms, and Bank of America Corp., on a national micro-enterprise initiative.
“Most economists say recovery and new job creation are going to come out of small and microbusinesses, not large companies, so our ability to feed that with dollars and capital becomes extremely important,” said Barragan, whose organization aims to create jobs by consulting with, training and financing local businesses.
The city funds, in the works since last spring and approved in December, will be used to make business loans of $100,000 to $400,000. The city borrowed money from the federal government, including additional money to set up a reserve to cover loans that may go bad. Barragan expects to begin lending the new money by the end of the month and to have lent as much as $10 million by year-end.
The Merrill Lynch funds are meant for microloans of $5,000 to $50,000, he said. Half the $1 million has already been tapped for loans. Merrill Lynch also gave the center a $50,000 grant to create a streamlined, computer-based loan approval process it hopes other microlenders can copy. The money will also pay for a new loan officer in the center’s downtown L.A. office.
In addition to running its own loan funds, which are often set up by banks or other lenders in part to meet their federal community reinvestment requirements, the center is a middleman for Small Business Administration loan programs. It funnels potential business borrowers to bank and nonbank lenders that make loans that are partially guaranteed by the SBA.
Demand for all loans has soared in recent months at the center, eventually using all the money available in several of its loan funds.
Although the souring economy has driven some of the demand as struggling small-business owners try to borrow capital, demand also has been fueled by new restrictions on a popular SBA loan program geared to loans under $35,000, Barragan said.
Dozens of potential SBA Community Express loan borrowers have been turned away by bank and nonbank lenders that have strict new volume caps and higher credit standards. Many borrowers have turned to the center’s own microloan and other loan funds.
“We normally do about $1 million in loans a quarter,” Barragan said. “Starting in late July, now we’re doing $1 million a month.”
SBA lenders also have cut back on lending because the secondary market, where they sell packages of SBA loans, has dried up, much like the secondary market for subprime mortgages, he said.
Merrill Lynch also made a $40,000 grant to the Los Angeles-based Asian Pacific Islander Small Business Program as part of a total of $250,000 in grants it made to California organizations that support the smallest businesses.
The organization will use the grant to boost its website creation and hosting program for its small-business clients, program founder and Director Cooke Sunoo said.
“It is a very, very welcome addition in this particular year,” Sunoo said. “The Merrill Lynch grant will allow us to take this to another level where we will offer transaction capabilities to the websites.”
His group, a collaboration of five Asian ethnic communities, has seen a strong increase in demand for its services. Part of that has come from entrepreneurs who want to launch a home-based online business because they can’t get funding for a larger start-up.
Such tiny businesses, and other microenterprises that typically have fewer than 10 employees, are an increasingly popular target for groups geared to job creation and creating a healthy small-business community.
As Merrill Lynch expanded its reach in California, including its community development efforts, it has focused on supporting microenterprises.
The company’s efforts were guided in part by work done by the 30-member California Assn. for Microenterprise Opportunity in San Francisco.
The group’s chief executive, Claudia Viek, has pushed for microloan funding, including a proposal for $50 million in federal economic stimulus funding. The group worked to get microloans included in policy recommendations drafted for the Governor’s Conference on Small Business and Entrepreneurship in November. And she requested the Valley Economic Development Center loan from Merrill Lynch.
“Our work accelerated very quickly as the economic crisis unfolded and we realized these microenterprise providers are undergoing a huge need for funding, both from a liquidity standpoint as well as new businesses that hadn’t come to their doors before,” said Terry Ludwig, president of Merrill Lynch Development Co. in New York and chairwoman of Accion USA, a nonprofit microlender for low and moderate-income entrepreneurs.
She acknowledged concerns expressed by Viek, Barragan and Sunoo, as well as others, that continuing bank mergers and corporate America’s struggles would affect their ability to get the donations and loans their organizations needed to serve small-business clients.
Merrill Lynch was acquired by Bank of America, just one of many transactions in recent months as the industry consolidates.
They are “very active in supporting microenterprise programs,” Ludwig said. “I would fully expect that we will remain committed to this area.”
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