Dora Westerlund, CEO of Fresno Hispanic, cuts the ribbon on the new Downtown Business Hub in Fresno in 2011. The organization recently partnered with the Opportunity Fund to expand microfinance opportunities in the Valley.
Written by Edward Smith
The Fresno Area Hispanic Foundation recently expanded its portfolio of small business lenders to include Opportunity Fund, a San Jose-based community development financial institution (CDFI).
The nonprofit Fresno Area Hispanic Foundation, based out of Fresno’s Downtown Business Hub, works with small business owners, helping entrepreneurs succeed and network with staff to provide support while they grow, according to Yery Olivares, chief operating officer for the organization, which serves the entire San Joaquin Valley.
“We hold their hand along the way of starting or expanding a business,” Olivares said. “We’re with them from the moment they start a business and [we make] sure to help them develop their business plan to the moment of their grand opening to the moment they decide they want to expand. We’re with them for the life of the business.”
One of the services the organization provides is helping those business owners apply for loans.
For small businesses without the credit history to back up an application, CDFIs are tools to “fill in the gaps” where traditional financing leaves off, according to Daniel Fernandez, director of microlending at Opportunity Fund.
CDFIs began in 1992 as a way to provide disadvantaged communities with access to funding to start up businesses.
Along with the Small Business Administration, they use money from banks and investors to give out loans that might be considered riskier to other lenders.
The SBA has a loan program that will work with CDFIs by providing funds to lend to small business.
The difference between other CDFIs and Opportunity Fund is that the SBA does not insure Opportunity Fund.
Instead, it uses grants and loans from private organizations to fund small business loans.
So, while Opportunity Fund may have to depend on different kinds of fundraising to get capital, it approves loans with its own established guidelines.
One of these is the amount of time it takes for businesses to get cash after applying.
Typical turnaround for a more standard CDFI, according to Fernandez, might be between 30 and 60 days, but for Opportunity Fund, they might be able to get a loan to someone in as little as seven days.
“It allows us to be even more lenient and even more liberal with our credit and our underwriting to help borrowers that would fall out of the even the most liberal CDFI,” Fernandez said.
During the pilot year of Opportunity Fund’s Community Partner Program, which Fresno Area Hispanic Foundation is now participating in, Opportunity Fund partnered with 17 technical assistance organizations, providing 225 loans for a total of $3.7 million in Southern California.
Loans range from $2,600 to $50,000 for working capital, equipment and vehicles.
Many business owners find that their limited time in business makes qualifying for loans more difficult.
Though requirements for CDFIs might be less stringent, they do come with a price.
“[Rates are] not intended to be competitive,” Fernandez said. “Because CDFIs get a lot of their capital from banks, they’re positioned as spring boards and launch pads to get a borrower into a traditional bank book of business, which is why banks donate to CDFIs — to build a pipeline for themselves.”
Rates typically pick up where banks leave off, according to Fernandez, which means starting between 7 and 8 percent and, for Opportunity Fund, cap off at around 18 percent.
For under-qualified small business owners, however, loans from CDFIs may be starkly competitive compared to merchant cash advances, which many businesses may look to because of how easy it is to qualify.
“When you go to these other lending services, they don’t ask for that much,” Olivares said. “Sometimes small business owners don’t want to deal with going through these processes… It’s easy for them to take a loan with really high interest rates because they need that money.”
Much of what online small business lenders provide are not technically loans, according to Fernandez. Instead, they work like a cash advance, where the terms include a percentage of sales to be paid at much higher rates.
“They’re technically not loans, they’re cash advances they don’t need to be presented as such,” Fernandez said.
“They come without promissory notes, [and] they come without full disclosure of the rates.”
Sometimes these rates can end up being 40-70 percent, even in to triple digits at times.
The Fresno Area Hispanic Foundation has a technical assistance program to help businesses navigate through all these terms and establish a plan to get them through what they need.
“If you don’t qualify now, we can help you get there so you don’t have to worry about paying a high interest loan,” Olivares said.
The Fresno Area Hispanic Foundation says it has helped more than5,000 startup and existing businesses across the Central Valley.
“Our partnership with Opportunity Fund has brought new and unique opportunities for Central Valley businesses to access responsible, low cost loans in an efficient and timely manner. Our missions align as we help advance the economic well-being of small businesses and lead them to economic self-sufficiency,” said Dora Westerlund, CEO of the Fresno Area Hispanic Foundation. “We are excited to work with Opportunity Fund’s team as they understand the diversity of our community and are able to be innovative in providing solutions to the challenges our business community face in accessing capital.”