microcredit
toolkit
peer lending
Welcome to
Vancity’s Peer Lending Program
Let Peer Lending help get you into business
We recognize that small businesses are a rapidly growing part of the economic
scene in Canada. We also recognize that getting a loan can be difficult for many
small business entrepreneurs who lack the assets and collateral traditionally
required to borrow funds. This is especially the case for low-income entrepreneurs
and newly arrived Canadians who are just getting established.
That’s why we’re proud to be offering an innovative and practical alternative for
providing micro-businesses with start-up credit. Our Peer Lending Program is
based on the business loan model known as microcredit. Microcredit involves a
small group of entrepreneurs who, working together, use each other’s businesses
as collateral to access small loans in support of their own individual enterprises.
Think of it as a kind of formalized buddy system for borrowing.
So, instead of requiring a personal credit history or the standard forms of collateral
necessary to secure a start-up loan, the Vancity Peer Lending Program takes a
different approach both to extend credit and to gain assurance that borrowers will
repay their loans.
The Peer Lending Program: a good example of Vancity’s commitment to providing members with democratic, ethical and innovative financial services.
Contents
Welcome to Vancity’s Peer Lending Program 1
Briefly, how does Peer Lending work? 3
The Peer Lending process 5
Step 1: Forming a Peer Lending group 6
Step 2: Working to establish business and loan needs 9
Step 3: Meeting with Vancity to apply for a Peer Lending loan 13
Step 4: Getting down to business with ongoing group support 14
Appendix 1: Glossary of business terms 15
Appendix 2: Peer Lending Program policies and procedures 16
Appendix 3: Case Studies 18
Group application package 19
Appendix 4: Your loan application 20
Appendix 5: Group agreement 27
Briefly, how does Peer Lending work?
At the heart of our Peer Lending Program is the Peer Lending Group: three to seven entrepreneurs who come together, each with his or her own business idea. Each of these members commits formally to work with the others in the group and to assess each other’s business idea and business philosophy. Then, when they are satisfied with those, they approve each other’s loan requests. It is those loan requests that go forward to Vancity.
Because it is the group that becomes the lender (backed by Vancity), loan approval relies on the
confidence that fellow group members have in each other’s commitment, resourcefulness and ability to repay.
Who is eligible to participate in the Peer Lending Program?
The Peer Lending Program is for individuals who:
• Have a good small business idea – a product, a service or both. • Work full-time or part-time at their business already.
• Need a small loan to really get going, but lack sufficient capital or collateral to obtain traditional loans. • Plan to operate the business in Greater Vancouver, the Fraser Valley or Greater Victoria.
• Are Canadian citizens or hold landed immigrant status (holders of a Student Visa or Minister’s Permit are not eligible under this program).
What can the Peer Lending Program offer a small business?
If you’re a small business entrepreneur or want to become one, the Peer Lending Program will give you an opportunity to:
• Get small loans for your business and more loans as your grow. • Rebuild or improve your credit rating.
• Establish a credit history.
• Enjoy the support of a network of other small business owners.
• Build your business skills through free business workshops conducted by business professionals. Business terminology related to microcredit and the basic Peer Lending Program policies and procedures are outlined in Appendices 1 and 2. Be sure to review them so you understand what your responsibilities as a member of a Peer Lending Group would be, what the loan repayment schedule looks like, and how to qualify for future loans.
Briefly, how does Peer Lending work?
Step 1:
Forming a Peer Lending Group
Step 2:
Establishing Business and Loan Needs
Step 3:
Meeting with Vancity to Apply for a Peer Lending Loan
Common questions about the Peer Lending Program
What size of loans is available and how long are the lending terms?
The first loans, called Level 1 loans, are for $1,000. If you repay the first loan, you can move up levels to $2,000, $3,000, $4,000 and finally a maximum of $5,000. Terms for repayment range from a minimum of three months up to 24 months (2 years), and interest rates are equal to Vancity prime plus 3%.
How would I be allowed to use the loan funds?
Loans made under the Peer Lending Program can be used for a variety of business expenses, such as advertising, equipment or inventory purchases. Many small, home-based businesses have used the loans to test-market their product or service to see if it sells, or to buy goods to fill an order.
What would happen after I repaid my Level 1 loan?
If you repay your Level 1 loan in full, and on time, and the other members of your group are also making their payments on time, then you may apply for another loan at the next level. If your sales are good and you have the records to show it, you might be able to skip a loan level and move up to a higher loan level.*
In short: your ongoing access to credit will be based on both your own and your group’s repayment track record.
*Note: For graduates of a Self Employment Program, the first loan level is $2,000, subject to the completion of a business plan and backed by the support of Self Employment Benefits. Once you have established credit through that program, you can graduate to our Micro-Loans, which range from $5,000 to $35,000. For information about any of these programs, contact
604-709-6930 or email [email protected].
Can I get into the Peer Lending Program if I’m on social assistance?
Yes you can, but you will risk losing your social assistance benefits. For every dollar borrowed or earned, you may lose a dollar of social assistance. We suggest that you talk to your case worker to ensure that you have a transition plan in place.
Think you might want to go ahead?
This workbook contains information, guidance and forms to help you decide if Peer Lending is the right loan program for you. Read “Step 1: Forming a Peer Lending Group” and skim the information and application forms in the Appendices at the back of the workbook. You may decide that the Peer Lending approach is not the best fit for you at this time.
However, if you are interested in pursuing the option further, you’ll find step-by-step guidance in the workbook to help you:
• Form a group of entrepreneurial people who think like you;
• Develop sound business plans and a clear borrowing and repayment scheme; and
The Peer Lending process
The Peer Lending process involves four main steps:
The guide below outlines the documents or forms you’ll need to work through the process.
If you have any questions, call 604-709-6930 or e-mail [email protected]. Form a Peer
Lending Group
[Step 1]
Work to establish business and loan needs
[Step 2]
Meet Vancity to apply for a Peer Lending loan [Step 3] Get down to business with ongoing group support [Step 4]
Workbook Section
Necessary forms and other documents to complete
or obtain at each step
Done
Step 1:
Forming a Peer
Lending Group
Complete
• Case study answers (Appendix 3)
• Your Loan Application to discuss with your members
(Appendix 4)
Step 2:
Establishing business and
loan needs
Complete
• Get Your Credit Bureau report
• Finish your Loan Application
• Complete the Business Evaluation Grid for each
member of group
• Sign Group Approval of Member’s Loan (Appendix 4)
• Sign Group Agreement (Appendix 5)
Step 3:
Meeting with Vancity to
apply for a Peer Lending
Program loan
• Submit the Group Loan Application Package to
Vancity (all documents listed above)
Step 4:
Getting down to business
• Meet monthly, discuss ideas, grow your business and
report once a month to Vancity using Group News:
Monthly Report.
Step 1: Forming a Peer Lending group
Step 1 is to find two to six other business people with whom you form a Peer Lending group. These may be friends, relatives not living with you, associates or a combination of these individuals.
The ultimate success of the group depends on the care with which it is formed. So, take time to ensure that you have the right mix of people to make the group work for the long term.
Breaking the ice
Whatever the makeup of your group - friends, relatives not living with you, associates - arrange at least one social gathering with all potential members. The objective is to get to know each other and to learn about each other’s background and personality. (Even if you know some of the participants on a personal level, it is important that you get to know them, and they you, on a business level.)
• Find out you all have in common. • Discuss your business ideas broadly.
• Get comfortable dealing with each other so that as a group you can establish a supportive and trusting environment.
Preliminaries and orientation
Once you feel ready as a group, hold a formal orientation meeting (or more, if needed). These sessions have two main objectives:
1) To create a workable way for the group to communicate and operate.
2) To help all prospective members become better acquainted with how the Peer Lending Program works and what is expected of each member and the group as a whole.
You will need to:
• Choose a chairperson, someone who will take the lead on co-ordinating all group meetings. (This role can be rotated once the group is up and running, so that all members can develop chairing skills.) The chairperson will take on responsibility for:
• Keeping all documentation related to the group’s eventual application to Vancity (all of which is discussed below);
• Arranging monthly group meetings and contacting members;
• Keeping regular notes on meetings (though the group may choose to appoint a member as secretary to do this) and maintaining the group binder of these notes;
• Serving as the main contact between the group and Vancity (which includes faxing, e-mailing or mailing the minutes of each monthly group meeting to Vancity);
• Communicating immediately any loan repayment problem to the Peer Lending Program Manager and informing that person of plans the group has worked out to deal with this repayment problem; and
• Receiving all correspondence for the group from Vancity.
• Establish communication “ground rules” to ensure effective group interaction and participation. Such rules include, for example:
• Respect each other: everyone’s opinion counts
• Offer constructive criticism: how can we fix the problem? • Praise good work: everyone needs encouragement • Share suggestions: different ideas bring richness • Listen, think, then speak
• Decide whether the group will use a consensus (all members agreeing) or “majority rule” (most members agreeing) approach to making decisions. If it’s majority rule, then your group will be holding votes on matters. (In well-functioning groups, whenever voting is split on an issue, every effort is made to work with opposing members to see whether any changes could be made to satisfy their concerns and so attain consensus.)
• Review and discuss the business terms listed in Appendix 1. It is important that every member of the group understands the language of microcredit and peer lending.
• Review and discuss the basic Peer Lending Program policies and procedures outlined in Appendix 2.
• Member by member, summarize for the group your business history, your new business idea and your financial capacity to take on debt. Ask each other direct questions about your businesses and repayment history, and answer honestly. Be specific and clear. This is a time for members to show their commitment to the group by answering questions fully and honestly.
Be honest about your needs and expectations. Member by member, formally commit to repaying loans. Each member’s access to credit within the Peer Lending Program is tied to the repayment ability of all of the group’s members. In other words, all members of your group must be up to date on their loan payments for other members to have access to further loans in the program. Each member must therefore commit to finding a way to repay his or her loans even if the business runs into problems.
• Review the Group Guarantee – the three items that all members of a Peer Lending group must commit to during the period of their initial loan and for each subsequent loan applied for. The group must guarantee that it will:
• Have monthly meetings and report those minutes to Vancity; • Spend time on peer support and group-initiated training; and,
• Take collective responsibility for timely repayment of all group member loans. Effective groups don’t happen overnight, but selecting the right people to work together is an important starting point. Once the right people are in place,
your group will start to move on its own well-organized, well-functioning path.
• Read, discuss and resolve the three case studies in Appendix 3. Each case describes a situation that has occurred in previous Peer Lending groups. Discussing these situations will allow your group to find out how everyone interacts with one another and how well the group can resolve problems. Decide as a group how you would deal with each situation, and then write that plan of action in the space provided. Also think about how the situations could have been prevented. Your conclusions in this exercise will become part of the Group Loan Application Package when you meet Vancity for your loan approvals.
• Distribute copies of the Loan Application form (Appendix 4) to each member of the group as a take-home assignment for the next meeting. See Step 2 below. (The chairperson or secretary could be the one to make copies of the form.) All members of the group still committed to moving forward at this point should complete the form, thinking of it as a working copy, and prepare to make a presentation to the group at the next meeting.
By the end of Step 1, every member of the group should be able to answer “yes” to the following questions:
• Does everyone understand how the Peer Lending Program works? • Do we all agree to the Group Guarantee?
• Can we make a commitment to each other for business support? • Do we understand each other’s personal and financial situation?
• Do we understand the basics of each other’s business, how each person will make money, and what each member is planning to do with the loan he or she gets?
• Do we have a plan if one of the members cannot pay his or her monthly loan payment? • Do we know what we can do to make sure one member’s loan repayment default does not
prevent the rest of the group from going forward?
It is difficult to remove a member from a group once it is formed, which is why it’s important to be careful when choosing the members of your Peer Lending group. If, after going through this orientation process, you have doubts that someone may not see his or her commitments through or pay back loans on time, be open about your feelings and ask for the situation to be re-evaluated before the group progresses to the next step. A Peer lending Program manager at Vancity can also help you address your concerns.
Step 2: Working to establish business and loan needs
If all members of the new group feel confident that there is good communication, sharing and support within the group, and if everyone has had the opportunity to assess each other other’s character, commitment and ability to repay the loans, you’re ready to move to the next step.
Phase 1 – Loan Application assessment
In follow-up to the last meeting, the next step begins with assessing the Loan Application form (Appendix 4) filled in by each member and brought to the group for discussion.
• Individually, complete the Loan Application form to the best of your ability. Consider it a working document at this point, not a final document. Make enough copies for each member of your group.
• Individually, obtain a copy of your Credit Bureau report by contacting EQUIFAX. The website www.equifax.ca has information on how to get this report.
• Hold a group meeting to review and assess each member’s completed Loan Application form. Members hand out copies of their completed forms to the group and then make a presentation about their business idea and loan needs. The copy of the individual’s Credit Bureau report can also be circulated at this time. It helps demonstrate an individual’s repayment ability.
• Discuss and give constructive feedback on each member’s application. You need to understand each other’s business if you are to support each other and ensure that you all succeed. Use the Business Evaluation Grid below to make notes about each member’s idea.
• Listen to the feedback you receive on your application. Describing your business in detail to others will also help you to better understand your own business and improve your idea.
During the Loan Application assessment exercise,
remember the communication ground rules established in Step 1. Good listening and constructive criticism skills are a must.
Business Evaluation Grid: use this tool to evaluate each member’s business idea
Name of group member:
Business
idea and product or service:
Did you see a demo?
Good business:
Does the member know any customers, and can he or she make money?
Marketing:
Does the member have good customer knowledge?
Does he or she have good promotional ideas?
Execution:
Does the member have the space, materials, equipment to be successful?
Financial:
Does the member know what the loan will be spent on?
Can the member repay the loan?
Your group members will expect you to have a strong knowledge of your business. Here are some questions they may ask:
• Who are your customers and why do they want your product or service? • What is your competitive advantage?
• How do you advertise your business? • Is your pricing adequate to make a profit?
• What relevant skills, training and experience do you have? • Do you have reliable suppliers established?
• What do you need the loan for?
Phase 2 – Loan Application completion and repayment discussion
Based on the assessment feedback from the previous meeting, members may or may not need more time to make revisions to their Loan Application. If necessary, hold another meeting to talk about these changes and give feedback.
• Review each member’s proposed “Use of Funds” and “Repayment Profile” (from the Loan Application). Use the questions below to guide the discussion, and ensure that all responses are recorded in the minutes.
• How will this loan help you earn extra income in your business?
• How will you repay this loan if your business experiences financial problems?
• Do you have other sources of income that you can use to repay the loan? Possible sources include wage employment, savings, and spousal income.
• Have you experienced any credit problems in the past? If yes, explain when, why and what steps you are taking to fix these credit problems.
• Why should the group feel confident that you would be able to repay their loan?
• When all members are satisfied with their own and other members’ Loan Applications and have completed the Business Evaluation Grid, the group can go forward.
• Individually, prepare clean, final copies of the Loan Application. Make a copy of all the forms to hand in at your meeting with Vancity for your loan approvals.
Phase 3 – Final member assessment
At this point, you have come far as a potential Peer Lending Group, but the final commitment to apply formally to the Peer Lending Program as a group is still to come (Phase 4). Now is the time to confirm with all members of the group that everyone wants to proceed with officially forming the group and approaching Vancity. It is also a final opportunity to confirm confidence in each other. One weak link in a group can risk the access to future credit for all members of the group.
• Face to face, ask every member to express openly and honestly his or her confidence in each other’s ability to meet the group’s responsibilities under the Peer Lending Program.
• Individually, ask yourself the following questions about each of your fellow members: • Is he or she professional in approach and open with his or her answers?
• Does he or she show a strong understanding of the proposed business and what is required to succeed?
• Does he or she completely understand the purpose of the loan and how it will help advance the business?
• Can you trust that he or she will repay the loan (either from business operations or a contingency plan)?
• If any of you can’t confidently answer “yes” to all four questions about a particular member, decide as a group whether to continue to request information from that person, or to reject his or her Loan Application.
• If you CAN confidently answer “yes” to the questions about all members, then you’re definitely ready to go ahead and take the final step to formalizing your group. Congratulations!
Phase 4 – Official commitment to going forward as a group
Once you officially commit to being a Peer Lending Group, you’ll be ready to submit your application for a loan to Vancity. There are a few more final tasks:
• Give your group an official name.
• Decide on a group chair. The chairperson or secretary is responsible for making sure that the minutes of group meetings are available for presentation to all group members and that they are mailed or faxed to Vancity within a week of each group meeting.
• Look at the list of Mandatory Bylaws on the Group Bylaws form in Appendix 6. Do you agree to these?
• Create additional group bylaws (guidelines for operating). These bylaws outline the expectations of each member and the group as a whole. Review the Peer Lending Program Policies and Procedures (Appendix 2) to identify what other items should be part of your bylaws. You can add to or delete from your own bylaws as the need arises. For example, a bylaw might state, “we will give each other 24 hours notice if we need to cancel a group meeting.”
• Set the regular monthly meeting date (note: it should be approximately one or two weeks before the loan payments are due).
• Think about establishing an Emergency Fund, to be used to cover missed payments when necessary. You could require all members to contribute $50 to the fund each time they receive a new loan with the Peer Lending Program or consider establishing a late payment penalty, the proceeds of which would be added to the group’s Emergency Fund.
• Decide on steps to ensure that members attend the regular monthly meetings.
• If a member defaults on (can’t make) a loan payment, consider having an option for the group to seize equipment that the member purchased with the loan, in order to pay off the loan balance.
Step 3: Meeting with Vancity to apply for a Peer Lending
loan
It’s time to take your application forward.
• Complete and sign the Group Agreement (Appendix 5). The agreement will become part of the formal Group Application Package when you meet Vancity for your loan approvals.
• Complete and sign a Group Approval of Member’s Loan at the end of each individual Loan Application in Appendix 4 and make a copy to hand in as part of the Group Application Package when you meet with Vancity.
• Assemble all the necessary documents for the Group Application Package. This is the responsibility of the group chairperson. The necessary documents include one copy each of:
Group Application Package
1. Business Evaluation Grid from your meetings (page 12) 2. Case Study Answers (Appendix 3)
3. Credit Bureau report for each member (page 11) 4. Loan Application for each member (Appendix 4) 5. Signed Group Agreement (Appendix 5)
6. Signed Group Bylaws (Appendix 6)
• Set up a group meeting with the Peer Lending Program Manager at Vancity. This is the responsibility of the group chairperson. Call 604.709.6930 or email [email protected]. • Submit the complete Group Application Package (all documents) at least three days before the
meeting. This is the responsibility of the group chairperson. The Peer Lending Program Manager will review the documents to ensure they are complete, and will call the chairperson to confirm the meeting date.
• Once all documents have been signed and the group has been approved by Vancity, an
arrangement will be made with the group’s Vancity branch to sign loan documents and fund the loan.
Step 4: Getting down to business with ongoing group
support
Members have developed their skills of working together and there is a strong sense of commitment and group identity. Push yourself to get more from the group. Learn together, problem solve together, innovate together.
You need to keep in mind your responsibilities to: • Attend monthly group meetings.
• Provide business support, advice and feedback to other group members.
• Ensure the timely repayment of every group member’s loan. You may need to help each other or make payments for others in the group to keep it up-to-date.
• Recognize that you may have to pay the outstanding loan balance of any group member who defaults on his or her loan, if the rest of the group wants to continue as borrowers within the Peer Lending Program. It is a good idea to discuss an Emergency Fund to keep some money aside in case this happens.
• Tell other group members of any impending repayment problems you may have.
• Follow up with any member who has missed a payment to find out whether he or she has caught up.
• Respect the confidentiality of the personal, business and financial information provided by all members of the group.
If you follow these steps, your business will grow, you will build your credit history and you will be able to access more credit at Vancity.
Appendix 1: Glossary of business terms
Microcredit An innovative idea that is used around the world to reduce poverty. Organizations provide very small loans to low-income individuals to start up a small micro-enterprise. These loans are given to groups, and the group provides support and acts as collateral for the loans. Each member supports the other and makes payments when one member cannot make his or her loan payment. On average, these loans are paid back at 98% and are able to generate incomes, help families and reduce poverty. They also build skills and create small businesses that contribute to the economic health of the country.
Vancity’s Peer Lending Program An initiative introduced at Vancity, based on the innovative model of microfinance. Vancity has made a social commitment to provide access to financial service (such as loans) to low-income entrepreneurs and newly arrived Canadians who may have difficulty meeting regular lending criteria.
Peer Lending Group A group of like-minded, entrepreneurial people who give each other feedback on their business plans and decide together whether a loan should be approved for each member.
Micro-enterprise, micro-business A small business, sometimes run from home, run by a business owner who may be operating it full-time or just part-time to increase his or her income.
Customer Someone who will pay for a business’ product or service. A customer is the most important part of a business.
Product An item that a business may manufacture or purchase to sell to customers (for example, baked foods such as cakes and cookies, clothing, guitars, fresh produce).
Service An action or task a business will do for customers (for example, housecleaning, gardening, photographing weddings).
Market The group of people who want to buy a product or service. A market describes the type of customer you want to sell to.
Competition The other businesses trying to sell to the same markets you are. Before you decide on selling a product or service, you need to know who your competition is, how you can tell customers why your product or service is better, cheaper, easier to use, and so.
Appendix 2: Peer Lending Program policies and procedures
1. Loan Payments
The following table summarizes the repayment details for loans at each of the five available levels. Every month you will be responsible for making your payments on time or the group will not be able to move up to the next level or borrow further.*
Level Amount Maximum Term Monthly PaymentApproximate**
1 $1,000 12 months $ 90
2 $2,000 18 months $125
3 $3,000 18 months $185
4 $4,000 24 months $185
5 $5,000 24 months $230
* A step increase in a subsequent loan is available to borrowers with a proven customer base and financial statements from previous loan period.
** The approximate monthly payment may change depending on what the prime interest rate is at that time.
Interest Rate
The interest rate charged is Vancity prime plus 3%. Loans must be made up of equal payments, consisting of principal and interest, to be made monthly on the date established in the loan agreement.
Payment Dates
The payment date on all loans is either the 6th or 22nd of each month. Payments are automatically debited from your Vancity account and you must ensure that your payments are in your account before the loan due date. You can deposit to any Credit Union ATM or HSBC Bank ATM, or by directly depositing to your account at any Vancity branch during branch hours or through the Vancity ATM.
Fees / Postponement allowance
Each borrower may postpone up to two monthly payments per total loan period. The fee is $25 per postponement. This can be arranged at your branch. Note that no other administrative fee is charged for Peer Lending Loans.
Penalties
There is no penalty for early repayment of all Peer Lending Loans. The minimum term for early repayment is three months.
2. Vancity Shares Account
All clients who borrow through the Peer Lending Program must have an active account at Vancity. To open a new account, you must make a deposit of $50 to a Shares Savings Account. If you ever close your account, the money for your Vancity Shares will be returned to you.
3. Responsibilities of the Peer Lending Group Member
• Attend monthly group meetings.
• Provide business support, advice and feedback to other group members.
• Ensure the timely repayment of every group member’s loan. You may need to help each other or make payments for others in the group to keep it up-to-date.
• Recognize that you may have to pay the outstanding loan balance of any group member who defaults on his or her loan, if the rest of the group wants to continue as borrowers within the Peer Lending Program. It is a good idea to discuss a contingency fund (or Emergency Fund) to keep some money aside in case this occurs.
• Inform other group members of any impending repayment problems you may have. • Follow up with any member who has missed a payment to find out whether he or she has
caught up.
• Respect the confidentiality of the personal, business and financial information provided by all members of the group.
4. Getting the Next Loan: Subsequent Loan Application Process
To process a subsequent loan, a member’s previous loan must be paid in full and with minimal delinquency. • Have a group meeting to properly assess all members’ subsequent loan applications and approve
these on a consensus basis only.
• In any group, there must be at least three active borrowers at any one time, and all must be up-to-date with their loan payments.
• The group must approve a completed Next Loan Application, plus proof of business activity by each member. All members must review and sign the Next Loan Application. Once the group has approved the loan, the member can contact Vancity to get the next loan.
• A group member could be restricted from receiving a subsequent loan if he or she had been delinquent with payments for the previous loan.
Appendix 3: Case Studies
Read and discuss the three case studies below. Each one describes a situation that has occurred in previous Peer Lending Groups. Decide as a group how you would deal with each situation, and then write the plan of action in the space provided. Also think about how the situations could have be prevented.
CASE 1: Tom has an active loan with an outstanding balance of $1,400. His business is selling fresh
vegetables. His truck has broken down and he has no method of transporting his vegetables. Without his truck he cannot operate his business.
Group comments: Action plan:
How the situation might have been prevented:
CASE 2: Anna says she no longer wants to be part of the group. She has had trouble making the last two payments on her loan. Her business, which has been her life’s ambition, is failing. She is discouraged and is avoiding meeting with the group members.
Group comments: Action plan:
How the situation might have been prevented:
CASE 3: Joe has submitted a loan application for $5,000. Up to now, the repayment record of the group has been excellent and the group has developed a habit of automatically approving members’ loans. At the last four group meetings, however, it has become apparent that although Joe has made his loan payments on time, he has had difficulty doing so. The group feels that this next loan will overextend him and he will not be able to handle his payments.
Group comments: Action plan:
Group application package
The package which you will hand in to Vancity has six parts:
• Business Evaluation Grid from your meetings in Step 1
• Case Study Answers from your meetings in Step 1 (Appendix 3)
• Credit Bureau report for each member
• Loan Application for each member (Appendix 4)
• Signed Group Agreement (Appendix 5)
Appendix 4: Your loan application
Personal information
Name:
(First) (Initial) (Last)
Address:
City: Postal code:
Home phone: ( )
Are you working now?
Company name: Your position:
Work phone: ( ) Cell phone: ( ) Fax: ( )
Email 1:
Email 2:
Social Insurance Number:
Birth date: / / (month /day/year)
Business information (if different from personal)
Business Name: Address:
City: Postal Code:
Phone: ( ) Fax ( )
Email:
Your Business Idea
Describe your business product or service in detail. (Add a second page if necessary.)
What is unique about your business?
Do you meet the standards required to operate your business (for example, training, legal, zoning)? Explain.
Who are your main customers? Please describe their characteristics in detail. (Add a second page if necessary.)
Do you have any customers established at this time? If yes, please provide the name and contact number for four of your main customers for reference purposes. If you have no customers yet, provide the name and contact number for four people who would be a personal character reference for you.
Name Length of time known Phone #
1. 2. 3. 4.
Who are your three main competitors? List the strengths and weaknesses of each of those businesses, as well as those of your own.
Name of Business Main Strengths Main Weaknesses
Your Business Competitor #1 Name: Competitor #2 Name: Competitor #3 Name:
Why would a customer choose your product or service rather than your competitor’s?
How do you (or will you) advertise and promote your product or service?
Where do you (or will you) sell your product or service (for example, in retail stores, from home, at trade
Management
Does the business exist now or is it just starting up?
Start Up Existing – Average sales last year $
Form of business ownership: Sole proprietorship:
Partnership: Name of Partners:
Will business be: Full time Part time
Seasonal (e.g. Holiday period only)
Do You Work Elsewhere? Where ? Average Monthly Income $ What training, experience or skills do you have that is relevant to running this business?
Cost of Product: What does it cost and how much time do you spend to produce one unit of your product or service?
Price: What price do you charge for your product/service?
What is the profit on one unit: Sales Price – Cost = Profit per unit?
How much do you expect to sell per month? $
(Research best estimate /month from last 3 months sales) (A) Average Monthly Sales
USE OF FUNDS – How will you use your loan?
What size of loan are you requesting? $ How do you plan to use this loan?
List any items/ services that you plan to purchase:
a. Cost $
b. Cost $
c. Cost $
d. Cost $
Total Cost $
What are your average monthly business expenses? (best estimate for new business)
Raw materials/ inventory $
Advertising $
Rent/ space rental fees $
Utilities (phone, heat, electricity) $
Materials $
Employee wages $
Owner’s salary $
Bank charges $
Insurance $
Vehicle- fuel + maintenance $
Other $
$ $
TOTAL $ (B)Average Expenses/month
Calculate your average monthly business profit: (A - B) = (C)
Use average monthly sales from previous page (A) $
Minus average monthly expenses from above (B) $ Equals (C) monthly business profit = $
REPAYMENT PROFILE
Have you had any credit problems in the past? Yes No If yes, when and why?
Do you presently have any other debts (including credit card payments)? Yes No If the answer is yes, how much do you owe, and to whom do you make payments?
Payment to: Amount outstanding: Monthly payment:
$ $
$ $
$ $
List all sources of income and their percentage of your total income:
Source % of income
Business %
Salaried employment part-time %
full-time %
Assistance EI BC Benefits %
Spousal %
TOTAL 100 % How will you repay the loan if your business runs into problems?
How much can you pay from business profits? $
How much can you pay from personal income? $
OTHER BACKGROUND INFORMATION
Please list 2 personal references (friends or family)
Name Relationship Phone
1. 2.
Employment History:
Employer Position Title Dates Employed
1. 2. 3.
Last Step to Complete the Loan Application (done with group)
Once the entire group has evaluated all the loan applications and agreed to go forward as a group to Vancity, the group needs to approve each person’s loan and sign the group agreements and bylaws in the next section.
Before each member signs this make sure you discuss:
• THE GROUP IS CONFIDENT THAT THE MEMBER CAN REPAY THIS LOAN? YES/NO
• HOW WILL THE MEMBER REPAY THIS LOAN IF THE BUSINESS EXPERIENCES FINANCIAL PROBLEMS?
• DOES THE MEMBER HAVE OTHER SOURCES OF INCOME? YES / NO
• HAS THE MEMBER HAD ANY PREVIOUS CREDIT PROBLEMS? YES / NO
• IF YES, WHAT STEPS DID THE MEMBER TAKE TO FIX THESE CREDIT PROBLEMS?
Group approval of your loan application
Group Name : ________________________________________________________________________ We agree to approve,
__________________________________ Amount of loan approved by the group ($)
I, _______________the group member borrowing these funds, certify that all the information supplied in this application is true, complete and correct to the best of my knowledge. I understand that this information will be used by Vancity and my fellow group members to determine my credit worthiness. I authorize and consent that Vancity may exchange information with the Credit Bureau, other financial institutions, suppliers, and my current peer group.
X_________________________________________ _____________________________
Borrower’s Signature Date
We, the group approve these funds (must be signed by all group members)
Appendix 5: Group agreement
Group Name : ________________________________________________________________________ Chairperson : _________________________________________________________________________
As recipients of monies through Vancity’s Peer Lending Program, we:
Consent to the release of financial information to Community Business Services.
Agree that all loans are to be used to develop our businesses and that the monies are not intended for, and will not be used for, personal expenses of any kind, regardless of circumstances.
Are aware that we are morally and legally obligated to repay our loans according to the terms of our loan agreements.
Are aware that:
• If any one of us fails to live up to our loan obligation, our fellow group members’ ability to borrow will be affected; and
• This failure to repay will result in the remaining group members and/or the Peer Lending Office taking whatever action is deemed necessary to recover the loan.
Agree to abide by all our Peer Lending Group bylaws included in our Group Application Package and with the Loan Fund Policies.
Signed:
Group Member Signature: Date:
Appendix 6: Group bylaws
We all agree to these Mandatory Bylaws:
We agree to have our loan payments in our accounts at least one day prior to the due date knowing all loans are due on either the 6th or 22nd of every month.
We agree to meet monthly fax/email our minutes of the meetings to the peer lending office within a week of holding the meeting.
We agree that it is our responsibility as a Peer Lending Group to communicate and remedy situations that involve delinquent group members.
We agree to ensure that our group members’ use the loan proceeds for the purpose as stated on the loan application.
We also agree to these additional Bylaws for our Group:
Signed:
