CDFI Small Business Lending: Its Our Time

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VEDC 1

CDFI Small Business

Lending: Its Our Time

Roberto Barragan, President VEDC

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VEDC 2

Introduction



VEDC is the largest non profit small

business lender in Metro LA



Largest SBA Microlender and EDA RLF

in CA.



Sponsor of SBA 504/state guarantee

lender



Sponsor of federally chartered credit

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VEDC 3

A CDFI in a Credit Crunch

World



Financial Crisis



Skyrocketing Demand



Bank Support



SBA, State, CDFI Support

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VEDC 4

Financial Market Crisis

 Dec. 2007: Recession Officially Begins

 August 2008: Lehman Bros fails - Credit

Markets freeze, TARP happens

 Oct. 2008: SBA Secondary Market Stalls; SBA

volume drops 50%

 Oct 2008: After big losses, BofA dramatically

curtails 7(a) lending

 Nov 2008: Chase buys Wamu

 Dec. 2008: Wells acquires Wachovia

 Feb. 2009: ARRA passed; SBA volume rises  Jul. 2009: CIT ( Major 7(a) lender) denied

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Small Business Credit Demand

 March 2009: Amex cuts credit access  April 2009: HELOCs are frozen

nationwide

 May 2009: BofA buys Merrill Lynch  September 2009 Goldman Sachs

announces 10,000 Small Businesses  October 2010: Starbucks announces

OFN Create Jobs effort

 December 2010: Small Business and

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Federal Government Saves State Small Business Programs

 $164 million given to support

guaranteed lending and loan loss reserve program

 Loan guarantee limits increase to $2.5 million

 11 small business financial development corps receive minimum program support  CalCap program struggles with

insufficient bank participation

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Increasing Small Business

Support from for CDFI Fund

 Obama Administration increases CDFI support by 500% to $250 million

 US Treasury Financial Assistance

Program is increasingly focused on job creation and business assistance

 New Markets is focused on Commercial Real Estate , no small business lending  Large focus on national intermediaries

and financial institutions

 BEA grants limited to banks, not credit unions

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Why VEDC?

 Significant due diligence focused on loan portfolio

performance:

 Loans above $50k:>5% delinquency

 NCOs at under 2% over the past 2 years  Loans below $50k: 14% delinquency

 NCOs at under 4% over the past 2 years  Comprise 30% of VEDC portfolio

 Entire portfolio delinquency currently under 8%  Portfolio Management Software combined with exp.

credit administration, inc bankers on loan committees

 VEDC currently manages $24 Million in loan capital with

40% net assets and 4% loan loss reserves

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VEDC 9

Bank Support

 Oct 2008: GE Money $500k in microloans

made;

 Dec 2008: Merrill Lynch: $1 M low interest

loan for microlending; all lent by Feb 2009

 Aug 2009: US Bank: $2 million EQ2 for

microlending: all monies lent within 12 mos.

 Oct. 2009: BofA: $ 1M Accion LA program

approved

 May 2010: Goldman Sachs: $7 mm loan and

$1 mm grant: $5 mm lent to date.

 Sept. 2010: Wells Fargo $1 mm loan, lent in

90 days

 Dec 2010: Chase $5 MM grant, VEDC goes

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Other Bank Support

 Currently maintains referral programs with Bank of America, Chase, Wells and Citi

 Chase: Financial support to Access to Capital Center in LA, inc denial referrals  Citi: Statewide downtown ATC program

w CALED

 BofA: Microloan program support  Wells: Supports statewide WTM

 US Bank: SoCal microloan program

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VEDC 11

SBA Support

 SBA 504/ARRA changes result in VEDC 504

1st_{year experience of $20 M lent}

 SBA 7(a)/ARRA changes result in $1.5 M

lent by VEDC sponsored credit union

 SBA Microloan program receives additional

$750k in loan capital

 SBA Primes approves $200k to VEDC for

entrepreneurial support

 VEDC becomes Community Advantage

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VEDC 12

 Chase makes $5 million grant to VEDC to expand

lending statewide: $50 million in lending in 3

years

 Referrals from Chase branches (denials) and area

nonprofits and chambers

 VEDC hires FT BDO to originate loans in Bay Area  Secures MOU with 30 organizations statewide to

originate loans

 VEDC hires VP of Lending w prior bank experience  VEDC establishes VP of Marketing and

Communications to establish brand strategy

 VEDC enters into MOU w CALED to operate statewide

EDA RLF using dormant state money

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Where’s the Money Expos

 Access to Capital Events hosted by VEDC bringing together banks,

government and local organizations  Workshops and business speakers

 Loan pavilion: Bank loan officers meet with application ready borrowers

 San Francisco: 250 businesses  San Diego: 300 businesses

 LA: 900 businesses

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VEDC 14

VEDC as Small Business

Lender:

 Market rate lender

 Focused on 3 Cs (credit, collateral and

cashflow) and lend on 2

 Intense underwriting and closing

processes focused on cash flow and collateral perfection, respectively

 Credit elsewhere: restaurants, startups  Diverse portfolio w extensive experience

in underserved markets

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What this means

 Realization that there are few small business

lenders nationally,

 We need more not less lending, especially to

small business in light of tighter credit conditions

 Banks are under close regulatory attention and

will continue to limit small business lending for the next 12-18 months

 So they need to invest in local and regional

mechanisms to support small business lending

 With tighter budgets, cities and counties need

to outsource small business lending to CDFIs