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VEDC1 CDFI Small Business Lending: Its Our Time Roberto Barragan, President VEDC.

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Presentation on theme: "VEDC1 CDFI Small Business Lending: Its Our Time Roberto Barragan, President VEDC."— Presentation transcript:

1 VEDC1 CDFI Small Business Lending: Its Our Time Roberto Barragan, President VEDC

2 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 union and SBA 7 a lender

3 VEDC3 A CDFI in a Credit Crunch World  Financial Crisis  Skyrocketing Demand  Bank Support  SBA, State, CDFI Support  Why VEDC?

4 VEDC4 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 federal bailout

5 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 Jobs Act VEDC5

6 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 VEDC6

7 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 VEDC7

8 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 VEDC8

9 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 statewide

10 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 VEDC10

11 VEDC11 SBA Support  SBA 504/ARRA changes result in VEDC 504 1 st 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 lender

12 VEDC12  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 VEDC Statewide Expansion

13 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 VEDC13

14 VEDC14 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 Strong collection practice and history

15 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 VEDC15

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