CRC Speaks about Small Biz Owners and Financing Challenges at CFPB CAB Hearing

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Paula Tejada, owner of Chile Lindo, speaks to CFPB Director Cordray and Assistant Director Grady Hedgespeth about being a small biz owner in the Mission District of San Francisco. Learn about the CFPB’s tour here.

Today, Paulina Gonzalez, the executive director of the California Reinvestment Coalition, will be speaking at the Consumer Financial Protection Bureau’s Consumer Advisory Board meeting about the challenges that Small Business owners face in obtaining safe, transparent loans to start and grow their businesses.  CRC is strongly supportive of the CFPB’s effort to implement the 1071 data collection called for under the Dodd Frank financial reform bill.

Gonzalez’ presentation highlights how loans to smaller small banks have decreased; how small business owners are being pushed to credit cards (instead of small business loans); and how some predatory lenders are filling in the gaps.

CRC has been monitoring access to loans for small business owners in California for a number of years, and the results have been especially disappointing:

2007-2009: According to CRC’s analysis and report (The Little Engine that Could), SBA lending to California’s minority-owned businesses dropped by 81 percent for African American-owned businesses and 84 percent for Latino-owned businesses. See report: Small Business Access to Credit

2007-2013: According to CRC’s analysis of SBA data, small business lending, especially to African Americans and Latinos dropped dramatically from 2007 to 2013.

Report Finding Include:

Bank Loans Guaranteed by the U.S. Small Business Administration Fall Dramatically:

  • There was a 60% drop in the number of small business loans made from FFY 2007 to FFY 2013.
  • In FFY 2013, only 2% (96 loans) of SBA 7a loans were made to businesses owned by African-Americans, 11% to Latinos (634 loans), and 14% to women (846 loans).
  • Credit needs of the smallest small businesses are being ignored: the average SBA 7a loan tripled in size from $165,723 in 2007 to $498,971 in 2013.

Conventional Small Business loans decline for 4 of the 5 largest banks

  • For conventional small business loans, four of the five major banks decreased the amount of loans they were making in 2012 by about 2/3 as compared to 2007 in five key counties (Alameda, Fresno, Los Angeles, Sacramento and San Diego).
  • US Bank increased its overall small business lending by more than 17% in these counties, while JPMorgan Chase, Wells Fargo, Bank of America, and Citibank all made far fewer loans in 2012.

Practitioners Report Difficulties in Getting Loans, Esp. for Smallest Businesses 

  • CRC polled our member organizations who work directly with small businesses. Seventy-three percent of respondents stated that banks are doing less lending to small businesses (revenue of less than $1 million annually) in 2013 than 2012.
  • Ninety-two percent of them stated that banks are not doing significant lending at the $150,000 or less level.

Financial Resources for Immigrants and Low Income Families

It’s unfortunate, but true: new federal actions are threatening the economic security of low-income families across the country.

Several California community organizations responded to this new threat by hosting an event last week for nonprofits that serve low-income families.  Speakers focused on how front-line staff members at nonprofits can work with families to connect them to money and other resources to help prepare for future emergencies- or to meet present needs.

Tickets for the event, held at the Alameda County Social Services Agency, were sold out.

Experts from the National Immigration Law Center, International Rescue Committee and Bay Area Legal Aid answered questions about the Earned Income Tax Credit (EITC), the new California Earned Income Tax Credit, Child Care Tax Credit, and other safety net benefits.

EITC

Participants learned how to help their clients use and apply for ITINs (Individual Taxpayer Identification Number) to receive tax refunds, about the many different public benefits and their eligibility requirements

In addition, at another panel, representatives from banks discussed account options for families to receive refunds and other cash assistance safely- without expensive check cashing or overdraft fees.

The California Reinvestment Coalition partnered with the United Ways of California, Alameda County Community Asset Network, and the Alameda County Social Services Agency to hold the event. CRC is grateful to our co-sponsors, the presenters, Y & H Soda Foundation which helped fund the event, and the attendees who made the event a success.

 

CRC Hosts CFPB Mission District Tour on Small Business Displacement

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Liana Molina discusses displacement of local small businesses at the corner of 16th and Valencia in the Mission District, San Francisco

Yesterday, CRC hosted a visit and tour by the Consumer Financial Protection Bureau (CFPB) in the Mission District in San Francisco.  CFPB Director Richard Cordray and Assistant Director Grady Hedgespeth met with local small business owners and leaders from CRC member organizations including MEDA, Opportunity Fund, and Renaissance Entrepreneurship Center who support small businesses with capital and technical assistance.

Displacement in the Mission

In the past few years, growth in the tech sector has created enormous pressure not just on housing rents in the Bay Area, but on commercial rents as well.

The displacement of neighborhood serving small businesses in the Mission is especially troubling, given the critical role they play in supporting, serving and employing longtime residents of the Mission.  Small business owners have also complained about difficulty they face in obtaining bank loans, and research by CRC confirms that small business lending by the five largest banks has dropped dramatically since the recession.

Under the Dodd-Frank financial reform, the CFPB is charged with collecting data about small business lending.  In February this year, the CFPB announced that writing these rules is considered a near term priority goal. Similar to the Home Mortgage Disclosure Act, these new rules are expected to increase transparency (and accountability) about who is getting small business loans- and who isn’t.

Small business owners share their experiences and challenges

Director Cordray and Assistant Director Hedgespeth met with several of these small business owners during the CFPB’s visit.  The first stop on the tour was Venga Empanadas, where co-owner Pablo Romano shared his experience in obtaining financing to open his restaurant.  Denied financing by a bank, Mr. Romano connected with Opportunity Fund, a Community Development Financial Institution (CDFI) who provided him with a $45,000 loan, enabling him to sustain and grow his business which now has eight employees.

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Luisa Estrada, owner of D’Maize Restaurant and Catering speaks with Director Cordray.

Next, Zenaida Merlin and Luis Estrada, owners of D’Maize Restaurant and Catering, shared how a small business loan of $80,000 from Mission Economic Development Agency’s (MEDA) new CDFI Adelante loan fund meant that D’Maize was recently able to expand their business to a full-service restaurant.  They now employ 22 people from the local community.

Elsa Valdez, the owner of El Salvador Restaurant, explained how she benefitted from working with MEDA, who helped her to get a loan from KIVA to help pay for improvements to her restaurant, which has been family owned for over 20 years.  Ms. Valdez wants to continue improvements to the restaurant and growing her business.

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Paula Tejada, owner of Chile Lindo Delicatessen and Coffee Shop

Paula Tejada, known as “The Girl from Empanada” is the owner of Chile Lindo Delicatessen and Coffee Shop, a business she first purchased in 1995.  Working with Renaissance Entrepreneur Center, she received technical assistance on running her business, including their 14 week business planning class focused on marketing, management, operations and finance.

Lunch at San Jalisco

The tour concluded with lunch at San Jalisco, owned by Dolores “Josie” Padilla-Reyes.  She took over the restaurant from her parents in the 1970s, but after rent was increased threefold, she had to close the café and reopen the eatery in its current location.  Concerned about being displaced again, she worked with the Mission Economic Development Agency (MEDA) to secure a loan to purchase her building, preventing further displacement.

Len Rogers, the owner of the Electric Bicycle Superstore, also joined the lunch.  He launched his small business in 2008 and it has grown steadily since then.  Len was denied by multiple banks for credit, making him a perfect target for expensive merchant cash advance companies. After struggling with unsustainable payments required by multiple predatory finance companies, he connected with Opportunity Fund, who refinanced him into an affordable, responsible small business loan.  Len was also a client of Renaissance Entrepreneurship Center, who helped him get a KIVA loan and provided consulting services through their Bayview Office.

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The lunch concluded with a “Happy Birthday” cake presented to the CFPB staff, since yesterday was the Bureau’s fifth birthday. In that short time, the agency has secured over $11 billion in relief for over 27 million consumers and handled nearly 1 million complaints.

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CRC Guest Blog: Families Win When Banks Stop Funding Displacement

Paulina Gonzalez, executive director at the California Reinvestment Coalition, wrote a guest blog on the Mission Economic Development Agency blog today about Ellis Act evictions, bank loans that finance these evictions, and one bank’s decision to stop providing these loans.  Take a look!

In August of 2015, community organizations and tenants in San Francisco joined together to take a stand against the banks and the role their loans are playing in financing displacement in the city. The story of this organizing victory sets the stage for holding corporate actors accountable to their communities and builds a model for public-private partnerships for the preservation of affordable rental housing…

Read the rest of the post on MEDA’s blog.