(Published in the San Francisco Business Times, Albany Business Review (New York), Atlanta Business Chronicle (Georgia), East Bay Business Times, and Mass High Tech: The Journal of New England Technology.)
By Judith Harkham Semas, Contributor
sanfrancisco@bizjournals.com
Rafael Castro's custom clothing design business is, in effect, the legacy of an employer who died owing him several months in back pay.
“The employer's family compensated me with equipment left in the business,” Castro said. “From there, my own design company was born.”
Born, yes, but healthy growth - indeed survival - came only with the help of a microloan from the nonprofit Oakland Business Development Center. The money enabled Castro, who might not have qualified for a bank loan, to buy more inventory, add a second location, and give his working capital a needed boost.
OBDC is a leading alternative business lender among a number of nonprofit and government organizations that provide a broad range of support to minority business enterprises - not simply funding, but also training, education and technical assistance on how to do everything from completing government forms and packaging business loan applications to developing and implementing sound business plans.
Lending to minority-led businesses is difficult not least because Federal Reserve regulations prohibit business lending - or even collecting loan data - based specifically on race. But that doesn't stop lenders, including major banks, from playing a significant role in backing minority businesses through such tactics as targeting low-income areas.
BofA has committed $750 billion nationally over 10 years starting in 2005 to community development, for implementation through local channels. The pledge includes $125 billion to small business and small farm loans. In 2005, its loans and credit lines to small firms in low- and moderate-income areas, plus contributions to small-business investment companies and minority-business venture capital funds, totaled $3,761,800 for all of California.
For the Oakland and San Francisco areas, the figures are $241,900 and $239,600, respectively.
That kind of commitment has earned BofA widespread recognition as a top lender to minority businesses.
Wells Fargo, another bank with a minority- and woman-friendly reputation, has pledged to lend 29 billion dollars over 12 years to African-American, Asian, Latino, and women-owned businesses. What's more, since 1995 Wells has actually lent $33 billion to women and diverse business owners, according to bank spokesperson Michele Ashley.
Credit criteria are the same as for other businesses. But San Francisco-based Wells also works with community organizations such as Renaissance Entrepreneurship Center and TMC Development, both San Francisco nonprofits, to provide technical assistance and microloans. In its outreach efforts, Wells also links with such business and professional organizations as the Asian Business League, 100 Black Men of America and the U.S. Hispanic Chamber of Commerce.
“Banking is not intuitive to people, and diverse segments typically do business through relationships,” said Brenda Wright, Wells Fargo senior vice president and head of community development. “So we've tried to work with community partners and build staff knowledge to find our role in supporting growth of diverse business segments.”
But according to Alan Fisher, executive director of the San Francisco-based California Reinvestment Coalition, CRC's report on Small Business Access to Bank Credit, shows that community banks do a better job of serving their local communities than banks with multi-state presences.
“The big banks have credit-scored, mass-production programs that aren't particularly sensitive to California's diversity, which requires approaches that aren't cookie-cutter,” Fisher said.
Fisher is working on an update of CRC's 2003 report and noted that things haven't changed much. “For example, in looking at Alameda County, it's still The Mechanic's Bank that does the best job of lending to businesses in lower income areas and to small businesses in general.”
“One of our strategies is to make sure that minorities are well represented among our lenders and managers,” said Erwin Reeves, vice president and community development manager at Mechanic's Bank. “People tend to want to talk to others like themselves.”
Mechanic's makes sure translators are available, too, for Hispanics, Asians and other non-English speakers. “We will bring someone in if we don't have the language capability on our staff,” he said.
Mechanic's has committed $26 million through its community development program subsidiary to making small business and construction loans in low-income zones.
Like Mechanic's Bank, Community Bank of the Bay makes a special effort to assure that its employees - one-third of whom were born outside the United States - mirror the community.
Even though Community has no specific minority-loan program, President and CEO Brian Garrett is quick to point out that, “our one office is in Oakland, and that's a city as diverse as any I've ever seen. We've had to do a lot of outreach with small businesses and with the community.”
Much of the money used to fund Community's small business loans comes from its innovative Oakland 1st Fund. Established in 2004, it guarantees that all money earmarked by depositors for the fund will be used solely in Oakland.
The program has exceeded expectations - it tops $23 million and has earned the bank recognition from the U.S. Treasury Department with a $500,000 cash award from its Community Development Financial Institutions Fund honoring bank lending programs in underserved communities.
