Why Safe Financing for Small Businesses Matters

Rodnia Attiq is the owner of El Borrego Restaurant in City Heights, a low- to moderate-income neighborhood in San Diego and one of the focus areas of the city capital partnership. (Photo: CDC)

Robert Villareal is on the Board of Directors of the California Reinvestment Coalition. Robert is the executive vice president of CDC Small Business Finance and president of the Small Business Finance Fund.

ROBERT’S STORY

Robert’s career-long commitment to getting affordable, responsible loans to business owners who are historically overlooked ties back to his father — an immigrant who navigated the risky waters of entrepreneurship without formal help.

In 1949, Robert’s father left Nayarit, in western Mexico, to come to San Diego as an 18-year-old undocumented worker. He toiled late nights and weekends for years in the notoriously demanding restaurant business to provide for his family.

By the 1960s, after working his way up in the industry, Robert’s father and mother became one of the first franchisees of homegrown fast-food chain Jack in the Box. They later owned and operated a successful parking lot near the San Diego-Tijuana border.

“Beating the odds, my father accomplished these feats without a high school degree or a single business loan,” Robert says. “Still, I’ve often wondered what more my parents could have accomplished if only they had access to a robust support system.

“My father’s personal story is why I’m a staunch believer in educating business owners during any lending process to ensure they only take on loans that fuel sustainable growth. This service has become more important than ever.”

Immigrant and minority business owners are increasingly falling victim to online-only companies that charge clients as much as 100 percent in annual interest for business capital. CRC member organizations like CDC Small Business Finance, directly work with and support small business owners in a variety of ways, including through originating safe, affordable loans to them, and by providing technical, legal, financial capability and other assistance to help them run their businesses better.

THE SAN DIEGO COLLABORATIVE

This summer, CDC Small Business Finance launched a unique partnership with the City of San Diego. Dubbed the San Diego Collaborative, the program allows small business owners in those communities to get loans between $50,000 and $300,000. These business loans are capped at 5 percent with flexible, transparent terms for business owners in four high-potential, historically underinvested neighborhoods: City Heights, Logan Heights, San Ysidro, and the Diamond District.

CDC is hopeful that the partnership with the city of San Diego can help address this growing issue and promote more fair, responsible lending and business education to historically overlooked communities and business owners.

“Immigrants and minorities have historically been the targets of predatory lending. And unfortunately, we’ve seen the harmful effects of such lending with some of the small business borrowers we’ve helped,” says Robert. “The neighborhoods we have chosen to focus on through this pilot initiative have long been overlooked for one reason or another. We see and feel the exciting potential in these areas. We believe the flow of low-interest capital paired with customized business coaching can deliver the boost these areas have needed for a long time.”

WHY SMALL BUSINESS FINANCING MATTERS

Low-interest, responsible capital paired with customized business coaching can deliver the boost that low-income neighborhoods in San Diego and throughout California have needed for a long time. If a business succeeds, their success positively impacts their workers and those who live within that community.

In 2017, CRC surveyed our members who work with small businesses to understand the challenges faced by small businesses in California. CRC research found that small business owners are often stuck with limited and high cost financing products, like credit cards, nonbank online loans, and Merchant Cash Advances (MCAs). MCAs are risky and predatory; they can come with Annual Percentage Rates as high as 400%. Community small business lenders like CDC Small Business Finance provide an alternative to these high-cost loans by providing responsible, affordable lending that benefit small business owners and low-income communities.

One of the clients served through CDC’s CDFI agreed to a $31,000 online-only loan to be paid out over 10 years. Had they continued on that schedule, they would have paid more than $90,000 in interest, or three times the original loan amount. Instead, they were able to receive an affordable loan product that met their business needs. CRC and its members continue to advocate for responsible small business financing and policies that ensure that small businesses can access capital without being discriminated against. Programs like CDC’s San Diego Collaborative allow small businesses and the communities they are located in to thrive.