OFN's Small Business Finance Forum is kicking off today! More than 350 CDFIs and other mission-driven small business lenders and their partners are joining us in Chicago for a day and a half of targeted sessions, peer learning, and the opportunities to build their small business finance network.
This morning, at the opening plenary, we will hear about the small business financing environment today. Stay tuned for our live coverage of the event!
Kurt Summers, Treasurer for the City of Chicago helps us kick off the event, talking about why mission-driven lending to small business owners is so crucial today: "In Chicago and in Illinois we get it, and we are working with partners like you to help this industry thrive. We need you to be examples and to participate in this fight and to be vocal where you are. The national momentum matters. Good actors like you matter for the rest of us trying to provide good public policy to help small businesses around this country."
Our Opening Plenary: "The Small Business Finance Environment Today, Putting the Borrower First"
Pattie Green, Professor of Entrepreneurship of Babson College and Cristina Shapiro, Vice President, Urban Investment Group at Goldman Sachs presents hot-off-the-press findings: The State of Small Business in America 2016.
"If we are going to understand how to help small businesses we have to understand what it takes to work with those that are motivated to grow," said Green.
"The highlight here is that obtaining capital remains challenging for a lot of small businesses - respondents are four times more likely to seek capital from banks than any other source," said Shapiro. "Not surprisingly we are seeing a rise and a fragmentation of other sources. The implications are pretty clear: banks have a huge opportunity to function as a source of referrals for those businesses that are coming to them, and relay them to responsible lending sources."
A few key findings include:
- Across all sources of capital, respondents are receiving less than they are asking for.
- Primarily business owners are applying to support working capital needs and cash flow needs. Using cpaital to keep up with their operating needs versus funding innovation.
- Borrowers are asking for less paper work, more transparency and fewer terms, as well as access to capital in their community
- Business owners are very interested in learning about technology, but are hindered by costs
"If we could break any stereotype it's that small business owners aren't innovative. 35% of growth-oriented businesses are engaged in research and development in new products or services," said Greene.
Hearing directly from Small Business Owners:
Derrick Earls, a small business owner, shares personal insights from dealing with predatory lenders, on taking a fast loan over working with a trusted source "going with a CDFI takes a while and I didn't have a while. After exhausting all of my credit, all of my wife's retirement, I took the online loan with a quick turn around."
Tsadakeeyah Emmanuel aka Chef T, another small business owner needed a quick loan when, "Our van broke down, we had orders to fill. The interest rate on the loan was 75%" To pay off the loan, he had to take a second job as an Uber driver.
Dory Rand, President of Woodstock Institute, built on the experiences of Derrick and Chef T, delving into new data of online small business loan terms, "we heard anecdotaly that rates were going at 75% but we were shocked to see them go over 300%"
Derrick worked with Accion Chicago to help build his business credit back after taking a bad loan, but noted that needing flexibility for larger loans or faster access to loans would have helped him make a better decision instead of feeling like he had no alternative at a dire time for his business.
Venturize takes Center Stage:
Lauren Stebbins, Senior Associate, Small Business Initiatives, took the stage to share about the launch of Venturize today!
Venturize was launched with support from the Sam's Club Giving Program. This new, nationwide campaign gives small business owners access to clear, trustworthy loan information and powerful resources-no strings attached.
Today, we are asking you to start using #BorrowConfidently to help share insights with small business owners, and help us reach entrepreneurs as they make critical borrowing decisions.
Grady Hedggespeth, who recently joined the CFPB as the Assistant Director for the Office of Small Business Lending Markets, is sharing goals for his new role: "the very first thing we can do is shine some light on the practices happening in the industry."
Breakout Session: The Small Business Financing Environment: Putting the Borrower First
To a packed house this, session featured speakers from GMMB, as well as Derrick Earl, the small business owner who spoke during the opening plenary. OFN partnered with GMMB to gather the research that would help inform the design of the Venturize public education campaign. This session is exploring learnings from small business owners directly. Allison Thomas, Vice President at GMMB shared how frustrated by the credit market many small business owners are feeling.
"People are in cash crunches and they need access to capital fast." Borrowing, then, is a business decision, not a moral one. "What we learned is that when it comes to accessing funds, business owners have a sense they will be paying more. What we heard clearly is that 'a bad loan is one that doesn't work for me, a good loan is one that works for me.'" The takeaway is that small business owners are looking for opportunities, not judgement or scare tactics. "They want unbiased information, not someone telling them what to do. They want all the information so they can decide what is best for their business, to help them prepare."
Derrick joined the session to elaborate on his points earlier from the opening plenary, "when I Googled small business funding, no CDFIs came up. The predatory lenders solicit you once they know you are out there, I got seven missed calls today from these type of lenders trying to get my business. There is a lack of access to the kind of help that CDFIs provide—we don't know you are out there and that hurts us."
Daren Briscoe, Senior Vice President of GMMB, shared “There is a huge value proposition there for CDFIs. You do what no one else does. You are mission-driven lenders whose whole purpose to being available for people who lack access to capital. “ Here is what GMMB thinks CDFIs uniquely offer and what they need to consider:
You offer the loan plus everything else (technical assistance, relationship)
Community and local is a differentiator, you are there and available to talk unlike online lenders
Third party validation: you need to get other people talking about you and the experience they have had.
Lunch with SBA Administrator Maria Contreras-Sweet:
We are honored and excited to have Administrator Contreras-Sweet sharing with us today, speaking on the essential role small businesses play in our national growth, and how the partnership between CDFIs and the SBA is critical to that growth:
"In fiscal year 2015, SBA microloan intermediaries made 3,704 microloans for a total of $52 million. 85 percent of those loans went to minority small business owners. Our total number of microloans has grown 32% since 2009.
At the same time, our Community Advantage program grew almost 83% in just one year..." Incredible growth for small business!
"As President Obama has said. 'Entrepreneurship is the most powerful force the world has ever known for creating opportunity and lifting people out of poverty.' Small businesses not only create most of the new jobs here in the U.S. and throughout our global economy, but they also create the conditions for greater stability and progress."
She spoke about why inititaives like Venturize are critical:
"You do this work because you are committed to building tangible impacts in communities that others have written off. Unfortunately, not everyone shares your good intentions. I don’t have to tell you about how the meteoric rise of unregulated, online lenders has created a confusing menu of lending options for small business owners. Many of these options are designed to boost lenders’ profits instead of helping small businesses succeed. You are the ones who hear about the desperation and hopelessness from small business owners who find themselves facing hundreds of dollars a day in debt payments after they unwittingly turned to predatory lenders charging interest rates of 40 percent or higher. These loans have become financial albatrosses. As a result, you are increasingly playing the role of bailout specialists instead of helping your borrowers find ways to expand and sustain. This is why OFN’s Venturize campaign, launched here this morning in partnership with Sam’s Club, is so important."
and shared some key stats about the small business landscape:
- Commercial loans of $1 million or less have declined each year since the Great Recession, and are still 20 percent below pre-recession levels.
- Loans for $1 million or more have recovered completely.
- Large commercial banks simply have not gotten back into the small loan business.
- Alternative small business finance a category which, by the way, includes CDFIs, has doubled each year and is now estimated to total nearly $25 billion per year.
- Minority business owners are denied loans at nearly 3 times the rate of non-minority owners.
In addition, she spoke to the exponential growth of the 7(a) program, "Last year, we guaranteed nearly 70,000 loans totaling $30 billion dollars. We reached an all-time high of $23.5 billion in loans under our 7(a) program, an increase of more than 20 percent."
During her two years at SBA, 7(a) loans are up:
- 47 percent to women,
- 32 percent to veterans,
- 75 percent to African-Americans,
- 50 percent to Hispanics,
- 30 percent to Asian Americans and Pacific Islanders,
- 18 percent to Native Americans,
- 41 percent to rural entrepreneurs.
A big part the growth and increased capacity is the Community Advantage program. "Our CA lenders have approved more than $300 million dollars since the program was created and four out of five of the small businesses served through the CA program come from an underserved market.
For those of you who haven’t heard…this program was just extended to 2020!
Second round of sessions address best practices in technology, strategic growth strategies, and hiring and supporting reentering citizens: