|Volume 2, Issue 5, 2002||Federal Reserve Bank of Dallas|
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ACCION Texas Reaches Out to Small Businesses
ACCION Texas, the country's largest microlender, is reaching small businesses across the state's 262,000 square miles. In 2001, the nonprofit organization provided loans to small businesses in 203 Texas communities, Ben Wheeler—population 400—among them.
Todd and Tracy Johnson moved to the small East Texas town from Dallas in 2000. "After living and working in major cities, we were looking for a change of pace. And Todd desperately wanted to start working for himself," says Tracy. Looking for an opportunity to start a business restoring old photos and a quiet place to raise a family, the Johnsons moved to Ben Wheeler.
ACCION helps microentrepreneurs like the Johnsons start and strengthen their businesses, stabilize and increase their incomes, create additional employment and contribute to the economic revitalization of their communities.
ACCION Texas, started in 1994, is based in San Antonio, with satellite offices in Austin, Brownsville, Dallas, El Paso, Fort Worth, Houston and McAllen. With an active loan portfolio of $6 million, ACCION Texas provides loans up to $25,000 to small businesses that don't qualify for traditional financing from commercial lenders.
How It Works
The San Antonio office—the hub for all loan processing and underwriting—is connected to ACCION's satellite offices via a dedicated wide-area network. ACCION also uses a computerized loan-tracking system called ClientTrack. Information related to each loan application, including the loan officer's notes, are stored in the system, giving anyone who needs it up-to-the-minute access to all loan files.
Using ClientTrack as a foundation, ACCION has created the Out-of-Area Network program. By partnering with SBA-sponsored small business development centers, chambers of commerce and community development corporations, ACCION Texas can reach borrowers in rural areas and in cities where the organization doesn't have an office. These partners can provide ACCION clients with technical assistance, business plan development and other resources, as well as conduct collateral inspections and handle loan closings.
"The success of the Out-of-Area Network is largely due to our partnerships with the small business development centers throughout the state," says Daniel Fisher, ACCION loan officer and network coordinator. "They have the initial contact with our clients and help guide them through the loan process. And because a rapport has already been established, the clients are more comfortable."
Fisher estimates that ACCION Texas has made 62 loans this year through the Out-of-Area Network program, with an average loan amount of $7,800. Overall, ACCION has made 695 loans this year.
Todd, an artist illustrator, and Tracy, a former production artist, had used several credit cards trying to get their business off the ground. The couple knew they could expand their venture if they had enough capital, but finding a lender willing to loan to applicants with less-than-perfect credit was going to be a challenge.
"We knew our credit wasn't the best and that we would probably be turned down for a regular loan," says Tracy. With that realization, she went in search of other forms of financing.
That's when she ran across ACCION Texas and its Out-of-Area Network. After several months of reviewing their assets and determining how they could repay the money if they got it, the Johnsons applied for a $6,000 loan, using their computer equipment and a personal car as collateral.
Many of the businesses ACCION helps have little or no credit or impaired credit. Most applicants must have some type of collateral, although ACCION accepts collateral that banks often don't consider. "Because we take a little more risk with many of our clients, our interest rates are typically between 12.5 and 14.5 percent," Fisher says. "However, our current default rate is 4.8 percent."
New-business applicants requesting $10,000 or more are required to furnish a formal business plan and financial statements. Start-up businesses seeking less than $10,000 must submit a formal business plan, picture ID and proof of additional income, such as a paycheck stub. Established businesses applying for less than $10,000 can submit an informal summary of their plans for the loan proceeds, along with financial projections and bank statements or tax returns. Established businesses seeking $10,000 or more must supply financial statements.
Canton, a small town not very far from Ben Wheeler, is home to a Texas-sized flea market that draws people from miles around. First Mondays Trade Days dates back to 1873, when court was held on the first Monday of the month. To pass the time while waiting for the judge, townspeople did some trading and swapping. After a while, trade days became a regular event.
It was at First Mondays that Todd and Tracy got started in September 2000. On a shoestring budget of $500, they created their first display booth, advertising their business of restoring old photographs. "Business was good," says Todd, "but I knew I could do more with the technology that was out there."
Todd did some research and discovered a market for digital-image archiving of photographs. "I discovered there were museums and historical societies that had large inventories of old photographs just sitting in boxes because they didn't have the resources to catalog them. I knew this was an opportunity to take our business to another level."
A $6,000 loan from ACCION Texas enabled Todd and Tracy to purchase business cards, supplies and technology upgrades that would allow them to offer digital-image archiving.
Tracy credits the ACCION loan for the couple's recent contract from the Forest Heritage Center in Oklahoma's Beavers Bend Resort Park. The Johnsons will digitally archive 2,400 photographs and design an exhibit for the center. The couple recently acquired two other museum clients at the Oklahoma Museum Association's annual meeting, where they had a more elaborate exhibit and made a presentation. "Thanks to ACCION, we are able to attend events like this and make a good showing with our exhibits," says Tracy.
e-Perspectives, Volume 2, Issue 5, 2002