Small Business and Entrepreneurship Resource Center
Insights from the Field
Perspectives from Leading Practitioners and Researchers
Interview with Janie Barrera, President and Chief Executive Officer, ACCION Texas–Louisiana
Fourth Quarter 2010
Dallas Fed: What have been the biggest successes and challenges that your clients have faced since 2009? What successes and challenges do you expect in 2011?
Barrera: One of the biggest successes for our clients is that we began providing loans to small businesses in Louisiana in 2009. From 2009 to 2010, we opened four offices in Louisiana: in Alexandria, New Orleans, Baton Rouge and Shreveport. This allowed us to disburse loans to small business owners throughout the entire state of Louisiana.
As of June 30, 2010, we disbursed more than $1 million in loans in Louisiana. Our loans went to clients who needed working capital and financing for business expansion.
As for challenges, like every other small business owner, our clients felt the effects of the recession. When they had fewer customers or fewer sales, it was harder for them to pay back their loans. For the first time, ACCION Texas–Louisiana saw payback rates drop.
Some of our clients were negatively affected by other conditions, such as the oil spill in the Gulf. Here are some examples:
Damion started his construction company 11 years ago in New Orleans to provide affordable and quality repair work and has since moved to the commercial and industrial sectors. Five years ago, Damion had to shut down his business after Hurricane Katrina hit the Louisiana coast. Through perseverance and hard work, Damion was able to pull his business together. There was less work with fewer people in New Orleans and also fewer people willing to invest in their homes. For people who needed renovation, many unlicensed contractors came to New Orleans and took advantage of that demand. All these factors contributed to making it very difficult for Damion to build his business back up again.
This same situation happened again with the recent oil spill. Damion had seven large residential projects planned before the oil spill that would have brought almost $1 million to his company. However, because of the oil spill devastating the area, investors were not as willing to invest in these homes and decided to not go through with the projects. Damion and his 15 employees had been counting on those projects, and now he does not have enough money to tide the business over until they get their next big project, which is currently under way. With our loan, Damion plans to pay his employees and rent big machinery.
As the economic recovery continues during 2011, we will again be in a position to help workers who have been laid off and want to start their own businesses, other entrepreneurs who decide it is time to start their own businesses, and small business owners who want to expand or need a loan to help with their existing businesses. Not only can we provide loans to startups and businesses that meet our guidelines, we also can provide technical assistance and business training. We have a women’s business center that provides workshops, counseling and networking for both men and women in San Antonio. We are completing construction of a business development center and business incubator in McAllen, Texas, which will provide technical assistance to small business owners in the Rio Grande Valley. During 2011, we will start construction on a new headquarters building in San Antonio, expected to open in 2012, which will allow us to use our existing building for a business incubator. Our offices in El Paso and Alexandria also are located in local business resource centers.
The challenges come when would-be entrepreneurs or small business owners wait until it is too late for us to help: if their debt has piled up too high, if they have sold their potential collateral, if their credit rating has dropped too low, etc. During 2009, we had more applications for loans, but we also had to turn down a high percentage of applicants who did not meet our guidelines. For example, some startups did not have collateral or other means of support.
Dallas Fed: What have been the biggest successes and challenges that ACCION Texas–Louisiana has faced since 2009? What successes and challenges do you expect in 2011?
Barrera: In 2010, ACCION Texas–Louisiana reached the milestone of having disbursed more than $100 million in 11,000 loans since its founding in 1994 as ACCION Texas. In 2009 alone, we disbursed $15.9 million in loans. We expect to reach a total of $18 million in loans disbursed by year-end 2010.
ACCION Texas–Louisiana currently has the nation’s largest microlending portfolio of nearly $30 million. We receive approximately 400 loan applications per month and close approximately 80 loans per month. We expanded our Microloan Management Services™ (www.acciontexas.org/what-mms-does.html) from six to 14 customers during 2009, and we currently have 15 customers. This is our proprietary underwriting system that we offer to other microlending institutions as a way to help them and increase our revenue. This innovative system predicts the probability of loan payoff of prospective clients and has resulted in huge savings for our clients.
During 2010, ACCION Texas–Louisiana took over the operations of the city of San Antonio’s South Texas Business Fund. Another merger is currently in process with the Community Development Loan Fund. These two mergers have made ACCION Texas–Louisiana the sole microlending organization for the San Antonio area.
As for challenges, the slow economic recovery in 2010 meant that more people applied for ACCION loans but fewer qualified. Also, clients were slower to pay back their loans, and our default rate rose. Year-to-date as of Sept. 30, 2010, 5.4 percent of all loans were 31+ days past due for ACCION Texas–Louisiana. The default rate was 5 percent (it had reached an all-time high of 9 percent in 2009).
In 2010, it also was more difficult to obtain grants, and some of the grants we received were smaller than in the past. For example, we received a $750,000 grant from the CDFI Fund for 2010. This is the highest amount the U.S. Department of Treasury awarded any CDFI institution this year. In 2009, we received $1 million from the CDFI Fund.
Private foundations lost 20 to 40 percent of their assets during 2008 and 2009 yet were solicited from more nonprofit organizations for funding. Many of the large foundations, such as the Meadows Foundation and Houston Endowment Inc., announced they were giving bridge funding for nonprofits struggling to survive and gave only to a limited number of organizations.
Dallas Fed: What have we not yet discussed that you think is important to bring up, particularly to industry analysts, your constituents and/or policymakers?
Barrera: It is because of the entrepreneurial spirit in the U.S.—the new ideas and new businesses—that we can get out of the economic slump that we are in. Entrepreneurs have the tenacity to keep on going despite this tough economic situation.
It would be helpful if regulators and policymakers regularly looked at how consumers and small businesses get access to credit and how CDFIs like ACCION Texas–Louisiana can become intermediaries for the banks. Also, I would suggest revising the rules to make CDFIs eligible to participate in other existing federal programs that are designed to create jobs and economic development, such as the SBA Express guarantee programs. This loan capital would give more CDFIs a chance to grow and secure their portfolios and in turn support small businesses.
In the last 30 to 60 days we have received more inquiries from banks. They are trying to use ACCION Texas–Louisiana’s model to help small business owners. Citi gave us a grant to create the infrastructure to strengthen our Microloan Management Services underwriting platform so that we can expand and offer this product to other community development financial institutions throughout the country.
In addition, Chase is going to give us a significant equity grant, enabling us to leverage additional funds to lend out.