Small Business and Entrepreneurship

Insights from the Field

Perspectives from Leading Practitioners and Researchers

• Herbert Austin, Dallas–Fort Worth District Office,U.S. Small Business Administration
• Joe Edgar, J4T Venture Fund, Texas Department of Agriculture
• Gilbert Gonzalez, Rural Business Program, Institute for Economic Development
• Reginald G. Harley, Louisiana District Office, U.S. Small Business Administration
• Charles R. McElrath, Southern Dallas Development Corporation
• Debbie Taylor, Citi Community Development, Citi

Third Quarter 2013

Joe Edgar
Venture Capital Coordinator
J4T Venture Fund
Texas Department of Agriculture

Edgar represents the Texas Department of Agriculture and manages the J4T Venture Fund, a $46.5 million early-stage investment fund. From 2008 to 2012, Edgar was manager of the finance and lending group of the Texas governor’s office, where he managed over $450 million with a focus on financing for emerging and expansionary companies. Previously, Edgar was the founder of E.I. Investments, which invested in preferred offerings, equity financing and small business lending with assets in Brazil, Oregon, Utah and Texas. Edgar studied economics at the University of Oregon and business at Cornell’s Johnson Graduate School of Management.

About the Office

The J4T Venture Fund assists small businesses in accessing capital necessary to grow and spur other investments that create jobs, which helps them contribute to the overall economic health of Texas.

As a fund of funds, J4T Venture Fund works with fund managers across the country to help Texas companies find capital to expand their businesses. Companies seeking first or follow-on round financing through equity or debt can submit an information sheet to Jobs4Texas@TexasAgriculuture.gov and have it presented to investors across the country. The investors and venture capital firms can contact the companies directly after receiving an information sheet. To be considered for funding from a J4T fund manager, a business must be based in Texas and have 500 or fewer employees.

Examples of J4T Investments

The J4T Venture Fund is part of the U.S. Department of the Treasury’s State Small Business Credit Initiative.

Q&A

What does the J4T Venture Fund do and how is it unique?

In 2008, the number of venture-capital-raising funds noticeably diminished. Our fund is a response to that market gap.

Small businesses have two choices: take on debt or equity. If they take on debt, that means they could take out a mortgage, borrow from savings or one of the three Fs—friends, family or fools. But borrowing only gets them so far. They need to find investors to help them grow. They also need mentors to give them guidance; this is the “angel” or early stage phase.

If small businesses give up equity in exchange for cash, that means that they are selling part of their company to an investor.

Investors are high-net-worth individuals. Most angel investors aren’t megawealthy but want to make money and give back to the community. They usually have at least $1 million in net assets and tend to be physicians, entrepreneurs or sophisticated fund managers. Their angel investments range from about $10,000 to $25,000.

If a small business is trying to raise $250,000 to $1 million, they need a group of angel investors to fill a round of investing. A round is a company’s investment request. This involves the investors agreeing upon basic terms of investment. This process can get very complicated and can take up to 12 months to get financing for one investment round. A small business may no longer be in business by that time. The J4T Venture Fund helps prevent this situation from happening by lowering risk and making the process of raising funds more efficient.

In our case, angels agree on committing a certain amount of money; they are limited partners (LPs). Let’s say they raise a fund of $5 million and have one or two general partners (GPs) who manage the fund. The small business just has to work with general partners, who represent the limited partners’ best interests. The GPs receive 2 percent of the angels’ investment to maintain operations and when they exit, they first return the LPs’ original capital. Any money that is made beyond that comes in as “carried interest.” Eighty percent of it goes to the LPs and 20 percent of it goes to the GPs. So, GPs only make money if the company is successful. That is how we align the interests of the small business owners with their investors and keep GPs accountable.

The J4T Venture Fund is unique because it doesn’t pay any management fees, so every dime that is put into the fund goes directly into the companies. Normally the fund managers would pay management fees, which cover the costs of office space, travel, access to databases to do their due diligence and other expenses. In our case, it is the LPs who pay for these expenses. This makes sense because we do not want the state of Texas to pay fees if the small business that we’re investing in goes bust.

One of our success stories is StoredIQ. They had 20 to 25 employees. IBM recently acquired the company, which gave them a global reach. They now need to hire people—it could potentially equate to hundreds of jobs. This is the part of the process within the company’s life cycle in which we see major job growth.

What have been your biggest successes and challenges?

Texas has other state-run funds that provide financing. The other funds have had major problems because fund’s staff are not experts in the companies in which they invest. The J4T Venture Fund avoids this problem because, in our case, the private sector makes decisions. The fund managers make at least a dollar-for-dollar match into each deal and service it. Our huge challenge is educating angel investors because of their perceived risk of investing in small businesses. But now that we have had success, we are very excited about the potential for future opportunities. The more nuanced challenge is trying to reach rural Texas entrepreneurs. Usually the entrepreneurs relocate to one of the major metropolitan areas to attract investors, and we want to help them get financing without having to leave. This is difficult because venture capitalists and angels aren’t going to travel everywhere. Nonetheless, there are a number of energy companies in rural Texas, and we’d like to get them together to develop a joint focus. If we had rural fund managers with capital, we could reach them.

Are there any policies, regulations or other public policy issues that you anticipate impacting your organization?

We’re funded through the U.S. Department of Treasury, and once our program’s funds are fully allocated, we won’t be able to make any more investments.

For the investment industry, the Jumpstart Our Business Startups (JOBS) Act of 2012 and crowd funding are the issues affecting them. The Sarbanes-Oxley Act of 2002 really restricted companies from going public, making it difficult for small businesses to bring in traditional sources of funding. Congress said we need to fix this, so part of our role is to make it easier for companies to go public—become an IPO (initial public offering).

In Austin, we obligated $9 million to a fund manager and helped the fund managers raise an additional $120 million in capital for investments. Forty percent of that money came from outside of Texas, including institutional investors. That’s a big deal, and we’d like to see this example replicated. But a lot of venture capitalists are worried that Congress will create more stringent requirements to become an investor. Right now there is a series-A crunch. Series-A is the first real investor round that a company has as a corporation. It is their first big round, such as $1 million, $5 million or $10 million. In 2012, there were 50 percent fewer series-A rounds than in 2011. As a result, new early stage startup companies that might have been viable and able to create jobs are going to go under because they could not raise enough money to stay in business.

Currently, start-up companies raising their first round rely on SEC Rule 506(b) to complete the transaction. This rule permits a company to sell stock in private placements to accredited investors and a limited number of unaccredited investors, provided that the company does not engage in “general solicitation” or advertising to investors in connection with the offering. While companies may still engage in this type of “quiet offering,” new Rule 506(c) of Regulation D eliminates the prohibition against general solicitation in connection with a company’s series-A round if certain conditions are met. Primarily, offerings made pursuant to new Rule 506(c) must comply with new requirements that may prove to be onerous on the angel investment community. This has the potential to dry up more of the early stage investment available to companies, due to the average angel investor not being the megawealthy investor.

What have we not yet discussed that you think is important to bring up, particularly to industry analysts, your constituents and/or policymakers?

We provide small businesses a much-needed network of investors and mentors interested in sharing their technical expertise. This network allows the great talent that exists in the state to work together in helping companies become successful and therefore create jobs.

Second Quarter 2013

Herbert Austin
Director
Dallas–Fort Worth District Office
U.S. Small Business Administration

Herbert Austin is district director for the U.S. Small Business Administration (SBA), Dallas–Fort Worth office, covering 72 counties of North, Central and East Texas.

Austin is responsible for the management and delivery of SBA programs and services and for oversight of SBA resources including the Small Business Development Centers (SBDCs) and Service Corps of Retired Executives (SCORE) chapters. The district office works with 400 participating lenders to provide access to capital to the small business community. The district covers 22 percent of the land area of Texas, 36.3 percent of the population and 649,232 small businesses.

Austin joined the SBA in 1989 as a business development specialist in the Newark, N.J., office. In 1991, he moved to the New York district office as assistant district director for business development and in 1994 was SBA facilitator at the first One Stop Capital Shop in Jamaica, N.Y. From 1995 to 2001, he directed the SBA trade and trade finance programs at the U.S. Export Assistance Center in New York. Later, Austin returned to the district office as acting branch manager in Melville, Long Island. In 2002, Austin was designated acting deputy district director in the New York district office. He became acting district director a few months later, holding both posts until he was named deputy district director in 2003. The SBA announced his appointment to the Dallas–Fort Worth office in 2008.

Before joining SBA, Austin worked in the private sector as director of exporting for companies in the U.S. and overseas. As export manager for a manufacturing firm in Trinidad and Tobago, Austin’s marketing skills resulted in extensive coverage of the products in countries in South and Central America and the Caribbean Basin. In addition to having an extensive background in international trade, Austin is fluent in French and Spanish.

Austin holds a BS in marketing from New York University and an MBA from Pace University.

About the Office

The Dallas–Fort Worth office covers 72 counties in northeast Texas. More than seven months into fiscal 2013, the office is close to $500 million in lending, creating thousands of new jobs and retaining several thousand more. For more information, visit the SBA's website.

Q&A

What have been your biggest successes and challenges?

The language we now hear is “we are postrecession.” We are sensing that small businesses have confidence in the way the economy is going. Interestingly, even during the tough years of the recession, our lending was stronger than almost any other SBA district office in the U.S.

To take the pulse of the lending landscape, we look at loan data for start-ups and more established small businesses. The past two fiscal years have had record lending—$30 billion in our 72 counties across northeast Texas. And from October 2012 through March 2013, we achieved an almost all-time lending record. We lent 45 percent more than we did the same time last year. We expect that level of lending to remain the same throughout 2013 as a record number of entrepreneurs have gone to SBDCs and said that they want to start or expand their business and need funding to do so. We have seen the demand for financing in all of our lending programs. This indicates that lenders have been responsive to the funding needs of small businesses.

At the SBA, we have money for the rest of the fiscal year, which ends Sept. 31. The current federal budget proposal cuts money that we provide to our partners—SBDCs and SCOREs. The consequence will be fewer staff to provide services to small businesses.

Are there any public policy issues that you anticipate will impact your organization?

We are hiring people. Because of budget cuts, services provided by our partners will decrease. Fewer and smaller loans will be the consequence. We won’t be able to do $30 billion in loans for calendar year 2013.

What have been your clients’ biggest successes and challenges?

The numbers are going up for small businesses getting government contracts. I see a high level of confidence in the economy.

In terms of challenges, we are working with the U.S. Department of Health and Human Services to better understand how the Affordable Care Act requirement to provide health insurance will affect small businesses. We’ll then educate small businesses about this.

What have we not yet discussed that you think is important to bring up, particularly to industry analysts, your constituents and/or policymakers?

In public speeches, we always emphasize that banks are lending.

Gilbert Gonzalez
Director, Rural Business Program
Institute for Economic Development

Gilbert (Gil) Gonzalez joined the Institute for Economic Development (IED) on Sept. 21, 2009, as director of its Rural Business Program. He manages the program with a major emphasis on rural community capacity-building and business development casework within the South-West Texas Border Small Business Development Center (SBDC) network.

Earlier in his career, Gonzalez served as deputy undersecretary and acting undersecretary of the U.S. Department of Agriculture (USDA) Rural Development mission area in Washington, D.C. He managed rural housing, rural utilities and rural business-cooperative services, managing efforts related to minority homeownership, broadband, renewable energy, small business and faith-based programs. While at USDA, Gonzalez also served as an adviser to Secretary of Agriculture Ann Veneman during the Katrina and Rita hurricane recovery efforts in Louisiana.

In 2006, Gonzalez joined the Department of Homeland Security, Office of the Federal Coordinator for Gulf Coast Rebuilding team, as deputy director and facilitated the long-term rebuilding efforts in Louisiana and the Mississippi Gulf Coast region.

Prior to his appointment to USDA, Gonzalez served as president of the Community Development Loan Fund (CDLF), overseeing the company’s investment and loan portfolio. The CDLF was a collaborative between the city of San Antonio and 21 bank investors to serve the credit and capital needs of small businesses and nonprofit organizations. He also served as a business adviser for the UTSA San Antonio Small Business Development Center.

About the Office

The IED is dedicated to creating jobs, growing businesses and fostering economic development. Its 12 centers and programs provide professional business advice, technical training, research and strategic planning for entrepreneurs, business owners and community leaders. Programs serve San Antonio, the Texas–Mexico border area and regional, national and international stakeholders. Together with federal, state and local governments and private businesses, the IED fosters economic and community development in support of UTSA’s community engagement mission.

Q&A

What have been your biggest successes and challenges? 

The SBDC Rural Business Program is one of 10 programs at the University of Texas at San Antonio Institute for Economic Development (IED). The institute serves San Antonio, the Texas–Mexico border area and regional, national and international stakeholders. Our centers and programs provide professional business advice, technical training, research, market analysis, and strategic planning for entrepreneurs, business owners and community leaders. One of the biggest challenges and opportunities facing rural communities in our region today is the Eagle Ford Shale oil and gas development in South Texas. Many rural communities in the Eagle Ford Shale areas are facing unprecedented demands on their infrastructure, housing, workforce and social capacity.

In March 2013, the IED launched a model partnership with Shell Oil, the UTSA Rural Business Program and the College of Public Policy to provide municipal capacity-building training to local governments impacted by the Eagle Ford Shale (EFS). The training is designed to equip rural municipalities with the tools to manage and sustain their community’s growth and to strengthen the municipalities’ organizational, planning, development, leadership and financing capabilities. For more on the partnership, see "A model partnership, Shell and UTSA collaborate to support Eagle Ford growth."

In addition to the partnership, the Rural Business Program offers leadership development programs. These programs allow participants to work on joint projects, develop and implement strategic plans, and cultivate business–government relationships that probably would otherwise not have been built.

Youth leadership development is important, too. We coach citizens, businesses and local government employees on how they can become engaged with the community. We have project managers who facilitate the process of doing a SWOT analysis—strengths, weaknesses, opportunities, threats—and help them streamline strategic plans. These plans are action-oriented and build in accountability. We encourage them to have a regional-based approach.

What have been your clients’ biggest successes and challenges?

The Eagle Ford Shale presents an unprecedented opportunity for communities and small businesses in the EFS-impacted areas. Small businesses like Wireline, Franks Paving and Timekeepers are just a few examples of SBDC clients benefiting from EFS. One of the biggest challenges facing small businesses is how to find and connect with EFS tier 1–2 supply chains. The IED is working closely with industry and trade organizations to develop supply-chain strategies to connect SBDC clients and opportunities that arise from the EFS. Carrizo Springs and Crystal City are just a couple of the communities we have worked with on municipal training. At the Rural Business Program, we define long-term success as job creation; what we do is help businesses with the initial steps of putting together a strategic plan and executing it.

Are there any policies, regulations or other public policy issues that you anticipate will impact your clients?

In the future, I would expect to see small businesses asking questions about how tax and health care policy will affect their business.

Reginald G. Harley
Lead Lender Relations Specialist
Louisiana District Office
U.S. Small Business Administration

Reginald Harley is lead lender relations specialist (chief of finance) with the U.S. Small Business Administration (SBA), Louisiana district office. With the SBA, he has also worked in the National Guaranty Purchase Center in Herndon, Va. He serves as the district international trade officer, the FOIA contact and the district office brand promise manager.

Harley served in the U.S. Peace Corps for 2½ years in Cameroon, West Africa, teaching small animal husbandry, agricultural economics and English.

He attended MacMurray College in Jacksonville, Ill., majoring in business and economics. Born and raised in Washington, D.C., he is a product of the D.C. public school system.

About the Office

The Louisiana district office is responsible for the delivery of SBA’s many programs and services. The office offers financial assistance for new or existing businesses through guaranteed loans made by area banks and nonbank lenders. It also offers free counseling, advice and information on starting, better operating or expanding a small business through Small Business Development Centers (SBDCs), Service Corps of Retired Executives (SCORE) and Women’s Business Centers (WBCs).

Q&A

What have been your biggest successes and challenges?

During the recession, it was hard to put capital into the hands of small business owners so that they could start up or expand their businesses. The challenge had been what could we do when banks weren’t inclined to make those loans.

During the downturn, small businesses—especially manufacturers—still needed to think about when they would need to replace their equipment. Things have somewhat improved since then, so we’re getting more inquiries about loans and are able to provide more loans, including those to manufacturers.

Now that we see an improved economy, businesses that previously might have qualified for conventional financing no longer can because banks have tightened their lending criteria. This situation makes SBA and U.S. Department of Agriculture guarantees more critical to making those deals happen.

Also, lenders have moved away from real estate lending and are looking more at cash-flow lending. In the past, a company could pledge real estate as collateral to cover its loan. Now a company has to prove that its business operations will be able to service the debt.

During the recession, the SBA received more federal funds to address the economic downturn. Our challenge was to figure out how to convince lenders to lend. All we could do was reduce their risk by guaranteeing more of the loans. We increased our guarantee from 75 percent to 90 percent. For the past two years, our guarantee has been back to 75 percent.

We have found a great deal of success with smaller loans up to $250,000. At first, lenders thought it was too much effort to do those loans because it took the same amount of work as it did to do the larger, more profitable ones. We wanted to get more money into the hands of creditworthy small businesses, so we streamlined our paperwork and accepted more of the banks’ own forms. Banks responded favorably and did more of these smaller loans. These loans fall under the Small Loan Advantage and Rural Advantage programs.

What have been your clients’ biggest successes and challenges?

Their challenges are the same as before the recession: Their credit scores need to be higher. Now, however, there is a higher standard. It used to be that they needed a score of about 620 or 630. Now they need at least a 680.

Are there any public policy issues that you anticipate will impact your clients?

An increasing number of credit unions are becoming government-guaranteed lenders. This is an irritating point for bankers. Because credit unions do not have as much regulation and oversight as banks but are able to get involved in government-guaranteed lending, they are—to bankers—unfairly eating a portion of the market share. Banks are pushing back by lobbying. The National Bankers Association is involved in this.

What have we not yet discussed that you think is important to bring up, particularly to industry analysts, your constituents and/or policymakers?

One would think that bank examiners would look favorably upon an SBA loan because it’s backed by the government. But banks are saying that examiners are saying almost the opposite. Examiners see SBA loans as higher risk and tell banks to quickly push to get their guarantee on delinquent loans or to get these troubled assets off of their books.

Charles R. McElrath
President and CEO
Southern Dallas Development Corporation

Charles McElrath is president and chief executive of Southern Dallas Development Corporation (SDDC), a Dallas-based nonprofit organization created in 1989. The SDDC’s mission is “to stimulate economic growth and encourage financial literacy in southern Dallas through strategic business financing.”

McElrath joined SDDC as vice president and commercial lender in September 2004. He was promoted to president and CEO in June 2005. Prior to joining SDDC, he had a banking career spanning more than 20 years with financial institutions that included Bank of America, Comerica Bank and Merrill Lynch. As a commercial lender for these institutions, McElrath made a variety of loans, including those that help small and minority business owners.

At SDDC, McElrath oversees four loan programs designed to assist businesses within disadvantaged areas of the community. Over the years, SDDC and the organizations it manages have helped over 500 businesses obtain financing in excess of $239 million, which has led to the creation of over 5,000 jobs. SDDC is playing an important role in the revitalization of urban Dallas.

McElrath holds a bachelor's degree in economics from Carleton College (Minnesota) and an MBA from Baldwin Wallace College (Ohio). McElrath has received numerous awards and accolades, including most recently the Dallas Business Journal 2013 Minority Business Leader Award.

About the Office

SDDC was established in 1989 as a nonprofit corporation and was subsequently designated by the U.S. Department of Treasury as a Community Development Financial Institution (CDFI). SDDC makes loans directly or in partnership with conventional banks to small businesses primarily in the city of Dallas. This is accomplished through the management and administration of four loan programs. SDDC’s mission is “to stimulate economic growth and encourage financial literacy in southern Dallas through strategic business financing.”

The organization’s lending impact since inception is over $81 million in direct loans and $147 million in bank/investor dollars leveraged, for a total investment in southern Dallas of $229 million. In addition, these loans have created or retained over 5,000 jobs in low- to moderate-income areas. SDDC has been recognized by the White House, Small Business Administration (SBA), Department of Treasury, state of Texas and a host of other groups and government agencies.

Q&A

What have been your biggest successes and challenges?

One success is that we are helping businesses obtain capital, which is helping these businesses create much-needed jobs in low- to moderate-income census tracts.

Our challenge is that most banks are not as concerned about the Community Reinvestment Act (CRA) as they once were. They are no longer really engaged with the community; they are no longer making major contributions to SDDC and other organizations like us. Their reasoning is that they are not headquartered here, so they don’t have to make CRA investments here. There is not an outcry about this, so banks do not feel threatened about this situation.

Are there any public policy issues that you anticipate will impact your organization?

It is still unclear how government programs, including those of the SBA, will be impacted by the sequester. We’ve been approved to be in a pilot program similar to the SBA’s 7(a) program that would enable us to get a government guarantee on our loans.

Sometimes regulations aren’t flexible enough. For example, a company may receive Community Development Block Grant (CDBG) funding that specifies that the employer must hire one employee for every $35,000 borrowed. If the company depends on a truck for transportation and that truck breaks down, the CDBG program would not allow it to use its $35,000 grant to fix the truck without hiring a new worker. This inflexibility would be problematic if the company did not have access to other funds.

What have been your clients’ biggest successes and challenges?

Our clients are higher risk. Most of them aren’t well-capitalized, and their margins are low. A lot of them fall behind on property, sales and employment taxes, insurance, permitting, etc. They are doing everything they can to weather the economic downturn, which negatively affects their credit scores. Most of them are more leveraged and are trying to do more with less, such as putting more hours into their businesses. Fortunately, business loan rates are low.

Big-box stores can get products cheaper than little corner stores and are replacing these stores. So, most small businesses are trying to fill niches left unfilled by the big boxes.

There definitely are small-business success stories. Some of them are doing well and doing wonderful things for the community, including adding revenue to the city’s tax base. Continental Cabinets now employs about 900 people. Seven or eight years ago, the Belmont Hotel was a blighted hotel. Now it is one of most sought-after hotels in the area. It created 180 jobs and has attracted other businesses to the neighborhood.

A barbershop owner who had been leasing his shop for 14 years was able to buy the property, which was a good thing because he did not have to relocate when developers wanted him to leave. Elaine’s Kitchen, a Caribbean restaurant that was able to buy a brand new building, employs about 20 people and was the first new construction project on Martin Luther King Boulevard in decades.

Are there any public policy issues that you anticipate will impact your clients?

People are uncertain about how the Affordable Care Act will impact them. They are leery about being taxed a lot and having high unemployment insurance.

What have we not yet discussed that you think is important to bring up, particularly to industry analysts, your constituents and/or policymakers?

There is going to be a great need to help returning veterans gain employment. For some of them, entrepreneurship is a better option than going back into the workforce. We’re not capitalized to take on the risk associated with start-up businesses. I don’t know of anyone who is interested in taking on this risk

Debbie Taylor
Southwest Regional Director, Citi Community Development
Citi

Debbie Taylor is Southwest regional director for Citi Community Development in Dallas. She oversees community development and economic empowerment initiatives for underserved individuals, families and communities through the expansion of financial products and services that build sustainable business solutions and innovative partnerships. Taylor coordinates Citi Foundation grants, business contributions and microfinance initiatives, among other duties. She is also responsible for Community Reinvestment Act regulatory obligations.

A 25-year veteran of nonprofit and civic initiatives in the community, she holds a master’s degree in public administration from Texas State University and bachelor’s degree from the University of Texas at Austin.

Taylor is chairman of the United Way of Metropolitan Dallas and served as the organization’s campaign chair in 2007. She is vice chairman of both Accion Texas, a statewide nonprofit microlender, and the Dallas County Community College District Foundation. Taylor was honored with the 2011 J. Erik Jonsson Award, the highest volunteer award given by the local United Way, as well as the 2013 Dallas Business Journal Outstanding Directors award and the first Corporate Social Responsibility Executive of the Year award in 2010 from the Center for Nonprofit Management.

About the Office

• The Asset Building Policy Network: Shaping a National Agenda

Q&A

What have been your biggest successes and challenges?

The biggest challenge to small businesses continues to be access to capital. At Citi, we’ve tried to help small businesses through nonprofit intermediaries like Accion Texas. In 2009, Citi entered into a five-year contract with Accion to purchase up to $30 million in microfinance loans. This program was a first in the U.S. microfinance industry. Accion became Citi’s national service provider, handling the underwriting, servicing and collections. Both Citi and Accion shared in the risks and the revenues from the loan portfolio. At the end of 2012, approximately $10,584,000 in loans had been sold to Citi under this agreement.

By giving Accion a large grant last year, we helped the organization pilot its Promise Loan program, which looks at nontraditional criteria for creditworthiness. This new product, which examines the individual’s entrepreneurial traits, business skills and business potential and conducts a lender assessment, offers access to quick, alternative financing of up to $5,000 to those individuals with limited credit and collateral and weak cash flow (the average FICO credit score for a borrower is 509). Its purpose is not only to provide credit, but also to help clients build their credit. Accion is beginning to see some good results—it is now able to offer loans to one out of three entrepreneurs that it previously had to decline. Repayment data will be fed back into the formulas to continue to strengthen them. It’s too early to know if there will be volatility in loan performance.

Citi is also helping support companies that can expand and grow, thereby creating jobs. Part of this work involves building awareness of the Association for Enterprise Opportunity’s research on “the power of one in three,” which means that if one in three Main Street microbusinesses hired just one employee, the country would be at full employment.

In addition to Accion, we have worked with the Greater Dallas Hispanic Chamber of Commerce (GDHCC). Two years ago, as the Citi Small Business Center of Excellence was launched, we supported its research that asked small businesses what they needed to grow and then tried to set up a response to their stated needs.

This past year, we supported GDHCC’s partnership with a Boston-based nonprofit called Interise to do a mini-MBA program for small business owners. This nonprofit is working one-on-one with entrepreneurs to help them grow over $1 million in revenue. It has been an exciting and rewarding process to hear what small business owners are learning and see that a lot of them have the potential to expand not only locally but nationally and internationally.

What have we not yet discussed that you think is important to bring up, particularly to industry analysts, your constituents and/or policymakers?

What can we do to help veterans and ex-offenders? They need to rely on entrepreneurship because they face difficulty finding good-paying jobs.

We are seeing a return of peer lending circles as an alternative way of accessing capital and also improving their credit, such as with Finanta in Philadelphia. In lending circles, people pool their dollars to enable the members of the circle to each get a loan. As the loans get paid back, the next person can get a loan. Although this business model is hard to scale because it requires a lot of staffing and financial education to clients, with targeted populations, it can be a good alternative.