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Counting on Local Capital

Counting on Local Capital. The Washington RLF Profile Conducted by Corporation for Enterprise Development with funding from the Ford Foundation and the Washington Department of Community Trade and Economic Development and The Washington Lenders Network. Project Overview.

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Counting on Local Capital

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  1. Counting on Local Capital The Washington RLF Profile Conducted by Corporation for Enterprise Development with funding from the Ford Foundation and the Washington Department of Community Trade and Economic Development and The Washington Lenders Network Preliminary Findings

  2. Project Overview • Research and policy project to collect, analyze, and disseminate information about revolving loan funds (RLFs). • Conducted by the Corporation for Enterprise Development (CFED), an organization which specializes in developing policies and programs to promote economic competitiveness and economic opportunity at the local, state, and national levels. • Implemented in two phases, with Phase I focused primarily at the federal level and Phase II at the state level. Preliminary Findings

  3. Project Goals • To develop individual state profiles of the RLF industries in up to five states, creating a model data collection and source of best practices for the RLF industry. • To assess the feasibility of statewide and/or regional RLF intermediaries which offer data collection, asset management, access to capital, and technical assistance services. • To communicate the knowledge and lessons learned through the project by convening national, regional, and electronic meetings of practitioners, funders, and policymakers. Preliminary Findings

  4. Washington RLF Profile • Washington selected as state partner in September 97 • Sponsored by Washington Department of Community Trade and Economic Development; The Lenders Network; and Cascadia Revolving Loan Fund • Steering Committee first convened September 1997 • tailored survey to interests of practitioners and funders • refined list of funds to survey • Survey mailed December 1997 -- last one returned May 4, 1998 Preliminary Findings

  5. Methodology • Surveys were mailed to 53 potential economic development RLFs • 41 RLFs returned surveys. (Several of these RLFs were managed by the same organization) • 12 reported that they did not have an economic development RLF, or operating as part of another, larger fund . • Washington is the only state with 100% response rate Preliminary Findings

  6. The RLF Organizations Organizational Structure 25 Responding Organizations Oldest RLF--17 years Preliminary Findings

  7. The RLF Organizations Made a loan in the last 6 months Preliminary Findings

  8. The RLF Organizations Operate Single or Multiple RLFs Preliminary Findings

  9. The RLF Organizations Washington’s RLF organizations are relatively small…. • Exactly half are capitalized at less than a million dollars • 67% (14 of 24 respondents) have an operating budget of less than $100,000 • 47% (17 of 36 respondents) are staffed at one full-time employee or less But sophisticated • Almost all services (loan packaging, underwriting, portfolio management, liquidations) are provided in house by over 80% of the RLFs • 59% use a spreadsheet software and all feel proficient in it • In addition, 33% use an RLF software and 38% use accounting software Preliminary Findings

  10. RLF Capital • RLFs reported total capital sources of $70 million • smallest fund has $10,000 • largest fund has $20 million • The $70 million was provided by the following sources Preliminary Findings

  11. Federal Funding Sources Total Federal Funding $31 Million Other Dept. of Energy 1.5% SBA 4.0% HHS 0.1% Other 0.3% Preliminary Findings

  12. Philanthropic Funding Sources Preliminary Findings

  13. Timing of Capitalization Preliminary Findings

  14. Timing of Capitalization • RLF funding came almost entirely from the public sector until 1993 • All foundation funding occurred in 1993 or later • All religious organization funding occurred in 1993 or later • All but 0.6% of private sector (banks, corporations, and other unspecified private groups) funding was in 1993 or later Preliminary Findings

  15. RLF Capital Structure Preliminary Findings

  16. RLF Capital Structure • Most Washington RLFs do not have a diverse funding base • 43% (of 35) RLFs received funding from only 1 source • Another 22% received funding from only 2 sources • Several funders are being accessed by few RLFs; only three RLFs received money from: • the SBA, • the US Forest Service, • religious organizations Preliminary Findings

  17. RLF Loan Terms • First loan to RLF made in 1982 • 69% of debt financing invested since 1995; 51% in 1996 alone (IRP) • Interest rates range from 0% to 2.5% • Loan terms range from 1 to 40 years Preliminary Findings

  18. RLF Products • Average loan size was $10,163 • 40% had a minimum loan size of less than $1,000 • 83% offered fixed interest rates • Interest offered varied from 0 to 12.7% • 45% had loan terms of 3 years or less; 30% terms of five years or more Preliminary Findings

  19. RLF Services • Services currently offered (percent of RLFs): • One-on-one assistance -- 81% • Formal technical assistance -- 35% • Mentoring -- 22% • Provided no services -- 8% • Additional services customers requested: • Line of credit -- 69% • Venture capital -- 59% • Marketing -- 9% Preliminary Findings

  20. Communities Targeted • 66% RLFs (21 of 32 who responded) target low - to moderate income people • 86% of those funds providing detailed data (18 RLFs) made over 25% of their loans to low-mod income people • 59% RLFs (19 of 32) target minorities • Start-ups are being targeted as much as existing companies (31 vs. 33 respondent RLFs) • Manufacturing is predominant industry type (23 RLFs have made loans), closely followed by retail (20 RLFs) and services (19 RLFs) and fewer timber (6) and salmon (3) Preliminary Findings

  21. RLF Portfolio Data • RLFs asked to report the following portfolio data • Current capitalization levels • Amount of loan loss reserves (if any) • Value and number of outstanding loans • Average loan size • Cumulative value and number of RLF loans • Capital available for lending Preliminary Findings

  22. RLF Portfolio Data • RLFs asked to report the following performance data • Amount and value of delinquent and defaulted loans • Amount of loan losses • Definitions of delinquency and default Preliminary Findings

  23. RLF Portfolio Data • Performance data reported varied widely in quality and consistency • RLF Capitalization levels rarely matched total capitalization sources reported earlier in survey • However, data on outstanding loans, average loan size, and delinquency was generally strong • 41% of the RLFs reported Loan Loss Reserves totaling $664,000--equal to 1.3% of total capitalization (compared to 19% of California RLFs with reserves of 0.4%) Preliminary Findings

  24. Current and Cumulative Lending Activity Preliminary Findings

  25. RLF Portfolio Data Preliminary Findings

  26. RLFs and the Secondary Market Preliminary Findings

  27. Barriers to the Secondary Market Preliminary Findings

  28. Defining Delinquency • 33 RLFs provided definitions for delinquency • 1 as past due 15 days • 31 as past due 30 days • 1 as past due 60 days Preliminary Findings

  29. Delinquent Loans 30 RLFs collectively reported 70 delinquent loans; values were reported for 53 of these loans & totaled $894,637 Preliminary Findings

  30. Delinquency Rates • 13 RLFs reported values for both delinquencies >0 and loans outstanding $ 894,637 $14,102 068 • 28 RLFs reported values for both delinquencies >= 0 and loans outstanding $ 894,637 $28, 593,239 6.34% 3.13% Preliminary Findings

  31. Defining Default • 35 RLFs provided definitions of default • 1 had no definition yet • 1 payments past due 60 days • 28 payments past due 90 days • 4 payments past due 120 days • 1 payments past due 180 days Preliminary Findings

  32. Default Data 31 RLFs collectively reported 54 loans in default; Values were reported for 49 of these loans totaling $1,459,428 Preliminary Findings

  33. Default Ratios • 13 RLFs reported values for both defaults >0 and loans outstanding $ 1,535,156 19,722,285 • 30 RLFs reported values for both defaults >= 0 and loans outstanding $ 1,535,156 31,944,401 = 7.8% = 4.8% Preliminary Findings

  34. Job Creation Preliminary Findings

  35. Jobs Retained Preliminary Findings

  36. Preliminary Capitalization Findings • 29 organizations -- managing 41 funds -- reported $70 million in capital, with 64% provided by federal, state and local sources, while 11.1% came from private sources. • Most capital was from public sources before 1993 • $26.8 million was invested in 1996 and 1997, indicating recent dramatic growth in the field. • Most RLFs are small, with operating budgets under $100,000, and capitalization of less than $1 million • Most RLFs have undiversified sources of funding Preliminary Findings

  37. Preliminary Recapitalization Findings • RLFs identified a need for an additional $20 million in capital, matching almost exactly the $23.4 million in total available capital or reserves reported. • No RLFs have sold loans on the secondary market, but 19% expressed an interest in doing so. Loan pricing policies and discount rates were identified as the key barriers to loan sales. Preliminary Findings

  38. Preliminary Impact Findings • 87% of RLFs reported using job creation as a measure of impact and 64% use job retention. • 25 RLFs reported creating 6,432 jobs, an average of 257 jobs per RLF at an average cost of $12,411 per job. • 24 RLFs reported retaining 2,928 jobs, an average of 122 jobs per RLF at an average cost of $20,004. Preliminary Findings

  39. Preliminary Findings on Lending Activity • 41 RLFs reported cumulative lending of $60 million, at an average of $1.6 million loans outstanding per RLF • The average loan size equaled $66,182 for current loans and $56,061 for cumulative loans. Preliminary Findings

  40. RECOMMENDATIONS • Funders need to provide money for operating support, equity and liquidity, particularly for the younger RLFs that do not yet have much income from loan repayments at a time when their training and support needs are greatest. • An intermediary institution, such as the Washington Lenders Network, should provide targeted training and assistance to RLFs across the state. A large portion of RLFs are young and inexperienced and do not have access to nearby specialized training, or other needed support service. Preliminary Findings

  41. RECOMMENDATIONS • Some institution, such as the Washington Lenders Network or a regional intermediary, must collect data for Best Practices and advocacy to legislators, funders and citizens. Best practice information and data detailing impact and need should be made available on a regular basis. • Programs or institutions are needed that can pool the costs for expensive operating services such as bonding requirements, auditors experienced with development finance institutions, Director and organizational liability insurance, employee benefit plans and specialized document production. Preliminary Findings

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