CDFI Small Business Lending: Its Our Time

1. CDFI Small Business Lending: Its Our Time Roberto Barragan, President VEDC VEDC

2. Introduction • VEDC is the largest non profit small business lender in Metro LA • Largest SBA Microlender and EDA RLF in CA. • Sponsor of SBA 504/state guarantee lender • Sponsor of federally chartered credit union and SBA 7 a lender VEDC

3. A CDFI in a Credit Crunch World • Financial Crisis • Skyrocketing Demand • Bank Support • SBA, State, CDFI Support • Why VEDC? VEDC

4. Financial Market Crisis • Dec. 2007: Recession Officially Begins • August 2008: Lehman Bros fails - Credit Markets freeze, TARP happens • Oct. 2008: SBA Secondary Market Stalls; SBA volume drops 50% • Oct 2008: After big losses, BofA dramatically curtails 7(a) lending • Nov 2008: Chase buys Wamu • Dec. 2008: Wells acquires Wachovia • Feb. 2009: ARRA passed; SBA volume rises • Jul. 2009: CIT ( Major 7(a) lender) denied federal bailout VEDC

5. Small Business Credit Demand • March 2009: Amex cuts credit access • April 2009: HELOCs are frozen nationwide • May 2009: BofA buys Merrill Lynch • September 2009 Goldman Sachs announces 10,000 Small Businesses • October 2010: Starbucks announces OFN Create Jobs effort • December 2010: Small Business and Jobs Act VEDC

6. Federal Government Saves State Small Business Programs • $164 million given to support guaranteed lending and loan loss reserve program • Loan guarantee limits increase to $2.5 million • 11 small business financial development corps receive minimum program support • CalCap program struggles with insufficient bank participation VEDC

7. Increasing Small Business Support from for CDFI Fund • Obama Administration increases CDFI support by 500% to $250 million • US Treasury Financial Assistance Program is increasingly focused on job creation and business assistance • New Markets is focused on Commercial Real Estate , no small business lending • Large focus on national intermediaries and financial institutions • BEA grants limited to banks, not credit unions VEDC

8. Why VEDC? • Significant due diligence focused on loan portfolio performance: • Loans above $50k:>5% delinquency • NCOs at under 2% over the past 2 years • Loans below $50k: 14% delinquency • NCOs at under 4% over the past 2 years • Comprise 30% of VEDC portfolio • Entire portfolio delinquency currently under 8% • Portfolio Management Software combined with exp. credit administration, inc bankers on loan committees • VEDC currently manages $24 Million in loan capital with 40% net assets and 4% loan loss reserves VEDC

9. Bank Support • Oct 2008: GE Money $500k in microloans made; • Dec 2008: Merrill Lynch: $1 M low interest loan for microlending; all lent by Feb 2009 • Aug 2009: US Bank: $2 million EQ2 for microlending: all monies lent within 12 mos. • Oct. 2009: BofA: $ 1M Accion LA program approved • May 2010: Goldman Sachs: $7 mm loan and $1 mm grant: $5 mm lent to date. • Sept. 2010: Wells Fargo $1 mm loan, lent in 90 days • Dec 2010: Chase $5 MM grant, VEDC goes statewide VEDC

10. Other Bank Support • Currently maintains referral programs with Bank of America, Chase, Wells and Citi • Chase: Financial support to Access to Capital Center in LA, inc denial referrals • Citi: Statewide downtown ATC program w CALED • BofA: Microloan program support • Wells: Supports statewide WTM • US Bank: SoCal microloan program VEDC

11. SBA Support • SBA 504/ARRA changes result in VEDC 504 1st year experience of $20 M lent • SBA 7(a)/ARRA changes result in $1.5 M lent by VEDC sponsored credit union • SBA Microloan program receives additional $750k in loan capital • SBA Primes approves $200k to VEDC for entrepreneurial support • VEDC becomes Community Advantage lender VEDC

12. VEDC Statewide Expansion • Chase makes $5 million grant to VEDC to expand lending statewide: $50 million in lending in 3 years • Referrals from Chase branches (denials) and area nonprofits and chambers • VEDC hires FT BDO to originate loans in Bay Area • Secures MOU with 30 organizations statewide to originate loans • VEDC hires VP of Lending w prior bank experience • VEDC establishes VP of Marketing and Communications to establish brand strategy • VEDC enters into MOU w CALED to operate statewide EDA RLF using dormant state money VEDC

13. Where’s the Money Expos • Access to Capital Events hosted by VEDC bringing together banks, government and local organizations • Workshops and business speakers • Loan pavilion: Bank loan officers meet with application ready borrowers • San Francisco: 250 businesses • San Diego: 300 businesses • LA: 900 businesses VEDC

14. VEDC as Small Business Lender: • Market rate lender • Focused on 3 Cs (credit, collateral and cashflow) and lend on 2 • Intense underwriting and closing processes focused on cash flow and collateral perfection, respectively • Credit elsewhere: restaurants, startups • Diverse portfolio w extensive experience in underserved markets • Strong collection practice and history VEDC

15. What this means • Realization that there are few small business lenders nationally, • We need more not less lending, especially to small business in light of tighter credit conditions • Banks are under close regulatory attention and will continue to limit small business lending for the next 12-18 months • So they need to invest in local and regional mechanisms to support small business lending • With tighter budgets, cities and counties need to outsource small business lending to CDFIs VEDC