Philadelphia Nonprofit Makes Micro-Lending a Solid Business Model
By Cherri Gregg
PHILADELPHIA (CBS) — The National League of Cities has listed Philadelphia among the cities with best practices for developing small businesses. The honor comes thanks in part to a Kensington-based nonprofit group that provides a unique form of funding.
It’s called “micro-lending” — the practice of loaning small amounts of money to individuals or groups with no credit or bad credit, and no access to traditional capital.
“When you don’t have money and you don’t have credit, the bank will not open the door,” notes Bienvenida Jimenez. “In the beginning it was very difficult for us.”
Originally from the Dominican Republic, Jimenez — a mother of four — opened the Canemo Grocery store on West Norris Street in Kensington nine years ago.
Jimenez had no credit and no capital, but she joined an affinity group of like-minded individuals through a nonprofit called “Finanta” and was able to get a micro-loan through them.
“It takes time and takes work to have access to credit in this country, but it’s not impossible,” says Luis Mora, founder of Finanta.
Mora says Finanta eliminates barriers to funding by simplifying the borrowing process. Typically, he says, many borrowers come together, co-signing to help secure the low-interest funding for each of the individuals, with the loan rotating through the affinity group.
The loans start as low as $500 and can go as high as $50,000– all funded by the Small Business Administration.
“We help them help them establish good bookkeeping, good business practices, and pay their taxes,” says Mora, “and because they are borrowing from an official entity, now they have a credit score and it’s going up. Eventually, all these people leave Finanta and go on to traditional banking services.”
Mora says most of his micro-lending borrowers are American citizens who immigrated from Latin America and Africa, where micro-lending and group lending is common. He says the typical Finanta borrower is a cash-only business owner that has never asked for a credit card or a loan.
He says Finanta will put the borrowers in its “Precaps” program, which began in 2011, to help the borrowers establish credit.
“It has already shown us some success,” says Mora, who says they started loaning to one group and now they loan to more than 20 groups.
In 2014 alone, Finanta has closed 128 loans, averaging about $6,700, at a nine-percent yearly fixed rate or 4.9% APR.
Mora says the loans may seem small, but they help many small business owners stay afloat.
“It helps them pay bills, pay everything on time, and sustain their business in a down economy,” he says.
Mora says their success rate is around 76 percent, with a loss rate of less than one percent. He says the group lending model so far, is full proof.
“Affinity [lending] groups that already know each other are highly successful,” says Mora, who notes that peer pressure helps borrowers stay current “because all of the members of the groups will have to pay.”
But Mora says this lending model is not for everyone. It’s a long process. It can take more than two years to go from a $1,700 loan to a $15,000 model.
Jimenez started with a small loan and slowly worked her way up, eventually borrowing $53,000 for a house. Now she says her business is thriving, with three of her four children in college.
“The small loan opened the door for me,” she says. “Everybody can do it. Just be strong, pray to God, and work hard.”