News Column

Loan Stars

March 2004, HISPANIC BUSINESS Magazine

Johanna Knapschaefer

Yolanda Collazos Kizer knows the challenges of financing a start-up. In 1986, while working as a branch manager at a savings and loan in Phoenix, Ms. Kizer initially relied on her savings and home equity to launch a mail-order bookstore, Builders Book Depot. In the early 1990s, unable to get financing to open a store of her own, Ms. Kizer became a joint-venture partner in seven newsstands and four specialty stores at Phoenix Sky Harbor Airport.

"Many financial institutions were reluctant to deal with small airport concessionaires due to the volatile nature of the business," she recalls.

But Ms. Kizer's persistence paid off, and five years later she won a bid to open a children's store at the Phoenix airport called Curious Creatures, clinching a $200,000 SBA loan from Bank of America. Three years later she landed $150,000 from Wells Fargo to open Arizona Passages, another airport concession she runs with a partner.

Now Ms. Kizer's company has annual sales of more than $1 million, and last year at the annual U.S. Hispanic Chamber of Commerce (USHCC) convention she received the Ana Maria Arias Memorial Business Fund award for Hispanic women entrepreneurs.

Ms. Kizer's experience illustrates not only the value of entrepreneurial perseverance, but some of the issues reshaping the banking industry: The San Francisco-based Greenlining Institute estimates only 1 percent of business loans go to Hispanic companies. But the dismal figure has raised the issue of access to bank loans to national prominence, and has prompted major banks to launch special programs to boost lending to minority-owned businesses and increase Hispanic participation in business banking.

Cynthia Amador, president of CHARO Community Development Corp., a nonprofit economic development organization in Los Angeles, says CHARO's most popular products are SBA Express loans up to $250,000 (part of the 7(a) loan guarantee program) and the $5,000 micro-loan, which Ms. Amador says works well for start-ups. "SBA loans are popular because of the ease of the application process," she says.

But geography can work against Hispanic CEOs in inner-city areas. A report by the nonprofit Milken Institute cited Community Reinvestment Act data indicating that "minority neighborhoods receive a smaller amount of business loans" compared to nonminority areas. At the same time, federal programs attempting to help distressed areas don't necessarily help minority entrepreneurs. "Federal tax breaks and subsidy programs are directed toward geographical places rather than toward people – the business owners themselves," the Milken report states.

In response to these challenges, commercial banks have created educational and financial programs catering to Hispanic CEOs, hoping to establish longer-term relationships that grow to include other financial services.

Benito Almanza, president of Bank of America Arizona, says that in the past year, 25 percent of Bank of America-initiated SBA loans in Southern California have gone to Hispanic companies. Wells Fargo also has boosted offerings, launching a $1 billion Latino Loan Services Program that to date has loaned $2.25 billion to more than 50,000 small businesses, says spokesman Tim Rios. The bank says 97 percent of the loans are for less than $100,000.

Such micro-lending has increased throughout the country. Data from a December 2003 report by the SBA's Office of Advocacy indicates that while small-business lending showed only moderate increases in 2001-2002, the number of micro-business loans (less than $100,000) made by U.S. banks rose 45 percent in the same period. Slightly larger loans - between $100,000 and $250,000 - increased 8.8 percent; loans of $250,000 to $1 million increased 9.8 percent.

Last year, Wells Fargo partnered with the Fresno Hispanic Chamber of Commerce to create a micro-loan program for businesses that have damaged credit or new businesses with no established credit history that were turned down by other banks.

Other banks are also using chambers to connect with entrepreneurs. In October 2003, US Bank and the U.S. Hispanic Chamber of Commerce partnered to create ˇCapital!, a program aimed at lending more than $1 billion to small businesses in high-growth Hispanic markets during the next five years.

"For the most part, newer Hispanic-owned businesses don't have an established credit history, so the chamber of commerce is a perfect conduit for gaining access to capital," says Steve SaLoutas, senior vice-president of emerging markets at US Bank. If the traditional way of obtaining credit fails, the program gives businesses the option of considering an SBA loan for $250,000 or less.

Alice Perez, Hispanic market manager at US Bank, says the bank also is working with state Hispanic chambers and the USHCC to train chamber staff as technical-assistance providers. In the past year, for instance, the bank helped the Milwaukee (Wisconsin) Hispanic Chamber with certification for the SBA Express program.

Meanwhile, at the local-branch level, CHARO's Ms. Amador says she has seen a significant upgrade in banks' response to Hispanic small-business owners. When Wells Fargo first announced its $1-billion goal for lending to Hispanics, the bank had no Spanish-speaking officers, she recalls. "Now they have an enormous number of Spanish-speaking officers at the loan-officer level," she says. Bank of America also now offers Spanish-speaking associates at all Bank of America Arizona branches and at its West Coast SBA Center, says Mr. Almanza. The bank plans to offer SBA loan documentation in Spanish later this year.

Some banks also have created equity funds for Hispanic-owned business opportunities to try to bridge another gap. Although minorities make up about 30 percent of the U.S. population, only $5 billion, or 1.5 percent, of private equity capital goes to minority-owned businesses, according to Robert Greene, president of the National Association of Investors Corp (NAIC). The New America Alliance estimates that only a quarter of that goes specifically to Hispanic companies.

Last October, Washington Mutual announced a $4-million equity investment in Hispania Capital Partners, a Chicago-based private equity fund focused on later-stage Hispanic companies. The USHCC is a co-sponsor of Hispania, the first private equity fund licensed by the SBA that is dedicated to financing Hispanic-owned companies.

Carlos Signoret, partner at Hispania Capital Partners, says that in late summer 2003, the $120-million fund began making investments with a $6-million commitment to Chicago-based LaRaza, the country's largest Spanish-language weekly newspaper. "We've built our core team and are helping manage the fund," he reports.


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