News Column

New small business lender in town as economy improves

August 31, 2014

By Courtenay Edelhart, The Bakersfield Californian

Aug. 31--Small business lender VEDC is opening its first office in Bakersfield, the latest sign that access to capital is coming back after slowing to a crawl during the recession.

In Kern County, small business loans backed by the U.S. Small Business Administration plunged nearly 56 percent from $53 million in 2008 to $23.5 million in 2009, but last year they totalled about $44.5 million.

"It's still not easy to get a loan, but it's better than it used to be, even a year ago," said Kelly Bearden, director of the Small Business Development Center at Cal State Bakersfield. "It's what we call thawing from the deep freeze of 2008 to about 2011."

VEDC is a nonprofit community lender with headquarters in the Los Angeles area, but it makes loans all over the country.

Much of its funding is from banks that provide loan capital to satisfy the legal mandate of the Community Reinvestment Act. That's a federal law that requires financial institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods. Rabobank and Chase are among VEDC's partners.

Kern County is a natural market for the lender because of the number of minority business owners here and the proximity to Los Angeles, said VEDC President Roberto Barragan, who was in downtown Bakersfield last week scouting office space.

"I can get here from my home (in the San Fernando Valley) faster than I can get to Long Beach," he said.

Founded in 1976, VEDC is a direct lender, not a broker. It offers a variety of microloan programs up to $50,000; as well as larger loans up to $250,000, or up to $350,000 for veterans.

In the last four years, the lender's assets have grown from $10 million to $55 million, and the company does about $25 million a year in loans, Barragan said.

VEDC grew during the recession by making loans that traditional banks wouldn't. Among other things, the company accepts unconventional collateral, such as cars, trucks, restaurant equipment and liquor licenses.

The lender's default rate is less than 1.5 percent because it does extensive due diligence, Barragan said.

"If we don't believe in the owner and the model, we don't make the loan," he said.

It's also helped that there's not much competition for loans of less than $50,000, Barragan said.

Just as there are pay day lenders that charge obscene interest rates for consumer loans, there are predatory lenders that prey on small business owners.

"They're the only ones aggressively going after this market," Barragan said. "I keep waiting for someone else to take a bite out of it, but there just doesn't seem to be much interest."

VEDC's interest rates typically range from 8 percent to 11 percent, depending on the size of the loan and the borrower's credit, Barragan said.

Most of its lending is to existing businesses, but VEDC will consider start-ups whose founders have invested their own money in a venture to show that they're serious.

The SBA's Fresno district, which includes Kern County, has worked with VEDC in the past and says it welcomes new sources of credit in underserved areas.

"We're very pleased that they've decided to extend into our jurisdiction," said Director Carlos Mendoza.

Commercial lending in general took a hit during the recession, when loose underwriting came back to bite many banks and credit unions.

Some lenders were forced to bulk up reserves against losses, which meant cutting back on the granting of future loans.

There also are fewer lenders to make small business loans because of industry consolidation and bank failures. Community banks, in particular, were among the most vulnerable, and those are the banks that usually do the most small business lending.

On the bright side, the void opened the door to a lot of alternative lending, such as peer-to-peer loans and crowdsourcing, the Small Business Development Center's Bearden said.

But with job growth and the housing market clawing their way back, even traditional commercial lenders are starting to perk up again.

"In California, so much of the lending is tied to real estate," SBA's Mendoza said. "As the real estate market has improved, commercial lending is improving, too."


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Source: Bakersfield Californian, The (CA)

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