Lending a hand up

Microloans help higher riskentrepreneurs

By Linda Lipp | Fort Wayne Business Weekly

Since Brightpoint launched its business micro-lending program in 2010, the organization has provided more than $433,000 in funds to small businesses through 63 different loans.

Its goal is to do a lot more.

“We want to lend nearly half a million (dollars) a year; it’s in our strategic plan. We’re shooting over the next three years to get to 40 loans a year, and we’re halfway there,” said Sherry Early-Aden, vice president of operations at the social services agency known for most of its history as CANI.

In order to reach those goals, Brightpoint is working to raise its profile through advertising, social media, workshops and partnerships with other area agencies that serve entrepreneurs.

“It’s like a best-kept secret,” Early-Aden said. “We don’t think that enough people know we are here. We’re the only microlender in town and almost the only one in northeast Indiana.”

Brightpoint’s microloans can be for as little as $300 or as much as $50,000. The average is about $7,000. The term is anywhere from one year to five years. Interest rates are higher than loans from traditional banks, about 6.5 to 8.5 percent, “but our risk is greater,” said Evan Neubacher, lending specialist at Brightpoint.

As with the other programs it offers, Brightpoint’s mission is to serve the underserved in the community — people in poverty who are struggling to improve their situations but don’t have access to traditional sources of capital.

The microloans it makes are often for borrowers that traditional financial institutions won’t consider, because they are too high risk or the loan is too small to make it worth an institution’s time and effort.

Brightpoint is a designated Small Business Administration microlender and also was designated by the U.S. Treasury as a Community Development Financial Institution. Both distinctions were earned in 2013. The former allowed Brightpoint to increase the maximum loan if offers from $25,000 to $50,000; and the latter made its lending program more attractive to banks because they can get a Community Reinvestment Act credit for participation.

The Community Reinvestment Act is a federal law intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods. Banks are reviewed by the federal government on their performance in that area.

Brightpoint tracks its borrowers based on characteristics such as race, ethnicity and gender. To date, since its inception, it has made loans to 31 Caucasians, 23 African Americans and 1 Hispanic. Broken down by gender, 29 women received loans, compared with 26 men.

“We have many sources that require us to track that. And as an organization we want to make sure we are getting to the underserved in the community and a lot times that is race based,” Neubacher said.

The total number of loans Brightpoint has approved since it became a microlender is not the same as the number of borrowers because some have been approved for more than one loan, he noted.

Financial ‘training wheels’

Despite serving a generally riskier clientele, Brightpoint has an enviable record when it comes to loan defaults. The industry standard for defaults is about 7 to 11 percent, Neubacher said; Brightpoint is at about 6.5 percent.

“That’s a good thing, but we also realize that our role is both as a financial institution and in community development, so we want to make sure we take enough risk in our portfolio that we’re doing the community development side as well,” Neubacher said.

It recently approved a riskier loan than usual, that had cash flow issues but also other strengths that made it an acceptable risk, he said. Among the factors considered are credit score, collateral, the business plan and the owner’s own investment in money and sweat equity.

Although a few of the entrepreneurs it has loaned money to were true start-ups, most have been in operation at least six months to a year. Some have been around for 10, 15 or even 20 years. In many cases, Brightpoint supplies the first money into the business that doesn’t come from the borrowers’ own resources, family or friends.

The goal isn’t to compete with traditional banks and credit unions, it’s to get borrowers to the point where they can meet the qualifications of traditional lenders.

“We see as ourselves as kind of a building block, or training wheels, to get them into a traditional financing system,” Neubacher said.

Brightpoint’s microlending program is open to a variety of different types of businesses. Thus far, five of the businesses it has loaned to were in manufacturing; 32 were service-based; four were retail; 12 were food-based and four were service/retail hybrids.

Even if a business owner or entrepreneur is not quite at the point of applying for a loan, Brightpoint will offer free counseling to help get him or her prepared for that possibility. “We will sit down, discuss the challenges and what you need to do, even if you’re not ready,” Neubacher said.