So You Need a Loan? Accion San Diego Can Help.

by Elizabeth Anderson

MMMany San Diegans have taken advantage of Kobey's Swap Meet at the Sports Arena as a viable place to launch a small business. Kobey's is donating this column to offer helpful hints and how-to's of starting up a swap meet business. This month, David Chong of ACCION San Diego offers some helpful advice on how to obtain a type of small business loan referred to as a micro-loan. Financing may easier than you thought.

MM ACCION San Diego, a local non-profit, offers business loans as low as $300 up to $25,000 to small businesses which typically cannot qualify for credit at a commercial bank. ACCION San Diego acts as a bridge between commercial banks and small business operators, specifically, disenfranchised, low-income and minority micro-entrepreneurs. The advantages of an ACCION San Diego loan are regular market rates, flexible loan terms, fast approval and disbursal process and the opportunity to build a favorable credit history. Micro-lending originated in Bangladesh in the 1970's and the country's Grameen Bank is the model for micro-loans.

MM The organization has loaned more than $800,000 to 180 San Diego business owners since 1994. Their primary goal is to help create increased income and jobs within the community. The staff at ACCION San Diego speak Spanish, Mandarin and English and have translators available to help. Of their current 130 clients, many are first generation immigrants which represent sixteen different countries.

MM Many Kobey's vendors have taken advantage of ACCION San Diego's services. For example, Patty Connell, better known as The Incense Lady, has been conducting business at Kobey's for over fifteen years. When she needed financial assistance she turned to ACCION San Diego for help. She had wanted a loan to buy more inventory as well as to pay off past inventory, but loan institutions she approached wouldn't talk to her because of a troubled credit history. She explains, "One day David Chong came through my stand and offered to try to get me a loan. I told him I was interested, but had a credit problem. Despite this, they worked with me and I was able to take out a loan with them. It was a stepping stone. As far as working with you, they are the finest people. If you have any problems, they are more than happy to help. They told me they approved my loan because they believed in me."

MM If you're an entrepreneur who's thinking about applying for a loan it's a good idea to work at your business at least six months first. The reason for this is most lenders want to see some stability and attempt from the potential borrower.

MM "The biggest obstacle to keep someone from getting a loan is not having sales," says David Chong, a business advisor for ACCION San Diego. "If they're just starting out or haven't kept sales records, they'll probably be disqualified. This is what turns away most people who walk in our doors."

MM Other obstacles to financing result from a recent bankruptcy or state or federal tax liens. According to Chong, depending on the circumstances of your bankruptcy, you may experience some leniency from their rules, but usually there is not much you can do to get around it. He suggests to resolve any outstanding tax debts before approaching ACCION San Diego or a potential lender.

MM If you've met the previous requirements and are ready to take the borrowing plunge, be prepared to furnish the following information to your potential lender:

1. ACCION San Diego asks for a record of sales for six months (exceptions available i.e. strong sales). The business must be owned and operated in San Diego for six months. Most commercial banks will require you be in business for two years.

2. You must furnish three months of bank statements.

3. You must furnish your latest income tax returns.

4. Borrower should be able to show current capacity to maintain monthly loan payments.

5. Business income must be the primary source of household income or essential to meeting basic living needs.

6. Show documentation of any major work contracts or advertisements.

7. Some lenders may ask you to present a business plan and cash flow projections.

8. Individual loans require collateral of equal or greater value than the loan.

9. Most individual loans require a co-signer.

MM If you're a vendor with lots of friends in business, but can't meet the collateral requirements of a big bank, ACCION San Diego offers a plan for you. ACCION San Diego offers what's known as "Peer Solidarity Lending" which allows clients the option of borrowing within a group situation with no collateral requirements. This model pioneered by ACCION in Latin America, is designed to effectively reach micro-entrepreneurs who on their own may have no access to credit. The repayment history of the group as a whole determines each member's access to future loans, thereby establishing a system of mutual support and responsibility to each other which promotes on-time repayment.

Basic Requirements for Group Lending:

1. The group must consist of at least 4 members (vendors) who are willing to cooperate and support each other.

2. Members cannot be related or live in the same household.

3. Members must be committed to abide by all the rules and policies established by the group.

MM The maximum group loan amount is $750 per borrower for the first loan. No collateral is required. "The vendors essentially guarantee each other's loans," Chong explains. "For swap meet vendors, $750 can go a long way. It's the perfect situation. When the group pays off their first loan, they can step up to $1500, then $3,000 per member. We have a few groups who have paid off four or more rounds of loans and have been able to step up to even larger amounts."

MM Chong continues, "When vendors are more established, they can qualify for our individual loans. These require collateral. Collateral can be inventory, something every vendor has on hand. Individuals can also use any personal items such as a vehicle or accounts receivable from another business. We can use anything except real estate. The first loan limit is $5,000 and after it is paid off, larger size loans become available."

MM ACCION San Diego is willing to work with small businesses to get the money they need. Chong says, "We have clients who aren't making a net income from their business, but for some reason, we have found a way to give them a loan. For example, say someone's been in business a while, but they're not currently turning a huge profit. Another source of income from a spouse, another job or from holding quality collateral can help them obtain a loan."

MM It's a good idea to get advice from a business councilor before jumping into any debt. The Small Business Development Center (SBDC) run by Ken Clark of Southwestern College offers free counseling services which are funded by the Small Business Association (SBA). Not only does the SBDC have individual councilors you can work with, but it also houses the Business Resource Center (BRC) which is a complete business library of information and other resources available free to the public.

MM The SBDC and BRC at Southwestern College is located at 900 Otay Lakes Road, Building 1610, Chula Vista CA 91910 or call (619) 482-6391. The SBDC in La Jolla is located at 4275 Executive Square, Suite #920, La Jolla CA 92037 or call (619) 453-9388. The BRC downtown is located at 550 West "C" Street, Suite 550, San Diego CA 92101 or call (619) 557-7272. There are many other resource organizations in existence such as The Woman's Business Training Center call (619) 239-WBTC, the Service Corps of Retired Executives (SCORE) at the SBA call (619) 557-7272 and the Union of Pan Asian Communities call (619) 280-5197.