Small loans, big business?
(in south ga my redneck buddies would get the customer to ride with them to home depot and buy the wood and supplies)
HARD SELL:The president of a major U.S. microlender believes in the idea, but says the foreign model won't work here.
By KRIS HUNDLEY, Times Staff Writer
Published May 5, 2006
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[Times photo: John Pendygraft]
Jaime Salazar shows off the styling stations and chairs he designed at his cabinet business, Advanced Equipment Design in Largo.
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Last year Jaime Salazar, a cabinetmaker in Largo, faced a cash-flow problem familiar to many small-business owners. He had orders, but needed cash to buy lumber and hardware long before he received full payment for his work.
In November, he found the financial relief he needed through a $6,000 microloan from Accion USA. Like Grameen Bank and its founder, Mohammad Yunus, who is being honored in Tampa next week, Accion offers small loans to entrepreneurs unable to receive conventional bank financing.
"Any bank can give you the money if you'll put up your home as collateral,'' said Salazar, owner of Advanced Equipment Design, which specializes in cabinets for beauty salons and dental clinics. "But you never know about business. It can be good or bad, and I cannot put my house at risk.''
Since 1991, the U.S. Accion network has loaned almost $150-million to more than 15,000 entrepreneurs. Bill Burrus, president and chief executive of Boston-based Accion USA, said his network is the largest of about 650 organizations that offer loans or technical assistance to low-income entrepreneurs, and the only one with nationwide reach.
Accion, a nonprofit organization, is funded by banks, foundations and wealthy individuals. It operates through a network of offices and affiliates, including the Hispanic Business Initiative Fund in Tampa, which helped process Salazar's loan. Borrowers can also apply online (www.accionusa.org).
Loans range from $5,000 to $15,000, with an average term of about 24 months. Accion USA's repayment rate is about 95 percent, Burrus said.
"We establish a business relationship with our clients,'' he said. "We're not a social service agency or a government program. And we're very serious about payback, repossessing collateral, garnishing wages or taking people to small-claims court.''
Burrus was head of Accion's parent organization, Accion International in Brazil, for 16 years before coming to the U.S. division. He is convinced some microlending policies used in Third World countries simply won't work here.
Relying on a network of friends to review loans doesn't work in a society where many people don't know their neighbors. And while entrepreneurs in Bangladesh can build a successful business selling a commodity as basic as matches, that's not the case in the United States, where big retailers rule.
"The biggest difference is the size of the (entrepreneurial) market,'' Burrus said. "In most developing countries, you're literally talking about the majority of the population being involved in self-employment. That's not true here.''
Entrepreneurs in this country also have more financing options, such as credit cards, finance companies and banks.
"The financial system in our country is more sophisticated and penetrates downward,'' Burrus said. "In Bangladesh or Brazil, banking operates for only 5 percent or less of the population.''
Despite the smaller market, Accion USA said its surveys have shown that nearly 11-million small-business owners, often new arrivals to the country, don't have access to bank credit. That's where Accion USA steps in, charging an initial interest rate of 12.5 percent, which is higher than a bank loan but less than a credit card or finance company.
Accion's edge, Burrus said, is that it appeals to borrowers with little or no collateral.
"We're willing to accept stuff of psychological value to the borrower, like an $800 pickup truck, as collateral on a $4,000 loan,'' Burrus said. "A bank would laugh at that.''
The group also accepts loan applications from people as soon as six months after a bankruptcy filing. The main loan criteria, Burrus said, is that the borrower should have been in business for at least a year, investing sweat equity in the concept.
Salazar, who has owned his cabinet business for three years, said Accion's loan process was fairly simple and quick. "I had to give them supplier references, payment history and general accounting information,'' he said. "But they're more flexible than banks.''
Unlike its international counterparts like Grameen Bank, Accion USA doesn't focus primarily on making loans to women. Nevertheless, Salazar, who is married with two children, said he sees the wisdom in such an approach.
"Men are bad spenders,'' said Salazar, 42. "My wife is my business partner, and now she's the one in charge of the account. And we're doing fine.''
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