Jose Torres, owner of Lupito's Juice Bar in Pilsen, is proud to open his first business. Lauren Daniels/MEDILL
Jose Torres eagerly awaits the opening of his new business, Lupito’s Juice Bar. The quick-service restaurant, promisinging fresh-squeezed juices and healthy fare, is scheduled to open next week inside the Damen station on the CTA Pink Line in Chicago.
Opening day almost never came for Torres, who like many entrepreneurs and small business owners was unable to get financing from traditional lenders.
Laid off from an education non-profit a year ago, Torres got the idea for Lupito’s while visiting his family in Mexico.
“On almost every corner I would see stands selling fresh juices,” Torres said. “I thought, ‘I can do that.’”
Back in Chicago, Torres tried to get financing from local banks. With no business experience he was not a strong candidate for a traditional loan. After being rejected by several banks, he was recommended to a not-for-profit lender called Accion Chicago.
Accion Chicago, affiliated with Accion USA, is part of the largest microlending network in the U.S. Accion Chicago offers microloans ranging in size from $200 to $25,000 to start-ups and established small businesses in the Chicago region, including Indiana’s Lake and Porter counties.
“Banks refer small business to us as an alternative to saying ‘no’,” said Vice President of Development Mary Fran Riley.
The average loan size is $8,000 with an interest rate of 14 percent. Repayment rates are high, 91 percent in 2010. Most loans are repaid within 20 months. Since its founding in 1994, Accion Chicago has distributed more than 2,000 loans totaling $16 million.
Torres received a $7,000 loan and is excited to create jobs and provide health food to CTA riders. The restaurant, located at the corner of Damen Avenue and West 21st Place in Chicago’s Pilsen neighborhood, is close to nearby schools. Torres plans to be open from early morning until evening to capitalize on the flow of commuters and students.
“Now I hold my future in my hands,” declared Torres.
Jose Garcia, 39, started BSR Solutions Inc. to provide First aid and CPR training to businesses and individuals. A Chicago Fire Department firefighter for more than 10 years, Garcia had the idea to open a small business after becoming CPR-certified in 2009. He put the idea on hold while he completed paramedic school in 2010.
After graduation, Garcia took his business plan to several banks; he was turned down by all of them. A loan officer at Citibank referred Garcia to Accion Chicago. There he obtained a loan of $5,000.
“Accion pulled out a miracle, with all of the denials I had nearly given up,” Garcia said. “The loan allowed me to get the equipment I needed. Now I’m ready to move forward.”
Garcia acknowledged that his credit score was not superb. But microlenders are more agile than conventional financial institutions and can be more flexible with lending criteria. After repaying his loan, Garcia plans to expand into other training programs including life support.
“Accion gave me hope, Garcia said. “That little push motivates people to keep going toward their hopes and dreams.”
The commercial credit market ground to a halt in the 2008-9 financial collapse. Banks have begun lending again, although at levels far below the peak in 2006. The Thompson Reuters/PayNet Small Business Lending Index, a measurement of the volume of traditional financing to U.S. small businesses, released Wednesday, rose 17 percent in April compared with the year prior, but rose a mere 1 percent from March.
During the slow slog to recovery, banks raised lending standards, shutting some prospective borrowers out of the credit market. Chinwe Onyeagoro, CEO and co-founder of O-H Community Partners, a small-business economic development consulting firm in Chicago, cited increased credit score requirements and higher cash flow ratios as two ways banks are winnowing out applicants.
“Tightening of credit standards affects the people who need the money the most -- small business owners,” Onyeagoro said. “Most small businesses are not able to meet these requirements.”
Microlending is often used to spur economic development in emerging economies, but has been a hard sell in the U.S. Accion Chicago has seen demand grow quickly during in the past two years. In 2010, 205 loans were processed. This year the microlender has already processed 100 loans and is on track to complete 275 loans by year end.
The capital lent by Accion Chicago comes from a variety of funding sources--banking partners such as JP Morgan Chase and Citibank as well as city and state funds. Accion Chicago was one of three Chicago-based small business lenders selected by the Illinois Department of Commerce and Economic Opportunity to distribute $5 million by way of micro-loans within the next two years as part of Governor Quinn’s Neighborhood Recovery Initiative.
Other alternative funding sources are also gaining popularity in the current economic climate. Crowdsourcing platform Profunder.com uses the Internet to connect entrepreneurs to investors within their communities. At press time, the website has completed 18 raises for a total of $492,000 said company spokeswomen Rachel Tobias. For their investment, investors are allocated a share of the company’s revenue.
“Ultimately financing is as much about credit score and cash flow as it is about relationships and character,” said Onyeagoro. “Alternative funding organizations are building strong relationships and providing the liquidity to help businesses keep their doors open.”