Horacio Pena was probably never going to find a bank willing to lend him $10,000 to start a business, no matter how hard he tried.
Pena, an immigrant from Mexico, had been in Salt Lake only a few years, working as a server in a downtown restaurant. He wasn't a U.S. citizen. His English wasn't perfect and his credit record was thin. The chances that a fledgling business making flan desserts could survive were almost nil.
Yet today Pena is in business. His company, Sophi-Flan, has 90 customers around the the Salt Lake Valley. Pena employs two full-time workers. Together they make 350 flans a week in a variety of flavors at an industrial kitchen owned by Jorge Fierro, another businessman-expatriate from Mexico.
"I tried to go to a few banks. They don't accept me. I didn't have too much credit," said Pena, who found the fruitless loan search upsetting. "I don't find any money until I find Utah Microenterprise."
Now in its 13th year, The Utah Microenterprise Loan Fund is a nonprofit lender providing money to launch or expand small businesses. It lends small sums to people who want to start or expand a small business, gambling on individuals who may have first-class ideas but don't have resources of their own and fall outside the risk profiles conventional lenders use to screen applicants.
One in four borrowers are minorities. Many are single mothers. Others have bankruptcies or spotty work histories in their pasts. Most are poor or live paycheck to paycheck.
"They come to us as a last resort. We call ourselves a lender of last resort," executive director Kathy Ricci said.
Ricci means what she says. The fund's loans come at a steep price - prime (the interest rate banks charge their best customers), plus 5 percent. Right now, that comes to 13.25 percent, an interest rate that reflects the risk connected with lending to unproven borrowers. One in 10 loans goes bad. By contrast, banks typically charge off about 1 percent of their loans, Ricci said.
Most borrowers, however, build prosperous businesses. A joint study by the fund and the Aspen Institute last year discovered that the businesses of 72 borrowers had combined sales of $7 million and had created 316 jobs.
"The median revenues they [the fund] are getting are about twice what are being achieved overall in the [microenterprise] industry. They also seem to be working with a number of businesses that are much more likely to bring on employees," said David Black, a program manager with the Washington, D.C.-based leadership and policymaking think tank.
The fund lends up to $25,000 for five years, but the average loan is $8,500. Money comes from 26 financial institutions, including the state's biggest banks in the form of loans to the fund. Ricci said many lenders take part in order to comply with the federal Community Reinvestment Act. The law requires banks and savings and loans to offer credit throughout their marketing area and prohibits them from targeting only wealthier neighborhoods, a practice known as redlining. And if a loan goes bad, the loss to any one lender is relatively small.
"It looks good for them," Ricci said.
Over its life, the fund has loaned $4.6 million to 450 people. Oddly, however, demand for the loans has declined recently, and Ricci is looking for applicants. The reason for the falloff isn't clear, but Ricci suspects it's because the Utah economy is strong and unemployment is at a record low.
"It's not easy to be a business owner, so when jobs are available it's a lot easier to go that route," Ricci said.
pbeebe@sltrib.com
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