Melchor Landin moved to the U.S. from Mexico in the 1950s to create a better life for his family. While he got his start as a baker at a local Safeway, even with steady work, it only allowed him and his family to live paycheck to paycheck. Landin wanted more, so he left his stable job to start a bakery with his family in San Jose, California – which became very popular. When the bakery was ready to grow, the family needed someone to invest in their continued success, and they found the perfect partner in the Opportunity Fund.
“We knocked on so many doors, and we were so close to giving up,” said Jose D. Landin, Melchor’s son and the treasurer of Mexico Bakery. “Another fellow business owner directed us to Opportunity Fund. After the first meeting, we felt a reassurance that this was the place that would support our American dream.”
Opportunity Fund, California’s largest nonprofit microlender, offers a unique blend of microfinance products and services to help residents of underserved communities work toward economic stability. With the belief that a small amount of money and the right advice can make lasting change for working families, Opportunity Fund offers small business loans of $2,600 to $100,000 to those who don’t qualify for traditional bank loans due to poor credit history (or no credit history), too little time in business, smaller capital needs, imperfect record-keeping or other factors that make a potential entrepreneur too high of a risk.
Accessing capital can be difficult for Opportunity Fund’s typical borrowers. The Pew Research Center notes that wealth held by white households in 2013 increased to 13 and 10 times the wealth held by African American and Latino households respectively, further hindering poor working families of color. With the help of microloans, low-income parents can build an enterprise, increase income, establish or build a credit history and work toward long-term financial independence.
“We look holistically at what’s going on in (borrowers’) lives,” said Caitlin McShane, marketing and communications director at Opportunity Fund. “If they have a low credit score, are they making advances paying off existing debt? Are they able to pay back a loan? The amount of documentation required correlates to the amount of the loan. We try to keep the barriers to entry and hurdles as low as possible.”
Opportunity Fund has helped more than 4,000 small businesses in California, most of which are new enterprises with a track record of operation of a year or more. Of its borrowers, 75 percent are low- to moderate-income, and about 65 percent are women.
According to the Small Business Administration, half of all small businesses will fail in five years. However, thanks to its team of consultants, who are embedded in the communities they serve, Opportunity Fund’s clients’ businesses survive at a rate of 90 percent. On average, borrowers’ success translates to a 20 percent or more increase in take-home income.
“The ongoing credit crunch from banks and the growing industry of alternative financing has left more and more small businesses out of the mainstream financial services, who then turn to alternative, and sometimes dangerous, financing products,” said Gwyneth Galbraith, chief development officer at Opportunity Fund. “We seek to fill in the gaps and provide a safe alternative to help businesses grow.”
The launch of Landin’s bakery was self-financed, which carried them for a few years. But when they sought a bank loan for construction on a third location, their bank turned them down.
Jose Landin said, “Since most of the investment came from our family and friends, we knew that, unfortunately, those funds were not enough to help kick-start our business. No banks were in the position of helping a small business like ours. Opportunity Fund gave us a loan for $100,000. They worked with us on a personal level and walked us through the system.”
“Our major barriers to reaching businesses are knowledge and trust,” said Galbraith. “That’s why our team of loan consultants are out in the community, knocking on doors, so the conversation about loans starts even before they need us.”
“We don’t have the budget to compete with other loan providers, so we really rely on the cultural competency of our front-line people to effectively identify those we are best suited to help,” Galbraith added.
In helping businesses achieve success, Opportunity Fund does not want to give a business more than it can handle. A “do no harm” policy is integrated into its work where, in certain situations, giving a business a large loan can do more damage than good.
“Overall, our historic loan loss is less than 1 percent, partially because we do our work really well in understanding businesses and making good, smart loans,” said McShane.
One of the reasons for this success is an innovative loan repayment approach called EasyPay. To protect businesses from loans with transaction fees and interest rates that can lead families to unmanageable levels of debt, the EasyPay Project, launched with a $1 million program-related investment from the W.K. Kellogg Foundation, provides an important alternative in the financing landscape. EasyPay is a safe alternative to protect businesses from unanticipated credit card processing expenses and high-interest cash advances.
“This platform enables small business owners who take credit and debit cards to repay their loan with every swipe of a card, so their repayment is directly correlated to their sales. Where some merchant cash advances can be as high as 20 to 50 percent of each swipe, Opportunity Fund only charges 5 to 10 percent,” said Galbraith.
Opportunity Fund’s relationship with its clients does not end with a loan. Additional technical assistance can include business management, marketing, lease renegotiation and financial advice, depending on the needs of the business.
Mexico Bakery successfully paid off its first loan and is now repaying a second through EasyPay. With three successful locations across San Jose and 20 employees, the next generation of Landins is also running the business and experiencing their own American dream.