Loans that fit smaller firms

MIAMI -- Elvita Francois proudly shows off a shiny new buffet counter at her tiny restaurant inside the Opa-locka Flea Market, where she serves Haitian and Latin specialties like goat, oxtail and congris.

As an entrepreneur operating on a shoestring, Francois didn't have the means to buy that counter - or other equipment like a refrigerator, freezer and stove that she had to replace soon after she drained her savings to purchase Job Restaurant four years ago.

So she turned to OUR MicroLending, a Miami-based lender and worked out a loan for a little more than $2,000.

"They helped me a lot," said Francois, 58, who lives in North Miami Beach. "I didn't have money in my hand to even buy food."

With banks cutting back on lending during the past two years of financial crisis, microlenders are seeing a rise in demand as small businesses still require credit to keep their businesses afloat.

OUR MicroLending focuses on the smallest of small businesses that can't get traditional bank financing, said Emilio Santandreu, president and chief executive.

"They are at the base of the pyramid," Santandreu said. "All the economy begins there."

Those entrepreneurs - in south Florida, many of them immigrants from Latin America and the Caribbean - include truck drivers, landscapers, mobile car washers, hot dog sellers, flower cart owners, mechanics and mini-market operators.

The businesses typically have fewer than five employees, with sales of $100,000 or less, Santandreu said. "Most of the time, the whole family works in the business."

OUR MicroLending is owned by a group of 13 investors, mostly Venezuelans. Some of the shareholders, including Santandreu, had owned a microlending business in Caracas, Banco de Desarollo del Microempresario, before moving to Miami and opening OUR MicroLending in October 2007.

The investors fund the loans, which range from $1,500 to $12,000, and average about $5,000. The average term is a year.

The money is generally needed to buy equipment or inventory to expand or improve the business, as well as meet payroll, said Elieser Gonzalez, vice president of sales and marketing.

For example, a truck driver may need to pay for gas, repair the truck, buy a new trailer, or change tires, he said.

Since making its first loan in March 2008, OUR MicroLending has made 764 loans, totaling $4.5 million, Gonzalez said. Many are to repeat customers, such as Francois, who has already repaid three loans and borrowed more than $7,000 for her fourth. To cover the risk, OUR MicroLending takes collateral such as machinery or a car.

As demand for credit has heightened during these tough economic times, OUR MicroLending has found a deeply needed niche in South Florida.

"Our main competition is loan sharks," Santandreu said, adding that such illegal lending carries an interest rate of 10 percent to 20 percent a month.

OUR MicroLending charges 1.5 percent a month -- 18 percent a year, which is the legal limit in Florida. The company also finances 5 percent closing fees and a 5 percent guaranteed deposit.

The loans carry substantial risk, he said. So far, about 15 percent of OUR MicroLending's loans have been paid late or defaulted. A handful have filed for bankruptcy.

"We have to work with interest rates very high in comparison with other lenders, because we have a lot more risk," Santandreu said.

Microlending has been a fixture in developing countries for generations, but has a relatively short history in the United States, where there is a large underserved market, experts say.

Fewer than 700 programs in the United States provide services to microenterprises, such as microlending or entrepreneurship training, said Connie Evans, president and chief executive of the Association for Enterprise Opportunity, a trade group of U.S. microenterprise, based in Arlington, Va.

And demand is rising. AEO's members say that demand for lenders has increased 48 percent since May 2008.

This small business segment has long had difficulty getting financing from mainstream financial institutions because either they don't have collateral or a credit history or are first-time business owners, she said.

Evans said 60 percent of customers are women, 53 percent are blacks, Hispanics or American Indians, and 60 percent are of low to moderate income.

Accion USA is the largest microlending organization in the United States, operating since 1991. The nonprofit organization started in Brazil in 1973, said Bruce MacDonald, spokesman for Accion International, which had revenue of $23.3 million and expenses of $32.7 million in 2009.

During the past 19 years, Accion USA has lent almost $277 million to 24,000 clients throughout the country. It has more than 5,000 active borrowers in 46 states, including Florida, MacDonald said.

"With the credit crisis, demand would naturally increase - more and more businesses find that they can't get loans," said Laura Kozien, spokeswoman for Accion USA.

So far, OUR Microlending has yet to make a profit. The company lost $400,000 in 2009. The owners hope to generate $500,000 in revenue this year and break even.

"We have a double bottom line - be profitable and be responsible for our customers," said Omar Alireza, chief financial officer. "If we lose the focus on social responsibility, we compete with banks."