VEDC Seeing More Loan Requests

With banks cutting back on loans, small business owners have turned in even greater numbers to the Valley Economic Development Center as a source of funding. Over a 90-day period, the center has made $1 million worth of loans in the amount of $35,000 or less. While in the past it has taken three months to reach $1 million in revolving loans, that amount is now reached in just one month. This increase in business for the Van Nuys-based organization is directly attributed to banks not making loans to businesses unless they have good credit, collateral and cash flow. “They are not simply charging more money, they are saying no,” said VEDC President Roberto Barragan. This pace of lending should continue into the first quarter of 2009, Barragan added. The finance industry doldrums began more than a year ago when the real estate market crashed due to the many sub-prime loans that were made and homeowners were now finding out they couldn’t afford. That carried over into 2008 when consolidation took place within the industry due to acquisitions and bank failures such as WaMu. In September, the government stepped in with a bailout to help the lenders. The situation is not one that could be planned for and now Barragan seeks ways to bolster the center’s $10 million in capital. He has been talking with Merrill Lynch and has high hopes for a $15 million citywide small business loan program now waiting approval from the Los Angeles City Council. The additional money is important because there are businesses in the city that are not in the finance or real estate industries that are being cut off by banks. Barragan told of a business owner in Venice who in the past had access to bank financing against large receivables but that was no longer the case. “Yes the economy is hurting but you have companies doing business and have the ability to do more business but for a lack of complete access to credit,” Barragan said. The lack of access has come in two phases. In the spring months came the cut-off of home equity lines of credit. The VEDC made a $100,000 loan to a Chatsworth business because the owner had received a letter from his bank that his equity line had been frozen. Then in the summer months, banks were only giving loans to those with the best credit and Small Business Administration sources were drying up as non-bank lenders stopped making loans and the banks were choosier. “A whole sense of worry in the banks was occurring during that period,” said Alberto Alvarado, the SBA district director for the Los Angeles area. The VEDC is perfectly positioned to help businesses in a down economy because of its knowledge of the market; of the types of businesses in its service area and their needs; and access to capital, Alvarado said. The center is also beneficial because of their expertise in guiding business through tough times and ability to provide training, counseling and technical assistance. All that can add up to lenders being more comfortable with whom they give money to. “That supports providing the capital with instruction on how to market, how to handle your money, all the things that business people don’t often know,” Alvarado said.