Finance Your Business
Financial services help small business owners boost their bottom line
From providing advice to cutting through paperwork, lenders offer help
Three years ago, Daniel Trujillo's company, Tortilleria La Ranchera, was scrambling to meet his customers' demand for tortillas. He already had a 22,000-square-foot warehouse, but he needed more space. "People needed tortillas, and we didn't know where to shelve them," Trujillo says."
When he started La Ranchera in 1994, Trujillo had put together the money himself, but now, the business had grown beyond self-financing. It's the second-largest tortilla maker in Houston, Texas, America's fourth-largest city, with a Hispanic population that accounts for 44 percent of its 2.3 million people.
Trujillo had never applied for bank financing before. At first, he was overwhelmed by the amount of paperwork lenders required before they would even discuss a loan with him. Then he met Nancy Alvidrez at Chase, who helped him cut through the clutter and secure a loan backed by the U.S. Small Business Administration (SBA). In January, La Ranchera opened a new 88,000-square-foot facility in a former Home Depot store.
For small business owners looking to finance their growth, establishing the proper relationship with a local banker is a critical first step, Alvidrez says. Good bankers do more than lend money. They also can offer advice and insight. "Don't be afraid. Go ask," Alvidrez told small business owners at a recent Chase for Business: Connecting Minds program in Houston.
Trujillo's apprehension about dealing with banks is common among small business owners, especially in the Hispanic community. "Many Hispanics came from countries where the banking system failed," says Nely Galán, media entrepreneur and former Telemundo network president. “They're nervous."
Despite Houston's large Hispanic population, only 7 percent of the 1,725 SBA loans in the city last year went to Hispanic-owned businesses, says Tim Jeffcoat, SBA's Houston director. By contrast, Asian-Americans account for about 6 percent of Houston's population, yet they obtain 35 percent of the SBA loans.
For Hispanic businesses to grow, they need to take advantage of the financial resources that are available. "A lot of these businesses are stagnating because they haven't sought capital," says JPMorgan Chase Chief Economist Anthony Chan. "You give them access to capital and that unleashes economic growth."
Small business owners may not understand how the SBA relationship works—they worry that the government could take over their business if they default on an SBA loan. "We don't actually lend the money," Jeffcoat explains. It provides guarantees so that conventional banks such as Chase can make the loans at an affordable rate.
In addition to loans, the SBA guarantees surety bonds for contractors, offers a venture capital program, and resources designed to help small businesses obtain financing. For example, the Small Business Development Council, an SBA affiliate, offers mentoring programs and advisory services to help business owners craft their loan applications.
Having the proper tools and understanding of the process can help business owners find a banker that will work with them. "Your personal banker is always the best place to begin," says Mitchell Williams, vice president for special finance with Chase and a panelist at the event. "They know you and your business." Mitchell specializes in SBA lending at Chase, and his department handles about three SBA loans a week, averaging $300,000 each.
For businesses that don't qualify for SBA loans—perhaps the business owners have no credit, for example—alternative lenders may still be able to help them find capital. San Antonio, Texas-based LiftFund makes business loans for as little as $500 and up to $500,000 to business owners who need to build credit.
"Business owners come to us when, for whatever reason, they can't secure an SBA loan," says Richard Gianni, LiftFund's regional president. For 20 years, LiftFund has made loans to business owners with credit scores as low as 590, he says. If a credit score falls below that threshold, LiftFund has programs to help rebuild their credit and begin the process of gaining access to capital.
Despite their clients' lack of credit, default rates are low. Fewer than 4 percent, on average, of LiftFund's borrowers are unable to repay their loans, Gianni says. However, he stresses that LiftFund and other microlenders are not a replacement for banks. Quite the contrary, they provide short-term financing so that business owners can move on to more conventional borrowing. "Our goal is to get every one of our clients back to their banker," Gianni says. "Business owners who avoid traditional finance will impede their own growth."
At La Ranchera, growth continues to explode. Even with the new facility, Trujillo says the company is working around the clock to meet tortilla demand. "I don't know how we're going to keep up," he says. "I might have to ask for another loan."
If he does, he says he takes confidence in knowing he has the right relationship in place with Alvidrez and her team at Chase. "I can call upon them whenever I have a question," he says. "It's empowering."
Selina Wagowski is a Chase News contributor.