Supporting Small Business, One Micro-loan at a Time

One wintry day in Portland, Ore., Sara Rodriguez decided something had to change.

Sara had just used her family’s last $5 for bus fare to find work. As luck would have it, the bus broke down and she was forced to walk miles back home through the snow, her prospects for gainful employment dashed. But Sara had a dream of opening her own tamale business, and decided to approach Point West Credit Union for help. With a micro-loan of $500 to cover initial ingredients and supplies, Sara successfully launched her business, got her family back on solid financial footing and achieved her dream of entrepreneurship.

Point West has been able to help Sara and dozens of entrepreneurs like her through an innovative micro-lending program designed for sole proprietorships and businesses with under five employees, with a focus on women-owned and Black, Indigenous and people of color (BIPOC)-owned businesses.

From Crisis to Crushing It

Just a decade ago, Point West was facing its own existential challenge.

In 2008, the credit union had $110 million in assets and a healthy 8.5% net worth. It served its members through two branches with 57 employees, and was trying to “be everything to everyone,” according to Steve Pagenstecher, Point West’s COO, who spoke at CU Business Group’s 2020 National Conference last October. Point West offered a broad range of services, including residential first mortgages and traditional commercial loans.

But then the Great Recession hit, and Point West endured major losses in its real estate and investment portfolios. Over the next two years, the credit union’s net worth dropped to 4%, and Point West struggled through four restructuring plans. The new management team reduced staff to 27 employees, closed one of its two branches, and sunset both its mortgage and commercial lending programs.

Although painful, the restructuring enabled Point West to streamline operations and refocus on its core mission to serve underrepresented populations within its community. Today, Point West has attained a net worth of 9.3%, with $100 million in assets, 25 employees, one member-serving branch and a separate headquarters/administrative center. Point West also has a new community charter, a federal low-income designation from the NCUA, CDFI certification and Juntos Avanzamos designation.

As part of this rebirth, Point West introduced microenterprise business loans to replace its suspended commercial lending program.

According to Pagenstecher, since launching the program in 2017, Point West has taken over 75 applications and funded $750,000 in affordable capital loans to 50 small businesses. With an average loan size of under $16,000, these funds have offered a lifeline to dozens of nascent enterprises.

Micro-loans Benefit Credit Unions and the Community

Microenterprise lending programs like Point West’s offer significant benefits to credit unions and the communities they serve.

Point West limits the size of its business purpose loans to under $50,000 in aggregate borrower exposure, allowing it to avoid member business lending statutory limits and the associated expense. The loans aligned well with the credit union’s existing consumer loan types, and analysts use simplified underwriting criteria like debt to income ratios and personal credit scores, reducing the need to bring specialized commercial lending experience in-house. In addition, the loans are personally guaranteed, reducing credit risk.

Most importantly, these programs provide much-needed capital to small and micro-businesses. With its focus on sole proprietorships, women-owned and BIPOC-owned businesses, Point West is reaching communities that are typically underserved by the big national banks. According to Visa, more than 33 million U.S. households are unable to get the formal financial services they need, like bank accounts and traditional loans. For Black and Latino households, the news is even worse – nearly half of such households are underserved by the traditional banking system.

Offering Aid During the Pandemic

According to Pagenstecher, Point West has high hopes for its microenterprise program, with a three-year portfolio goal of $3 to $5 million.

Beyond the raw numbers, Pagenstecher sees the microenterprise program as more than just lending. Point West is also committed to providing grants and advocating for the needs of small businesses.

Point West has already established relationships with similar-minded community organizations, like Livelihood Northwest and Oregon Small Businesses United, a “pop-up coalition” made up of local advocacy groups and ethnically-specific community chambers of commerce.

The credit union also leveraged the U.S. Small Business Administration’s Paycheck Protection Program to provide $1.85 million in pandemic relief to 119 local businesses, 100 of which were new members to the credit union. Two-thirds of Point West’s PPP loans went to women-owned businesses, and over a third helped BIPOC-owned enterprises.

Point West also participated in the State of Oregon’s COVID-19 Business Grant Program, providing an additional $3 million in grant funding to local businesses that suffered shutdowns during the pandemic.

With a boost from that initial $500 micro business loan and several subsequent loans from Point West, Sara Rodriguez has built her tamales startup into a successful business. Today, she sells her delicacies weekly at two local farmer’s markets, has hired several employees and is getting ready to open her first food truck.

Even in the midst of a pandemic, Sara knows that Point West will be there to help Sara’s Tamales survive and thrive, every step of the way.

Rachel Snyder is SVP/COO for business services CUSO CU Business Group in Portland, Ore.