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June 25, 2018

small business

Even Microlenders Are Tightening Requirements

Carlos Costas borrowed from Accion to grow his trucking business, Costas Group.

Acción vs. SBA

» Interest Rate
Acción: 8% to 15%; average, 12%
SBA: About 7% (prime plus 1 or 2 points)

» Loan Size
Acción: $500 to $50,000; average, $6,500
SBA: $50,000 and up

» Minimum FICO
Acción: 575
SBA: 680

» Financial Statement Required
Acción: Three months of business bank statements showing cash flow
SBA: Two to three years of business and personal income taxes and accrued financial statements for existing business; for startups, personal investment of 30% to 40% of loan amount

» Age of Business Required
Acción: No requirement
SBA: Prefers companies at least 3 years old
Even microlenders are tightening their credit requirements. After suffering a loss of $680,000 in its loan portfolio last year, the Miami-Dade County office of Acción USA, a non-profit that makes small-business loans of between $500 and $50,000, is — for the first time — requiring FICO scores from loan applicants.

The organization lends to businesses that cannot get traditional loans because they have not been in business long enough, are too small or need too small an amount. In the past, Acción has required only proof that the company has the cash flow to pay back a loan.

“We had to tighten our credit guidelines because even though we have always been doing risky loans compared to the banking system, we got hit a little bit because of the economic crisis,” says Acción Florida program director William Mateo. “But we’re still very flexible compared to a bank.”

And while it has tightened credit requirements, Acción Florida has also doubled its maximum loan amount and dropped its interest rates to between 8% and 15%; in the past, rates ranged from 12.5% to 17.5%. While the rates are higher than those offered by the SBA or banks, they’re still lower than credit card rates.

The Miami office now makes an average of around 13 loans per month, down from the 22 or so it averaged in the past. Acción clients — typically businesses with one or two employees, taking a loan for equipment or working capital — also get access to financial literacy training and other support services.

The office’s $1.2-million operating budget is funded by donations from banks’ Community Reinvestment Act offices, the government and foundations. It lends money that it borrows from banks at lower rates, so the 15% default rate it experienced last year gave the organization a scare. Its default rate had been 4%.

Tags: Florida Small Business, Miami-Dade, Banking & Finance, Entrepreneur

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