Counting on Local Capital
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Transcript of Counting on Local Capital
1
Preliminary Findings
The Washington RLF ProfileConducted by
Corporation for Enterprise Development with funding from the Ford Foundation
and the Washington Department of Community Trade and Economic Development and The Washington Lenders
Network
Counting on Local Capital
2
Preliminary Findings
Project Overview Research and policy project to collect, analyze, and disseminate
information about revolving loan funds (RLFs).
Conducted by the Corporation for Enterprise Development (CFED), an organization which specializes in developing policies and programs to promote economic competitiveness and economic opportunity at the local, state, and national levels.
Implemented in two phases, with Phase I focused primarily at the federal level and Phase II at the state level.
3
Preliminary Findings
To develop individual state profiles of the RLF industries in up to five states, creating a model data collection and source of best practices for the RLF industry.
To assess the feasibility of statewide and/or regional RLF intermediaries which offer data collection, asset management, access to capital, and technical assistance services.
To communicate the knowledge and lessons learned through the project by convening national, regional, and electronic meetings of practitioners, funders, and policymakers.
Project Goals
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Preliminary Findings
Washington RLF Profile
Washington selected as state partner in September 97 Sponsored by Washington Department of Community Trade and
Economic Development; The Lenders Network; and Cascadia Revolving Loan Fund
Steering Committee first convened September 1997 tailored survey to interests of practitioners and funders refined list of funds to survey
Survey mailed December 1997 -- last one returned May 4, 1998
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Preliminary Findings
Methodology
Surveys were mailed to 53 potential economic development RLFs 41 RLFs returned surveys. (Several of these RLFs were managed
by the same organization)
12 reported that they did not have an economic development RLF,
or operating as part of another, larger fund .
Washington is the only state with 100% response rate
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Preliminary Findings
The RLF Organizations
Organizational Structure25 Responding Organizations
15
3
7
0
2
4
6
8
10
12
14
16
No. of RLFs
0-5 6-10 More than 10
Years in Operation
Years in Operationfrom year of first loan
%Public Sector 17.4
Nonprofit 65.2
Quasi-public 13.0
Other 4.3
Total 100.0
Oldest RLF--17 years
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Preliminary Findings
The RLF Organizations
Washington 50%Single
50%Multiple
Federal Census63%
Single
37%Multiple
Operate Single or Multiple RLFs
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Preliminary Findings
The RLF Organizations
Washington’s RLF organizations are relatively small…. Exactly half are capitalized at less than a million dollars
67% (14 of 24 respondents) have an operating budget of less than $100,000
47% (17 of 36 respondents) are staffed at one full-time employee or less
But sophisticated Almost all services (loan packaging, underwriting, portfolio
management, liquidations) are provided in house by over 80% of the RLFs
59% use a spreadsheet software and all feel proficient in it
In addition, 33% use an RLF software and 38% use accounting software
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Preliminary Findings
RLF Capital
RLFs reported total capital sources of $70 million
smallest fund has $10,000 largest fund has $20 million
The $70 million was provided by the following sourcesAmount %
Federal 31.0 44.0State 13.4 19.1Private 5.4 7.6Foundation 2.5 3.5Religious Organizations 1.5 2.1Program Income 2.9 4.1Local 0.6 0.9Other 3.0 4.2
“Unspecified”/”Not Separated” 10.2 14.5
TOTAL 70.0 100%
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Preliminary Findings
Federal Funding Sources
USDA24%
Other6%
Forest16%
EDA21%
HUD33%
OtherDept. of Energy 1.5%
SBA 4.0%
HHS 0.1%
Other 0.3%
Total Federal Funding$31 Million
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Preliminary Findings
Philanthropic Funding Sources
Foundations and Religious Organization
$4 million
Foundation62%
Religious38%
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Preliminary Findings
Timing of Capitalization
16.4
0.8 1.2 1.7 1.9
11 11.2
15.1
11.7
02
468
101214
1618Millions
Before1990
1990 1991 1992 1993 1994 1995 1996 1997
$70 million
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Preliminary Findings
Timing of Capitalization
RLF funding came almost entirely from the public sector until 1993
All foundation funding occurred in 1993 or later
All religious organization funding occurred in 1993 or later
All but 0.6% of private sector (banks, corporations, and other unspecified private groups) funding was in 1993 or later
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Preliminary Findings
RLF Capital Structure
Total Capital Structure$70 million
Debt11%
Grants or Equity
89%
Sources of Debt Capital$7.8 million
Banks and Bank
Consortium0.03%
SBA18%
USDA80%
Other2%
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Preliminary Findings
RLF Capital Structure
Most Washington RLFs do not have a diverse funding base
43% (of 35) RLFs received funding from only 1 source
Another 22% received funding from only 2 sources
Several funders are being accessed by few RLFs; only
three RLFs received money from: the SBA, the US Forest Service, religious organizations
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Preliminary Findings
RLF Loan Terms
First loan to RLF made in 1982
69% of debt financing invested since 1995; 51% in 1996 alone (IRP)
Interest rates range from 0% to 2.5%
Loan terms range from 1 to 40 years
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Preliminary Findings
RLF Products
Average loan size was $10,163
40% had a minimum loan size of less than $1,000
83% offered fixed interest rates
Interest offered varied from 0 to 12.7%
45% had loan terms of 3 years or less; 30% terms of five years or more
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Preliminary Findings
RLF Services
Services currently offered (percent of RLFs): One-on-one assistance -- 81% Formal technical assistance -- 35% Mentoring -- 22% Provided no services -- 8%
Additional services customers requested: Line of credit -- 69% Venture capital -- 59% Marketing -- 9%
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Preliminary Findings
Communities Targeted
66% RLFs (21 of 32 who responded) target low - to moderate income people 86% of those funds providing detailed data (18 RLFs) made
over 25% of their loans to low-mod income people
59% RLFs (19 of 32) target minorities
Start-ups are being targeted as much as existing companies (31 vs. 33 respondent RLFs)
Manufacturing is predominant industry type (23 RLFs have made loans), closely followed by retail (20 RLFs) and services (19 RLFs) and fewer timber (6) and salmon (3)
21
Preliminary Findings
RLF Portfolio Data
RLFs asked to report the following portfolio data Current capitalization levels
Amount of loan loss reserves (if any)
Value and number of outstanding loans
Average loan size
Cumulative value and number of RLF loans
Capital available for lending
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Preliminary Findings
RLF Portfolio Data
RLFs asked to report the following performance data
Amount and value of delinquent and defaulted loans
Amount of loan losses
Definitions of delinquency and default
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Preliminary Findings
RLF Portfolio Data
Performance data reported varied widely in quality and consistency
RLF Capitalization levels rarely matched total capitalization sources reported earlier in survey
However, data on outstanding loans, average loan size, and delinquency was generally strong
41% of the RLFs reported Loan Loss Reserves totaling $664,000--equal to 1.3% of total capitalization (compared to 19% of California RLFs with reserves of 0.4%)
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Preliminary Findings
Current and Cumulative Lending Activity
Current Loans(Outstanding)
CumulativeLoans
Number of RLFs Reporting 34 36
Total Loan Capitalization (inmillions)
$50.0 N/A
Loan Dollars (in millions) $31.3 $58.0
Number of Loans 480 1,034
Average Capitalization per RLF $1,529,953 N/A
Average outstanding Loan Dollarsper RLF
$934,347 $1,610,203
Average Number of Loans per RLF 14 29
Average Loan Size $66,182 $56,061
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Preliminary Findings
RLF Portfolio Data
Capital Available For Lending
Number of RLFs reporting 35
Total capital available $23,459,789
Average capital available $670,280
Demand for Additional Capital
Number of RLFs reporting 35
Number seeking additional capital 20 (57%)
Capital needs identified $20,000,000
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Preliminary Findings
RLFs and the Secondary Market
Number of RLFs% of
Responses
Sold loans on secondary market 0
Interest in selling loans in the future 7 19%
RLFs indicating need for capital andinterest in loan sales
0
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Preliminary Findings
Barriers to the Secondary Market
NumberResponding
Percent Responding
Loan Pricing Policies 10 39%
Discount Rates 7 27
Regulatory restrictions 5 19
Recourse Requirements 5 19
Delinquencies and Default Rates 4 15
28
Preliminary Findings
Defining Delinquency
33 RLFs provided definitions for delinquency
1 as past due 15 days 31 as past due 30 days 1 as past due 60 days
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Preliminary Findings
Delinquent Loans
30 RLFs collectively reported 70 delinquent loans; values were reported for 53 of these loans & totaled $894,637
13
6
32
1 1 1 1 1 1
0
2
4
6
8
10
12
14# of RLFs
0 1 2 3 4 5 6 9 12 16
Loans Delinquent
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Preliminary Findings
Delinquency Rates
13 RLFs reported values for both delinquencies >0 and loans outstanding
$ 894,637
$14,102 068
28 RLFs reported values for both delinquencies >= 0 and loans outstanding
$ 894,637
$28, 593,239
6.34%
3.13%
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Preliminary Findings
Defining Default
35 RLFs provided definitions of default
1 had no definition yet
1 payments past due 60 days
28 payments past due 90 days
4 payments past due 120 days
1 payments past due 180 days
32
Preliminary Findings
Default Data31 RLFs collectively reported 54 loans in default;
Values were reported for 49 of these loans totaling $1,459,428
17
54
0
3
0 0 0 0 0 0 0 01 1
0
2
4
6
8
10
12
14
16
18
# of RLFs
0 1 2 3 4 5 6 7 8 9 10 11 12 13 16
Number of defaulted loans
33
Preliminary Findings
13 RLFs reported values for both defaults >0 and loans outstanding
$ 1,535,156
19,722,285
30 RLFs reported values for both defaults >= 0 and loans outstanding
$ 1,535,156
31,944,401
Default Ratios
= 7.8%
= 4.8%
34
Preliminary Findings
Job Creation
Total jobs created 6,432
# of RLFs that reported using Job Creation asa measure of impact
33 87%
# of RLFs that reported a Job Creation figure 25 78%of users
Average jobs created per RLF 257
Median jobs created per RLF 60
Maximum jobs created per RLF 2,875
Average dollars loaned per job created $12,411
35
Preliminary Findings
Jobs Retained
Total jobs retained 2,928
# of RLFs that reported using Job Retention asa measure of impact
30 64%
# of RLFs that reported a Job Retention figure 24 45%
Average jobs retained per RLF 122
Median jobs retained per RLF 40
Maximum jobs retained per RLF 975
Average dollars loaned per job retained $20,004
36
Preliminary Findings
Preliminary Capitalization Findings
29 organizations -- managing 41 funds -- reported $70 million in capital, with 64% provided by federal, state and local sources, while 11.1% came from private sources.
Most capital was from public sources before 1993
$26.8 million was invested in 1996 and 1997, indicating recent dramatic growth in the field.
Most RLFs are small, with operating budgets under $100,000, and capitalization of less than $1 million
Most RLFs have undiversified sources of funding
37
Preliminary Findings
Preliminary Recapitalization Findings
RLFs identified a need for an additional $20 million in capital, matching almost exactly the $23.4 million in total available capital or reserves reported.
No RLFs have sold loans on the secondary market, but 19% expressed an interest in doing so. Loan pricing policies and discount rates were identified as the key barriers to loan sales.
39
Preliminary Findings
Preliminary Impact Findings
87% of RLFs reported using job creation as a measure of impact and 64% use job retention.
25 RLFs reported creating 6,432 jobs, an average of 257 jobs per RLF at an average cost of $12,411 per job.
24 RLFs reported retaining 2,928 jobs, an average of 122 jobs per RLF at an average cost of $20,004.
41
Preliminary Findings
Preliminary Findings on Lending Activity
41 RLFs reported cumulative lending of $60 million, at an average of $1.6 million loans outstanding per RLF
The average loan size equaled $66,182 for current loans and $56,061 for cumulative loans.
42
Preliminary Findings
RECOMMENDATIONS
Funders need to provide money for operating support, equity and liquidity, particularly for the younger RLFs that do not yet have much income from loan repayments at a time when their training and support needs are greatest.
An intermediary institution, such as the Washington Lenders Network, should provide targeted training and assistance to RLFs across the state. A large portion of RLFs are young and inexperienced and do not have access to nearby specialized training, or other needed support service.
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Preliminary Findings
RECOMMENDATIONS
Some institution, such as the Washington Lenders Network or a regional intermediary, must collect data for Best Practices and advocacy to legislators, funders and citizens. Best practice information and data detailing impact and need should be made available on a regular basis.
Programs or institutions are needed that can pool the costs for expensive operating services such as bonding requirements, auditors experienced with development finance institutions, Director and organizational liability insurance, employee benefit plans and specialized document production.