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7/12/02 - Miami Today News

Micro Business USA

By: Frank Norton

Judy Bustamonte wasn't happy working for somebody else, so he quit his job and started brokering waste removal contracts on his own.

Business went well for awhile, but Bustamonte wanted more. Although he had little business experience and no working capital, he was able eventually to borrow $25,000. He used the money to buy two trucks and some office equipment, which he used to start his own waste removal company, named Better Waste Management.

The company grossed about half a million dollars by year-end 2001, he said.

For Bustamonte and hundreds of entrepreneurs like him, opportunity came in the form of access to capital, something that for many inner-city and minority entrepreneurs doesn't usually come easy. He tried to get conventional financing, but couldn't find a bank willing to underwrite his new endeavor.

That's where Kathleen Gordon and Diane Silverman came in. They head Micro-Business USA, a federally funded program started in 1999 that is attempting to create an economy where there is none among South Florida's creditless.

Silverman, Micro's executive director, can be heard regularly on radio station Hot 105 FM. The spots pitch her company to South Florida's no-credit, no-collateral untouchables as an avenue for getting a shot at growing their own business.

As a Small Business Administration lender, Micro-Business lends small amounts of money, in a program formally known as MicroLoan, to the very people that banks can't afford to or just don't want to deal with. Micro-Business gets half its lending capital from the SBA and the other half from Miami-Dade County.

Roots in Bagladesh

The micro-loan concept was born in Bangladesh in 1976, when Muhammad Yunus, a former economics professor, started the Grameen Bank. Yunus wanted to create a system to empower rural women. The basic idea was to plant many small seeds of capital that could flourish into an entrepreneurial movement, lifting hundreds of women out of the vicious cycle of poverty.

In Miami, the idea is pretty much the same, but the focus is not rural women, but mostly on inner-city residents. The goal is to revitalize blighted urban communities, like Overtown, Brownsville, Wynwood and Liberty City, by sparking neighborhood businesses and then mainstreaming them into the greater local economy.

According to Silverman, the demand in Miami is overwhelming. Not surprising, since Miami was recently ranked as the poorest large city in the United States by the U.S. Census Bureau. An estimated 31.9 percent of the population in greater Miami lives below the poverty line.

For prospective entrepreneurs who don't know anything about running a business or how to get an idea off the ground, the terms are pretty simple, and the process of getting a loan is what's known as "peer lending."

Candidates submit a business plan to Micro-Business USA. It doesn't have to be perfect, just an earnest work in progress. Candidates attend peer group business training classes and earn the right to borrow $500 at an interest rate of 12 percent per year. That small sum is enough to buy a salon kit, fax machine, basic kitchen equipment or whatever it is the would-be entrepreneur needs to get started. Micro-Business clients move to higher tiers and are allowed to borrow larger sums of money as they pay back previous loans and attended business classes.

Latrell Vanderhorst, for example, needed a laptop computer and some accounting software to start free-lance bookkeeping for other small businesses in Broward County, where she lives.

$500 beginning

Vanderhorst started with a $500 loan and moved forward together with other peers in her business training classes, each paying back the individual loans in four months before collectively passing on to Levels 2 and 3, where seasoned entrepreneurs can access as much as $35,000.

Vanderhorst recently borrowed an additional $2,000 for flyers and a Compaq Presario III. In 2001, she grossed $37,900, pocketed about $10,000 and even paid out wages to others in her community who helped out. Not bad for a part-time endeavor that she is trying to grow into a full-time business.

"Ten percent of any population is entrepreneurial, regardless of race, color or creed. But most people wouldn't know whether they've got it or not unless they've had the opportunity to find out," Silverman said.

In 2000, Silverman helped provide 285 loans totaling $1.2 million, falling a bit recently due to program restructuring, she said.

Nationally, micro-lending has only been around about 10 years. It has been embraced the world over. The Washington D.C.-based Inter-American Development Bank, for example, recently began shifting some of its focus away from large infrastructure loans to governments toward smaller projects meant to have more of a local, rural impact.

According to the Aspen Institute, a think tank in Colorado, there are now at least 550 micro-lenders operating in 44 states, though not all are funded by the SBA. These organizations reported assisting 9,800 borrowers with a combined portfolio of $67 million in 2000.

Job creation

Micro-Business USA's loan repayment rate is 90 percent - on par with the national average. The success rate of the start-ups they capitalize is harder to measure, probably more than 10 percent if success is measured by the creation of a sustainable enterprise, Silverman said.

"The focus is on job creation," Silverman said, who adds that Micro-Business has helped create hundreds of jobs since its creation and helped empower scores of entrepreneurs who might not have been given the opportunity otherwise.

Some micro-credit skeptics argue that the effort in the U.S. is rather moot, given the sophistication of U.S. capital markets and relative availability of credit.

But Miami banking analyst and community redevelopment expert Ken Thomas disagrees. South Florida bankers have traditionally not been as responsive to community redevelopment as those in other parts of the country, he said. And local micro-borrowers share his perception.

"Banks do not lend money to start-ups. Nobody is interested in start-ups," said Judith Carter, a recent borrower who parlayed her years of experience in managed health are into Reliant Medical Supplies Inc., her own Lauderdale Lakes start-up that last year grossed more than $250,000. The Jamaican-born Carter is trying to borrow $15,000 this year to help meet her company's growth needs.

Bustamonte echoed her sentiments. "Every lender I went to gave a me different story, but the bottom line ù they just plain didn't want to lend me the money," he said.

For bankers it's a simple business decision. "Most commercial lenders won't touch anything below $2,500, especially for businesses that aren't established yet. You just can't make money on loans that small," said Buster Castiglia, president of Continental National Bank of Miami.

Still, Thomas said prospective low- and middle-income borrowers have a responsibility to exhaust all other options before heading on down to Micro-Business USA.

"We have the most developed and well capitalized financial structure in the world, and we're going to go outside the system to something developed in the third world in order to access credit?" he said. "Yes, the need is there and it should be filled, but only as long as the goal is to graduate people back into the financial system."

And that's what Micro-Business is trying to accomplish. The required training in the peer lending process forces borrowers to track their money and start building a credit history, the basic building block of entrepreneurship, Silverman said.

"It's behavior modification without you even knowing it, because most people think the money is the sexy thing," she said. "It's not at all. It's the training and the peer support that make the program. Even people that have been in business often do not have the skills or financial literacy to start out handling large sums of money. à Credit is like medicine. A little bit is good, but too much can kill the patient."