Becoming a Micro Lender

Welcome!

Adding Lending: Why?

Lack of micro loan access for your clients

Clients need $ to grow businesses to sustainability level

Ready to expand services beyond classes and one-on-one counseling

What else?

What it Takes

I. Plan and Program Design

II. Lending Capital

III. Funds for Operation Expenses

IV. Microlending Management System (MMS)

V. Staff Capacity

VI. Organizational Change

Plan and Program Design

Mission, Goals, Leadership, Funding

Loan Product, Underwriting, Outreach

Servicing, Delinquencies, Portfolio

See “Steps for Becoming a Microlender” for more detail

Lending Capital

Grants (equity). Ideal for higher-risk, labor-intensive micro loans.

Debt. Funds you borrow at a low rate and with a long term. You lend out at a higher rate and shorter term, allowing you to keep the “spread.” Use for lower-risk deals.

Sources: SBA, CDFI Fund, EQ2 loans from banks, RMAP, IRP, RBEG, HUD, foundations, corporate donations

Funds for Operations

Loan officer

Back office staffing

MMS and loan servicing fees

Time from ED, board or loan committee, accounting staff and TA staff

Good mobile technology and web interface

Supports lending here

Outreach

Application Document Collection

Underwriting

Credit Memo

Closing

Servicing & Collections

MMS Overview

Risk Assessment

Solution: MMS Online

Automated screening

Spend minutes instead of hours finding eligible deals

Sort deals quickly

MMS gives a risk rating to each application

Fast and reliable underwriting

Rely on successful underwriting team for quality deals and portfolio strength

How Does It Work?

Three step process:

1. Online application

2. Auto Review: five-minuterisk assessment to establish eligibility

3. Underwriting: Two-day turn around on underwriting

Auto Review

Using 13,000+ loan portfolio, Accion Texas has built a risk assessment tool. It measures:

Capacity: Is there enough global cash flow tomake loan payments?

Credit: Is historical use of credit in the ball park?

Risk:Does borrower’s profile match that of successful borrowers in AT portfolio?

Auto Review Results: Five MinutesYour Agency:Directs potential borrowers to online application

Pulls credit report and marries it to the application

In five minutes, Auto Review gives risk assessment

Green: Borrower meets all three measures

Yellow: Borrower lacking one measure

Red: Borrower fails two measures

Give Client Same-Day ResultsYou contact client same day with application results. Proceed with approved deals:

Gather documents to verify application information and underwrite loan.

Green: MMS Generates Required Document List

Yellow: After consultation with MMS Underwriting, RDL generated

Upload docs to MMS

Underwriting: 48 hours

MMS Underwriting department reviews documents

Provides final decision and terms

Provides credit report

Is available for questions, discussion, consultation

Closing and Servicing

Proceed with your own closing documents, collateralization and funding processes.

Your Participation

CAMEO requests participating members:

Run all deals through Auto Review

Accept MMS underwriting grid

Participate in monthly calls for individual and peer learning

Staff Capacities

Basic business training background

Sales approach to deal development

Underwriting basics

Servicing & deal restructuring capacity

Portfolio, accounting capacity

Probably not all skills in one person

Organizational Change Traditional TA and a long “get to know you”

process. Staff and clients get close.

Understand difference between a good TA client and good loan client

MMS underwrites on current cash capacity and credit

Less on projections or long-established relationships – “character”

TA Clients vs Loan Clients To use MMS to its fullest, integrate system

into staffing expectations and client interface – working faster and more based on the numbers

MMS creates scale but does cut some clients out of the process

Each organization must find a way to help these clients

Commitment

Directors must:

Desire growth and increased efficiency

Provide hands-on leadership for change

In addition, staff needs to be open to changing roles and procedures.

ML Industry Transforming

Microlending being transformed:

Common now to build or buy behavioral models with big data

Coupled with online applications

Coupled with a fully online automated process

Leads to fast risk assessment, decision making, loan closing

For-profit lenders moving into this field

ML Industry Transforming

Add to that:

Crowdfunding

Profit-making possibilities

Lots of new lenders cropping up everyday

Borrowers realize they have other options

NEED TO CHANGE TO STAY IN THE GAMENEED TO CHANGE TO STAY IN THE GAME

Questions?

Thanks!!