NON-PROFIT SPARKS QUAKE RECOVERY WITH BUSINESS LENDING by Bruce Dobb and Roberto Barragan In January l994, the San Fernando Valley was hit with the largest urban disaster in the history of the United States. The 5th largest economy in the country suffered $ 40 billion in damage, an immediate drop in population and the business disruption or shut-down of over 100,000 large and small businesses. Bank lending virtually ground to a halt as financial institutions accessed their damages and sorted through insurance coverage. Because over 50% of all businesses that initially applied to FEMA and the SBA for assistance were declined, their emerged a need to provide additional credit resources to the community. The Valley Economic Development Center(VEDC), at that time a small, non-profit Chamber of Commerce spin-off, requested additional assistance from the Federal government. VEDC designed a relief program that is open to all quake impacted companies. Known as the Financial Restructuring Assistance Program (FRAP), this revolving loan fund program was funded by the Economic Development Administration and the City of Los Angeles in October of l994 with a $ 7 million grant to VEDC. To date, VEDC has approved $ 12 million of loans under this program, funded $ 7.5 million and created or saved 1,500 jobs. These jobs have been for businesses ranging from clothing manufacturers, electronic parts assembly firms to restaurants and retailers. Companies receiving loans have had as many as 230 employees and as few as 2. But they all shared one characteristic, they represented healthy, thriving businesses that are part of the Valley’s recovery processes. In several cases, VEDC took a risk that private investors were either unable or unwilling to make. We financed recent acquisitions, new product development, debt consolidation or contract receivables that were outside of a traditional bank’s lending parameters. But in every case the risk was justified by solid repayment with few delinquencies or defaults. Not one dime of the original grant funds have been lost. The success of our portfolio reflects the overall success of the Valley’s recovery in general. Specific examples are many: Eclectic Cafe started as bar and grill in an area of North Hollywood along Cahuenga Blvd. that had little night life and few nearby places to eat. Annual revenues have more than doubled since it restructured its quake related debt with a VEDC loan. The restaurant has added 5 people and is planing a major expansion. The area since become known as NoHo and is thriving. Cownan Precision was denied an SBA Disaster Loan because the Agency ruled that the company was unable to repay new debt. VEDC lend the firm $ 180,000 to buy equipment based on solid projections and a strong track record by the owner. Our loan allowed the company to diversify its customer base, enhance revenues and hire two new employees. Ricon, Inc., the wheelchair lift manufacturer in Pacoima, was able to hire 100 new employees immediately in order to launch it’s auto van conversion program. Without a VEDC $ 695,000 loan the company would have required 18 months to fully activate this new division. Some 65 companies are currently in VEDC’s portfolio. In many cases these companies have been referred to VEDC by a Bank Lending Partnership which was formed in l996 to spur new investment in San Fernando Valley Companies. Sixteen banks ranging in size from billions in assets to under $ 200 million agreed to target their lending to Valley businesses and this effort has sparked over $ 20 million in new investment. VEDC has also been selected as a lending partner for the Los Angeles Community Development Bank and is presently making loans under $ 25,000 to businesses located in Pacoima, East Los Angeles and parts of Downtown Los Angeles. This program is currently restricted to businesses located in the federally designated Empowerment Zone, but VEDC hopes to expand it into a county-wide micro-lending program by the Spring of l998. Because the capital needs of growing companies have continued to change since January of l994, VEDC has started to explore new sources of investment dollars. We underwrite limited partnerships, private placements and other types of equity or near equity of investments. We also serve as investment advisors for transactions ranging from mergers and acquisitions to Industrial Revenue Bonds. The San Fernando Valley has the largest, most entrepreneurial and diverse business community in the nation. Thirty percent of VEDC’s loans are to minority owned businesses. In aggregate these companies represent an extremely dynamic and growing segment of the local economy. VEDC hopes to carve a unique niche in the financial markets by continuing to service the credit needs of these companies. Our success is largely due to the diligence and dedication of an all volunteer loan committee, a hard working staff and the good fortune of being able to serve the San Fernando Valley. We appreciate that opportunity. Bruce Dobb is chief credit officer for the VEDC. Roberto Barragan is Vice President of lending operations for the VEDC.