Traditional banks often use the term “unbankable” for entrepreneurs they deem too small, too new or too financially risky. First Community Capital (FCC), a Riverside-based community development financial institution (CDFI), has spent six years challenging that label.
FCC has deployed over $5 million to more than 200 entrepreneurs, many of whom are Black and African diaspora business owners throughout the Inland Empire and Los Angeles, California areas as well as the Tucson, Arizona region. Despite the “high-risk” classification these clients have historically been given, the repayment rate for their loans is 95%.
FCC President and CEO Jay Diallo spent 16 years in traditional banking before launching the organization. He observed that banks typically reject borrowers for three specific reasons: startup status, credit scores below 600 and loan amounts too small to be profitable.
“If you go to the bank and say you only need $10,000, they’ll give you a credit card because for them, a loan is not worth their time,” Diallo says.
This gap often forces business owners toward predatory lenders. FCC recently helped a small business owner avoid a $90,000 loan with a 13% interest rate calculated on a weekly basis, which would have resulted in the borrower repaying an additional $70,000 in interest alone.
FCC operates via a holistic underwriting model. Instead of relying strictly on FICO scores, it examines business viability and community support. The organization also intervenes much earlier than traditional banks. While banks often wait 90 days to take action on late payments, FCC engages at the 30-to-60-day mark when problems are still fixable.
“We jump in, provide technical assistance and, if necessary, refinance and restructure the loan,” Diallo says. This proactive support prevents temporary setbacks from becoming permanent failures.
The goal is often to prepare clients for the very banks that initially rejected them. For instance, a San Diego coffee shop owner sought help after being denied by multiple institutions. She owed $30,000 at a 15% interest rate with $3,000 monthly payments, effectively draining her business’ cash flow. FCC refinanced her loan at a 9.5% rate, dropping her monthly payments to $900. Three years later, her business is so stable that traditional banks are now competing for her business.
Rise Economy, a California-based NCRC member organization, provided FCC $250,000 through its Resiliency Fund, helping the organization become the only African-run CDFI in the Western United States.
To date, FCC has helped borrowers create over 500 jobs. As the organization looks toward $10 million in assets and expansion into Nevada and Texas, the 95% repayment rate remains the strongest evidence that these entrepreneurs were ready all along. They just needed someone willing to say yes.
“That’s why having a CDFI is so critical,” Diallo says. “We help small businesses start their businesses, grow their businesses and, eventually, they become bankable so they can go to a bank and get much larger loans.”
Aba Hammond is a Contributing Writer.
Photo courtesy of First Community Capital.
