Small businesses need capital to grow, but in many low-income communities financing is hard to come by and entrepreneurs struggle to achieve their dreams. Opportunity Fund believes everyone, regardless of economic background, deserves a chance to succeed. California’s leading microfinance provider has developed a loan product—EasyPay—that’s putting capital in the reach of small business owners in even the most underserved communities.
A few years ago, Opportunity Fund, which was founded in 1994 to advance the economic wellbeing of working people, began noticing that clients were reporting cash advances that didn’t show up on credit reports. The source of this capital was a burgeoning new product known as “merchant advances.”
These products advance a lump sum that businesses then repay with a percentage of credit or debit card swipes, rather than fixed monthly payments. “In theory, merchant advances are a great source of capital for entrepreneurs, especially those who don’t qualify for traditional loans because of bad credit or little or no collateral,” says Eric Weaver, Opportunity Fund Founder and CEO. “In reality, the interest rates of these unregulated products range from 60%-200%, which can create a financial stranglehold for small businesses that need some cash for day-to-day operations.”
Recognizing the innovation of the merchant advance concept, Opportunity Fund developed EasyPay as an affordable alternative. Like merchant advances, EasyPay loans are automatically repaid with daily debit or credit card sales. Unlike the advances, interest rates are much lower. And because EasyPay is a loan, it’s also a credit-building tool. These factors make it an attractive option for economically-disadvantaged small business owners, including those Opportunity Fund wasn’t able to lend to in the past.
Explains Weaver, “More than half of our borrowers would have gotten a smaller loan or no loan at all under our traditional underwriting guidelines, but they have the cash flow to qualify for EasyPay.”
Since winning the 2012 NEXT Seed Capital Award to pilot the product, Opportunity Fund has originated 85 EasyPay loans, totaling $1.2 million, in Los Angeles and the BayArea. Today, the CDFI is ready to take on additional California markets. The NEXT Opportunity Award will enable it to finance 1,000 entrepreneurs by 2016, creating and sustaining 2,900 jobs. Long-term, it seeks to offer a “white label” version to other CDFIs across the U.S., making the program replicable on a national scale and bringing new opportunities to entrepreneurs everywhere.