"Life Is Good!"
Lunch at the Corner Bar & Grill in Richmond is noisy and boisterous. The Corner is a small, unpretentious place with just a couple dozen seats, all pretty much taken at midday. People come for corn bread flecked with kernels of corn, for blackened chicken, and for tomato-basil wraps. They also come because owner Herman Baskerville has created something of a community center for a neighborhood that has seen better days but aspires to better days ahead. Though Carver, a working-class district since it was settled in the 1840s, is largely African American, the Corner draws a strikingly diverse crowd. This is by design. "I think Richmond needs that," Baskerville said over the din when he stopped by my table. During the rush, he makes a point of wandering the dining room, greeting regulars and introducing himself to newcomers.
I happened to be sitting with a familiar face: Tanner Collins Jr., Baskerville's banker. Collins is a senior vice president at the Richmond Economic Development Corporation, which provided the Corner with a $35,000 microloan at 10 percent interest, funded by the SBA. Though Baskerville and his partner at the time had each put in several years managing large chain restaurants, that industry is notoriously unforgiving, and both Wachovia (NYSE:WB) and SunTrust (NYSE:STI) passed on the loan. In fact, even the local SBA staff, Baskerville recounted, put him off when he called for financing advice--inexplicably, he was told that restaurant loans are difficult to guarantee. Baskerville and his partner had enough saved to open the joint on their own, but the infusion from REDC in the fall of 2005 bought some advertising and equipment. "It started off slower than we anticipated," Baskerville said. "We figured we'd open up, and we'd do, say, $5,000 a week. It took us a while to get to $5,000." Without the loan, "it would've been tight."
Microloans are the SBA's second stab at financing very small businesses in gritty neighborhoods like Carver. The first, the Economic Opportunity Loan, was devised in 1964 as a weapon in Lyndon Johnson's War on Poverty. Directed toward black borrowers who had been rejected by at least two banks and the SBA's 7(a), the Economic Opportunity Loan program had, as a GAO official gingerly told Congress in 1981, "a difficult mission." Its failure, after doling out $1.1 billion, was spectacular. A 1981 GAO study found that among borrowers who received loans through 1978, more than 35 percent had defaulted. Of those loans still on the books in 1981, 36 percent were delinquent or in liquidation. And among the borrowers who had paid off their debt, only a third could keep their businesses going--or just 15 percent of all of the program's borrowers.
This time around, the SBA, with a page borrowed from the developing world, does it differently. For one thing, the microloan program is much smaller: In the 16 years since the first President Bush established the program, the SBA has loaned out only $230 million. For another, the money goes first to intermediaries like the Richmond Economic Development Corporation, which in turn make loans to people like Baskerville. Though in truth, most clients aren't like Baskerville; they usually require a lot of hand-holding, also funded by the SBA. At REDC, for one, most potential borrowers sit through a six-week, 18-hour class on business basics.
In eight years, REDC has loaned out $5.2 million, and its cumulative loss is just 6.4 percent. (The SBA has lost virtually no money on the loans--write-offs so far are one-tenth of 1 percent.) The organization calculates that it has created or saved 1,586 jobs in Richmond. And unlike their forerunners, microloans create jobs that tend to last. A survey by the Aspen Institute found that nearly half of American microborrowers were still in business five years later, a higher share than the SBA reports for small businesses as a whole. Such staying power is remarkable considering that microborrowers are poorer than average (a third live below the poverty line), have lower credit scores, and are mostly minorities. (In Virginia, African Americans borrowed 63 percent of all microloan dollars in 2006 versus just 8 percent of all 7(a) dollars.)
After lunch, Tanner Collins took me on a tour of microlending in nearby Jackson Ward, just west of downtown. This is one of Richmond's oldest neighborhoods--the red-brick row houses date from around the Civil War. In the 20th century it became a financial and cultural center for the black community, and today the streets hum with the effort to resuscitate that heritage. Collins presents himself as a cross between a loan officer and a motivational speaker, with a hint of the evangelical thrown in. "Life is good!" he likes to say. After 14 years as a commercial banker, he came to want more out of his work. At REDC, he said, "our jobs are also our causes. We don't need an alarm clock to get up in the morning."
As we drove, Collins pointed out his clients past and present: a construction company here, an optician there, a developer, an event staffing agency. We pulled up to 111 W. Clay Street, a handsome three-story brick house with Italianate details--segmental arches curve over the windows like eyebrows; lacy wrought iron frames the porch under a gently sloping eave. Derron Carmichael, the proprietor of a salon and clothing boutique on the first floor, was one of Collins's newest clients. Carmichael wanted to buy a building for the enterprise, Collins said as we got out of the car, "but it didn't cash-flow. So what we're trying to do is help now to get the business up and get the numbers right so that he can kind of get to that point." The $35,000 loan--to buy barber chairs and other equipment--closed just a few weeks before.
Inside, Carmichael was cutting a man's hair in the front room while his wife tended to a customer in the back. Business was good, Carmichael said. "We have to hire two new ladies," he said.
