Interest Rate Buy-Down Program in Corpus Christi Supports Underserved Entrepreneurs in Need of Capital

September 22, 2017

In the early 2000s, Corpus Christi, Texas – a city of over 300,000 with a poverty rate hovering around 18 percent – was searching for ways to support its entrepreneurial community. The city identified that local business owners struggled to access the traditional sources of capital needed to grow their businesses.

Corpus Christi policymakers knew that supporting business owners was critical for increasing employment and revitalizing the downtown. Local officials aimed to find a banking partner that could offer especially low-interest rates on loans to urban businesses.

LiftFund, a microfinance lender and community development financial institution, had a number of existing programs to serve as a model for Corpus Christi. LiftFund originated in 1994 as Accion Texas, a member office of the Accion U.S. Network (LiftFund spun off as a standalone nonprofit lender in 2015). In 2004, LiftFund was already lending in eighteen cities in Texas but had not yet entered the Corpus Christi market. After a series of conversations, the City of Corpus Christi and LiftFund agreed to an arrangement in which the city would provide funding on an annual basis to buy-down the interest rate on loans offered to local businesses. By doing so, businesses would be able to secure low-cost loans, while mitigating excessive risk for the lender.

Under the program, the City buys down a maximum of seven percent of a loan to bring interest rates as low as 5.5 percent. To qualify for the program, a small business must have previously been denied a loan from a traditional lending institution. In return, for every $50,000 in loans that LiftFund provides to small business, the loan recipient must create at least one new full-time, permanent job. Loan sizes range from $5,000 to $75,000 and can be used in a variety of ways, including starting a new firm, hiring new employees or expanding facilities.

In addition, the City provides LiftFund with supplemental funding to offer technical assistance to business owners who may not be ready to take on debt. For instance, grants of up to $2,500 are available for applicants who do not meet standard underwriting criteria—either because of capacity, cash flow or credit—but who, with a small amount of funding and technical assistance, show potential for future success.

“With the help of the City of Corpus Christi, we [are] able to make a significant impact on local economic development by offering affordable loans, education, training and other support to help small businesses thrive,” explains LiftFund Market Manager Laura Estrada. “Our ultimate goal is to enable area entrepreneurs to help create and sustain jobs. We are proud to continue to work with the City to help give entrepreneurs access to both success and capital.”

So far, it’s proven to be a financing solution that works. In the thirteen years since the Corpus Christi office opened, LiftFund has made more than 720 loans totaling over $10.8 million.

Jennifer Reid is one of those loan recipients. Reid owns Threads, a pre-owned clothing store that was rapidly expanding. Despite the business’s success, Reid struggled to access capital.

“We were outgrowing our space, we outgrew our parking lot,” she says. “So I reached out to LiftFund and they helped me expand the business and move [to a larger location]. LiftFund definitely took the time to get to know me as a person, and as an entrepreneur.” Reid describes how program administrators looked beyond just her financials to see the broader vision she had for the company.

Today, Threads is thriving.

Janine Cox had a similar experience. The Corpus Christi resident wanted to start a personal training business that catered to other moms, but she didn’t have a lengthy credit history or experience as an entrepreneur. “You don’t have the numbers,” the banks told her.

So she approached the LiftFund instead. “They wanted to know about me and what my goals were,” Cox says. After reviewing her business plan, the LiftFund offered Cox a low-interest $6,000 loan to get her business off the ground. Her company, Fitness for Life, has now been in business for more than a year and a half.

These aren’t isolated case studies. Indeed, the impact of this unique buy-down program can be felt throughout the business community and Corpus Christi economy at large.

In April 2016, LiftFund released an Economic and Financial Impact Analysis Report which found that the average loan recipient increases business equity by 22 percent; experiences 73 percent sales growth; and after three loans, increases their take home pay by 44 percent. Independent studies have verified that every dollar loaned through LiftFund leads to over $13 in positive economic impact in the local community.

To date, the program has helped to create hundreds of employment opportunities for local residents. On average, every $50,000 loaned through the program creates six new jobs.

ICIC research on the impact of small business is in line with these findings. Our research has found that the importance of small businesses as a source of jobs is greatest in the inner city, and that a modest increase in the number of employees hired by small businesses can have a remarkable impact on inner city employment.

Now that the LiftFund has gained traction and achieved a track record of success, in Corpus Christi and elsewhere, the organization is looking to modify  its business model slightly to become a self-sustaining organization. Instead of borrowing money to lend, LiftFund is looking to generate its own money to lend. It plans to do so through the creation of its “Dream Fund,” a revolving loan fund launched in August 2017, where 100% of the funds raised in a community stay in that community.

Getting the Dream Fund off the ground in each of the communities it serves won’t be easy, says LiftFund CEO Janie Barrera. It will probably take a few years to build the fund. Still, it’s the kind of effort that’s needed to help break the cycle of inner city poverty.

“There’s that saying that if you give someone a fish, she can eat for a day. Teach her to fish, and she can eat for a lifetime,” says Barrera. “But we want to help people buy the pond, to own something and have equity.”