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create / 2014

Support LA’s celebrated food truck culture by helping food truck entrepreneurs grow and create jobs

Support LA’s celebrated food truck culture by helping food truck entrepreneurs grow and create jobs

Idea submitted in the My LA2050 Maker Challenge by Opportunity Fund

#Microfinance creating #jobs in LA by funding #foodtrucks! Each loan creates new jobs. So cool, @OpportunityFund!

Please describe yourself.

Collaboration (partners are signed up and ready to hit the ground running!)

In one sentence, please describe your idea or project.

Which area(s) of LA does your project benefit?

  • Central LA
  • East LA
  • South LA
  • San Gabriel Valley
  • San Fernando Valley
  • South Bay
  • Westside

What is your idea/project in more detail?

Opportunity Fund’s Food Truck Financing initiative will provide microloans to mobile food vendors throughout LA County, supporting economic and social vitality by creating jobs and bringing healthy food options to underserved communities across the region. Our goal is to provide $2M in microloans to local food truck entrepreneurs to upgrade or purchase food trucks (as part of our overall goal to invest $9M in 600 underserved small business owners in the region). By enabling low-income food truck entrepreneurs to access the capital and support they need to grow and create jobs, our microlending program drives economic mobility for these small business owners, while also generating demand to support local food truck manufacturers.

What will you do to implement this idea/project?

As California’s largest nonprofit microlender, Opportunity Fund provides loans of $2,500 to $100,000 at affordable, fixed interest rates to small business owners with small capital needs and imperfect credit so they can build an enterprise, support their families, and create jobs. The mobile food industry offers low-income entrepreneurs—especially minorities and women—a way to support their families and build financial independence. Yet many of these small business owners cannot qualify for a bank loan to purchase food carts or trucks, or to pay for upgrades and replacement equipment. Opportunity Fund seeks to fill this gap by offering food truck vendors access to affordable, appropriate capital through our Food Truck Financing initiative.

As with all of our microloans, Opportunity Fund’s food truck loans offer a fast, streamlined application process; flexible underwriting criteria and collateral requirements; and client-driven business advising designed to meet the needs of low-income entrepreneurs. Our relationship-based lending model removes barriers to credit that many of our borrowers face when declined by banks, including limited credit history, low net worth, inadequate time in business, lack of collateral, and small financing needs. By partnering with food truck manufacturers, we are not only helping food truck entrepreneurs create and sustain jobs; we are also increasing demand for food trucks and helping to create and sustain employment for local manufacturers.

As part of the loan process, Opportunity Fund provides individualized business advising for borrowers to address issues which underpin the viability and growth of their businesses: marketing, financial controls, diversifying a client base, and more. Pre-loan advising is incorporated into the initial application screening and underwriting session with clients, including assistance with financials, credit repair referrals, etc. Our loan officers and business advisers also provide client-driven, post-loan support addressing issues such as marketing, cash flow management, and inventory through phone calls, in-person meetings, and site visits.

How will your idea/project help make LA the best place to CREATE today? In 2050?

Opportunity Fund seeks to scale our microlending program in LA’s underserved communities to support more than 600 small business owners, including 80 food truck entrepreneurs, each year. In the coming year, we will:
 Invest $9M in small businesses in undercapitalized neighborhoods in LA, including $2M in food truck loans.  Create or retain more than 1,600 jobs, primarily in minority-owned and women-owned businesses, including 250+ jobs in the mobile food industry.  Generate $15 million in new annual economic activity in LA through new spending, wages, and tax revenues.

Opportunity Fund’s borrowers have an impressive 90% business survival rate. Our financing and support help them increase business revenues by an average of more than 20%, while creating and sustaining 2.7 jobs per loan. This includes clients like Noel, who came to the U.S. several years ago with a dream to build a better future for his family. He started out working several low-wage jobs, but knew it would take more to reach his goals. Like many low-wage workers facing few options for good employment, Noel decided to start his own business. He began with a produce cart, and was quickly ready to expand. When Noel came to Opportunity Fund’s partner, Kareem’s Carts, to buy a food truck, he didn’t know how he would finance the purchase. Kareem referred Noel to Opportunity Fund, and we provided a $50,000 loan to fund the purchase. Today, with a second Opportunity Fund loan, Noel has grown his business—The Little Machin—to two food trucks and six employees. Noel’s family helps run the business, which serves authentic Mexican food using his mother’s recipes and high quality ingredients. “Building and growing a business is very difficult, but Opportunity Fund believed in me. They really care about the success of my business,” says Noel. “I want to teach my children how to run a family business. We are all part of the success.”

Opportunity Fund has a vision that by 2050 every food truck entrepreneur—and every other small business owner in LA—can access the financing and support needed to realize his or her full potential to build a vibrant enterprise, increase household income, create jobs, and support a family and a future. By scaling microlending in LA, Opportunity Fund will help many thousands of entrepreneurs access hundreds of millions of dollars in microloans by 2050—supporting job creation at significant scale while driving economic growth in the communities that need it most.

Whom will your project benefit?

Working families in Los Angeles face the challenges of managing insufficient money, finding affordable housing, raising healthy families, and preparing for the future. Nearly half of LA’s households do not earn enough to meet basic expenses. The region lacks adequate well-paying jobs in growth sectors. For many households, entrepreneurship is a primary route to financial stability. Small business ownership creates opportunities for low-income families to pursue stability and economic mobility, while creating jobs in their communities. Research has shown that if one in three microenterprises hired an additional person, the U.S. would return to full employment; if every microbusiness generated $5,000 more annually, this would add $20B to the economy. Mobile food trucks provide a unique opportunity for all types of individuals to create gainful and lasting employment for themselves, their family members, and their communities. Yet only 50% of small businesses survive, often due to an inability to access the capital they need to grow because of language and cultural barriers, limited assets, low capital needs, and poor/insufficient credit.

The mainstream financial industry offers little to help small businesses access the capital they need to grow and thrive, especially in places like East LA, Boyle Heights, and Downtown. As a nonprofit, mission driven, financial institution, Opportunity Fund targets entrepreneurs who operate their businesses (and, in many cases, live their lives) outside the financial mainstream. Our strategy reaches out across neighborhoods, languages, and cultures; as a result, our client base reflects the region’s racial and ethnic diversity. Our borrowers in LA are 98% minority, and 40% are women. Our microloan clients have a median income of $24,000 and an average credit score of less than 600.

Please identify any partners or collaborators who will work with you on this project.

LA’s food truck culture supports thousands of jobs through a symbiotic relationship between manufacturers, vendors, and residents who love street food. By providing financing to help food truck entrepreneurs start and grow mobile food businesses in LA, Opportunity Fund serves as an engine to drive growth in the industry. We have established strong collaborations with Los Angeles’ largest mobile food truck manufacturers—including Kareem Carts, West Coast Catering Trucks, and Polo’s Mobile Catering Trucks—who refer aspiring and current food truck owners to Opportunity Fund when they need financing for new or upgraded equipment. Together with these partners, we provide the equipment and financing necessary for these small business owners to grow their enterprises and realize their dreams.

When we provide a microloan to fill the financing gap for a food truck entrepreneur, Opportunity Fund also creates demand for a new food truck—supporting scores of local manufacturing jobs for people like Rocio, who is one of 23 people employed at Kareem Carts. Through our food truck financing, we foster entrepreneurship within LA’s underserved populations, support local manufacturing jobs, and create new employment opportunities for the region’s diverse and talented workforce. Opportunity Fund and our manufacturing partners are committed to expanding our impact through increased loan volume in the coming year.

In addition to our unique collaboration with local food truck manufacturers, Opportunity Fund also partners with local bank branches, business services providers, and community organizations to identify small business owners who need access to financing.

How will your project impact the LA2050 “Create” metrics?

  • Concentration of manufacturing activity in LA
  • Jobs per capita
  • Minority- and women-owned firms

Please elaborate on how your project will impact the above metrics.

Each Opportunity Fund loan creates and sustains an average of 2.7 jobs. Our goal of providing 600 loans in Los Angeles in the next year means that we will help create and sustain more than 1,600 jobs in the region, and our 80 loans to food truck entrepreneurs will drive demand for food trucks, helping to create and sustain employment for local manufacturers. Opportunity Fund’s small business owners in Los Angeles are 98% minority, and 40% are women.

Please explain how you will evaluate your project.

Opportunity Fund uses a variety of performance indicators to measure the success of our microloans and our small business clients. In the short term, we track the number of applicants and number, dollar volume, and type of loans originated, as well as client characteristics such as income, ethnicity, gender, credit score, household size, type of business, sales, and number of employees.

Over time, we measure the impact of our loans by tracking changes in our borrower’s household income; growth of business sales and income; job creation; and business survival rates. We also gather data related to client satisfaction and confidence in running their business as a result of Opportunity Fund’s microlending and advising support. This data is collected using MicroTracker, a performance evaluation tool developed by the Aspen Institute and used by the nation’s leading microenterprise organizations. Data on these outcomes is measured starting two years after the loan is made, and is collected through phone surveys and tax returns.

In addition to outcome and impact evaluation, Opportunity Fund uses internal measures to gauge our program effectiveness. We track staff time, marketing expenses, operating costs, loan capital, fundraising capacity, and donated services required to operate the program. We measure all phases of the loan pipeline—from inquiry through application to loan approval, decline, or withdrawal—and track the number of inquiries by source, conversion rate, and outcome to determine which sales channels are most effective. As a lender, Opportunity Fund closely monitors our outstanding loan portfolio as an indicator of program performance, and periodically reviews our underwriting guidelines if necessary. This data enables continuous improvement to the program’s efficiency and impact, and ultimately enables Opportunity Fund to serve more clients—and with greater impact—in the future.

What two lessons have informed your solution or project?

Small businesses are the engine of the U.S. economy, making up 64% of new private sector jobs. Despite being critical to the country’s economic health, 8,000 small businesses are denied loans every day. As mentioned above, only 50% of small businesses survive, often due to the inability to access the financing they need to grow their business.

Since 1994, Opportunity Fund has originated nearly 5,000 loans, totaling more than $65 million, to disadvantaged small business owners in California’s largest urban centers. Our 20-year track record demonstrates the positive difference microloans can make in the economic vitality of underserved communities. Opportunity Fund borrowers have a 90% business survival rate, and each loan creates or sustains an average of 2.7 jobs. Additionally, an independent study found that our small business borrowers create a “ripple effect” as their loan dollars flow through the local economy: every $1 we lend out generates almost $2 in new annual economic activity in neglected communities through new spending, wages, and tax revenue. This increased economic activity translates into greater opportunity at the household level, where improved financial stability is a key driver of economic mobility.

In supporting the development of small businesses in California over the past 20 years, Opportunity Fund has seen first-hand how food truck ownership can create a path to stability and opportunity for individuals who lack other good employment options. At the same time, by supporting demand for food truck equipment, investing in food truck entrepreneurs also helps secure local manufacturing jobs. Yet many aspiring or existing food truck owners cannot obtain the financing they need to purchase food carts or trucks, or to pay for upgrades and replacement equipment. As the largest financer of mobile food trucks in California, Opportunity Fund is committed to filling the financing gap and supporting the expansion of this critical local industry.

Explain how implementing your project within the next twelve months is an achievable goal.

Opportunity Fund is a not-for-profit financial institution that advances the economic well-being of working families in California by helping them earn, save, and invest in the future. We are recognized as a thought leader in microfinance, with a track record of community impact and a reputation for innovation. We made our first microloan in Los Angeles in 2010. Since then, the number of loans we have originated in the County has grown from 45 per year to more than 400 per year. In that time, Opportunity Fund has also become California’s largest microlender and one of the fastest growing in the U.S. (we invested more than $27M in 1,425 small businesses over the past year). We have made aggressive investments in the talent and technology it takes to fill the financing gap faced by underserved entrepreneurs in the LA region and are well-positioned to meet our goal to provide loans to 600 small business owners in Los Angeles, including 80 loans to food truck entrepreneurs, this year.

Please list at least two major barriers/challenges you anticipate. What is your strategy for ensuring a successful implementation?

Obstacles such as language barriers and insufficient credit mean that many low-income small business owners operate outside of the financial mainstream, making them hard for Opportunity Fund to reach even as we offer the financial products they need to grow. We have built a multi-lingual team with strong connections to local communities to help us reach and serve this target population. In addition, we have focused on building referral partnerships with banks and business services providers, like Kareem Carts, who can help us identify entrepreneurs who lack nothing but the financing they need to succeed.

The fast-changing landscape for small business financing—especially the growth in merchant cash advances—represents a new challenge for Opportunity Fund and our borrowers. Cash advances are offered by unregulated, non-bank companies that offer quick money, but often at a very high cost. These alternative financing products ensure repayment by taking a fixed portion of up to 50% of every credit/debit card sale—with annualized interest rates reaching 170%. Because the portion of daily sales surrendered is so high, these alternative financing products can choke a business of cash necessary to survive. In response to this challenge, Opportunity Fund launched our EasyPay loan product, which enables borrowers to base their loan repayment on their actual credit/debit card revenue by “splitting” a small, fixed percentage of each card transaction toward loan payments. Opportunity Fund specifically targets small business owners with high-interest merchant cash advances to offer help by refinancing them into a business-friendly EasyPay loan. This enables businesses to boost cash flow in the short term, and increases the likelihood of profitability and long-term success. By reporting repayment to the credit bureaus, EasyPay borrowers also build credit, better positioning them for favorable credit terms in the future.

What resources does your project need?

  • Network/relationship support
  • Money (financial capital)
  • Publicity/awareness (social capital)
  • Community outreach