Nusenda Credit Union is taking a leadership position in challenging how businesses access capital by creating an innovative program that widens access to capital to low-income entrepreneurs. A key driver to unlocking economic mobility in communities is access to funding to start and grow a business.
Entrepreneurs that have no collateral, no credit or bad credit, or lack support of alternative financing such as family members, face barrier after barrier in securing capital to start or expand their businesses. If they are approved, they face unfavorable financing terms that further jeopardize their ability to compete in the financial mainstream. This happens for a variety of reasons, but typically results from barriers that limit ability to navigate financial systems, low credit-worthiness, and cultures that downplay calculated risk-taking.
Nusenda is looking to find solutions that will help empower individuals and businesses and create healthy communities and a healthy economy.
Nusenda works with its trusted member organizations, such as associations or co-ops, to create a loan program for its affiliates. This financial program does not rely on the “5 Cs of Credit” (character, capacity, capital, collateral, conditions), but on the trusted relationship between member organizations and their affiliates.
The member organization collateralizes a low interest loan through its credit union deposit account, and the credit union provides the origination, servicing, and positive credit reporting. The member organization makes the determination on whether to make the loan. Credit reports are not required; instead, trusted relationships empower the loan decision and the responsibility to pay back the loan. The product — and the approach to its implementation — challenges the traditional models of lending. The member organization benefits from a stronger affiliate, and the affiliate is able to overcome barriers to business lending.
One example of this program and how it works is the partnership between La Montañita Co-op and Nusenda Credit Union.
A co-op market that has created a fund to provide this assistance to its producer/suppliers that have opportunity to grow. With the assistance of the credit union, this co-op market helps its producer-suppliers grow their own businesses by providing the funds they need for expansion. The credit union reports positive credit for the producer/supplier, the producer/supplier benefits from increased production and sales, and the co-op market can meet consumer demand for the products. It’s a win-win-win.
The Old Windmill Dairy
A Local artisan cheese maker has benefited from this program.
The Old Windmill Dairy is a locally owned and operated artisan goat and cow’s milk cheesemaker located near Estancia, N.M. It has been providing artisan goat and cow’s milk cheeses to La Montañita Co-Op since 2007. While working with the Food Shed Project a few years ago, an initiative that helps farmers and producers get their products to local markets, the organization became aware that Old Windmill Dairy needed to purchase a delivery van to transport its products.
Dairy owners Michael and Ed Lobaugh had approached other traditional lenders for a business loan, but they had found that they did not have the collateral or necessary number of years in business to qualify for a business loan to purchase the van. In addition, typical lenders did not understand the agricultural business they were operating. Working with the LaM FUND, the Lobaughs were able to write a letter explaining what the van would allow them to do and requesting the $28,000 necessary to purchase the van.
Building on the trusted relationship that had been built over the last several years, the funding was approved and the new van was purchased, which included graphic design to put their logo on the side of the van. The van has helped the Lobaughs expand their delivery area and deliver more product to market. Today, they distribute through La Montañita as well as directly to restaurants throughout Albuquerque and Santa Fe. With the colorful graphics on the side of the van, their rolling billboard has also helped increase their business.
The Old Windmill Dairy’s artisan goat and cow’s milk cheeses have won national awards. The dairy also conducts cheese-making classes, and the aged cheeses produced by The Old Windmill Dairy are the first in New Mexico to be aged in a cellar designed specifically to produce the effects of cave-aged hard cheeses.
The interest rate provided to The Old Windmill Dairy was below that of the other sources they had approached, and the LaM Fund has been flexible in working with the dairy to meet its financial needs. The financial support has allowed the dairy to continue to experience double-digit growth each year.
“It can be very challenging for startups and small businesses to access the capital they need to grow their business,” said co-owner Michael Lobaugh. “The LaM Fund provided us the capital we needed at a low interest rate and has the flexibility to work with our business plan. We value the partnership with the fund and appreciate that they understand our business and our business needs.”
Nusenda Credit Union has piloted the approach with two other business loan partners in addition to La Montañita, with great success. The credit union has made more than 200 of these loans, totaling more than $400,000. Among workforce partners, the delinquency rate is less than 1%. Because the member organization approves the loan based on its own deposits and sets the terms, the financial product does not saddle business owners with loans that are beyond the needs or capacity of their affiliate. The product works because it relies on integrity, determination, and trust.
While the idea of micro-assistance is not new, the foresight to offer these loans through member organizations over a lending institution is largely untried in the United States. By leveraging familiar co-ops, associations, unions, and other partners as the “face” of the product, it decreases borrower wariness and increases repayment. As a result, many entrepreneurs feel rewarded for their tenacity and grit. They receive the capital they need to grow their businesses, receive positive credit reporting, and increase their personal income.
By focusing on niche entrepreneurs in member organizations, Co-op Capital combines the best of international micro-assistance (character- and community-based) with the best of the American financial system, thereby increasing the growth and start of businesses in the community that will in turn increase job growth, employment opportunities, and revenue in the community.