CAMEO’s Carrot Fund: Loans to Lenders

The California Association of Microenterprise Opportunity (CAMEO)

received funding from Capital One to create the Carrot Fund, which offers loans to Community Development Financial Institutions (CDFIs).

CAMEO hired me to design and implement the program, which is in the process of closing its first loan to Mission Community Loan Fund, aka Adelante Fund.

The Carrot Fund offers loans up to $200,000 to CDFIs offering microloans to underserved communities throughout California.

It’s been an exciting challenge to create underwriting criteria, application analysis and loan processing and servicing procedures. We are looking forward to entertaining more applications from community lenders so they can expand their reach to support business development.

Nonprofit Financial Management

Dot Org Concept Letterpress Leather ThemeOver the course of the year, I’ve worked with a nonprofit organization on financial management.  The organization had experienced some losses, the board had not been exercising proper oversight and the cash flow looked precarious.

The first step was diagnosing the problem.  The organization had many contracts where the funds and activities had to be kept separate, making it very hard (impossible really) to allocate costs without violating one contract or the other.  These were government funding sources requiring high levels of documentation, reporting and auditing.

In addition, there had been poor bookkeeping practices, incomplete financial statement understanding, insufficient reporting to the board, improper use of a line of credit and lack of tools to stay on top of the situation.

We got the board engaged by providing information that identified issues and suggested some steps going forward.  While this sounds like just a typical business discussion, it was quite personal as board and management had to come to grips with a challenging situation and have some difficult conversations.

We then sorted out which funding sources were worth keeping and which were not, even though it meant shrinking the organization a bit.  This relieved nightmarish cost allocation and conflicting program directives, and simplified the financial picture.

There were many steps along the way, some of which were:

  • Establish 12-month budget by funder
  • Anticipate cash flow needs using 15-month cash flow projection
  • Use the line of credit to float receivables only, not to compensate for revenue shortfalls
  • Assign expenditures to a funder class at the time the expense is entered into QuickBooks
  • In the future, identify cash flow impact of any grant/contract opportunity before accepting it

Recently we created a worksheet that identified the four reports the board wants to see, established analysis questions for each report and determined actions that would be taken based on that analysis.

Four financial reports are a lot to digest, but the board is committed to better monitoring and want full information for the time being.  In the future, as the board grows, I suggested developing a dashboard with key indicators as the main financial management document.  Dashboards work far better for most board members than a stack of budgets, balance sheets and revenue and expense reports.

The organization is much more stable at this point and is continuing to implement, bit by bit, improved financial management practices.

Small Business Valuation

valuationSmall Business Valuation

Lately I’ve been consulting with people on selling their businesses. The first challenge is facing the realities of business valuation. Entrepreneurs love their businesses and have invested plenty of sweat equity. Their “baby” — so goes their rose-colored thinking — is worth, well, a lot.

While that commitment and love made the business work, the true value of the business, for the most part, is based on hard financial facts. This can be a tough reality to digest for entrepreneurs.

Of course, there are several ways to value a business, but for many very small businesses the fancier models often don’t apply. Here’s a thumbnail approach to getting in the ball park of your business’ value:

  1. Add up what you paid for any existing/remaining inventory.
  2. Establish the current market value of business equipment.
  3. Get an appraisal for any real estate that is part of the business.
  4. Take your net profit from the past year, and multiply by two.
  5. Add items 1-4 together.

This basic valuation adds up to a number that disappoints most business owners.

So here is my advice: If you are going to sell the business to someone who must finance the purchase, you are better off using a pricing technique close to the method above. The loan payments must be paid out of business cash flow, and if you’ve overpriced that revenue stream, the business ends up in the red. If you have financed the purchase yourself, (as buyers without substantial assets won’t qualify for a bank loan) you could end up with a default on your hands.

You can sell your business for more than it is financially worth when you sell to someone who has cash for the purchase. Then there is no debt service in the business’ monthly expenses to jeopardize cash flow for operations. Rather odd advice, but I’ve seen it work.

Nolo Press has a great book, the Complete Guide to Selling a Business, that I’d recommend. It has more discussion on business valuation, along with many other topics. Although it recommends, as I would, consulting with professionals to help you, Nolo is all about do-it-yourself and this is a great guide to see you through.


Spark Lending Platform

sparkSpark Lending Platform

I’ve had several meetings with Nick Elders, Vice President of Technology Solutions and Services at Community Reinvestment Fund about their online small business lending platform, Spark. It allows CDFIs to improve their lending process efficiency, save money and increase volume while maintaining internal control of underwriting. 

Spark is cloud-based, and offers both borrower-facing and lender-facing portals, allowing 24/7 access. A potential borrower can create an account to complete an application, upload supporting documents, check the status of their applications and communicate with their lending officer.

Spark has built-in underwriting guidelines for SBA loan products and can customize modules for your organization’s specific loan programs. It also comes with portfolio reporting, underwriting summaries and disbursement management.

I’m hoping to lure Nick out to California in early 2017 to present Spark to the California CDFI network.

It is important for community lenders to adopt lending technology: borrowers have come to expect ease, speed, and mobile-access in all things. By evolving with the online environment, CDFIs better serve their communities and protect vulnerable entrepreneurs from usurious lenders.


crowdfundConverts Social Capital into Currency

Crowdfunding is an option for small business owners who have clients with a large, engaged online networks, but who can’t access bank loans to launch or grow their businesses.

If you think Crowdfunding’s time has come and gone, think again. Crowdfunding has grown from $1.5 billion in 2011 to $34 billion in 2015. What does crowdfunding offer in addition to capital? “Proof of concept, customer development and buy-in, product research, and leverage for other types of capital,” says Kathleen Minogue, owner of Crowdfund Better. A 2016 SBA report found a causal relationship between crowdfunding success and ability to access additional financing, build partnerships, create a strong customer base and find employees.

What are some of the keys to successful crowdfunding? The business owner needs a team and a coach to help plan and implement a campaign. Second, it’s all about the network, not money. And this network needs to be cultivated online — especially for post baby-boom markets — through social media, email and bloggers.

Crowdfunding is a means to build trust and goodwill with customers via digital platforms, thus requiring both old-fashion marketing know-how along with savvy about the current social media environment. Transparency and authenticity win the day, when coupled with daily action plan for promoting the campaign.

The Local Crowd, which creates local crowdfunding ecosystems, is soliciting applications for a rural crowdfunding project, with applications due February 1, 2017.


Local Investing


Local Investing

Here is a great story from Mendocino County – social impact lending using a Direct Public Offering (DPO) in which an investment opportunity is offered and sold directly to the public.

Mathew and Sarah Gilbert, owners of Mendocino Wool and Fiber, are long-time sheep shearers who wanted to start a local mill to make use of wool they see going to waste year after year. They worked with the Economic Development and Financing Corporation to raise funds for equipment and working capital.

Executive Director of Economic Development Finance Corporation, issued a DPO used to fund Mendocino Wool and Fiber, raising $350,000 from 88 investors who invested, on average, $3,954 each. The company pays 5% interest and the investors receive a 2% return on their money over six years.

In addition to structuring and issuing the DPO, EDFC led the fundraising effort, by reaching out to the community to find those 88 investors. While many investors put up funds because they are excited by the project and feel a personal connection to the owners, many also see direct relationship-driven investing as a way to direct their money away from Wall Street and into Main Street.

Cutting Edge Capital, who worked with EDFC on their DPO, helps social ventures and their partners navigate the securities law to raise capital from non-wealthy investors through development of offering memorandums, an online lending platform, and other services.

The much-anticipated federal regulations for JOBs Act intended to make crowd-funded capital more accessible, but have yet to deliver. In the meantime, the exemption allowing for DPO’s in the 1933 Securities Act are still a viable crowd funding mechanism.

Oregon has passed legislation to allow Community Public Offerings that significantly reduce the costs and allow investors to interact directly with the business. According to Cutting Edge Capital, “The Oregon CPO, which was championed by Amy Pearl and Hatch Innovation, was designed to be a community capital raising tool, and companies are encouraged, not discouraged, from raising those funds directly from their communities via meet-ups that allow people to look the CEOs in the eye.”

Opportunity Fund


Opportunity Fund LogoOpportunity Fund, a CDFI based in San Jose that I’ve had the pleasure of working with on several projects, is impressive.

  • They closed 1,500 loans last year, adding up to $14.6 million.
  • To date, they have lent $66 million to 8,000 clients who have a median income of $22,000.
  • They close about 55 deals per staff per year at a cost of $3,600 per loan, with little automation for risk assessment or underwriting.
  • They serve all of California, with offices in Los Angeles and San Jose.
  • Their loan consultants are mostly home-based and spend 75% of their time in the field, finding deals and working with potential borrowers.
  • They are competing with the merchant cash advance (MCA) industry with their Easy Pay loan product, which, unlike a MCA, is structured to support business success.
  • In the next five years, they plan to invest in $100 million microloans.


They achieve these results, in part, with their commitment to a sales culture. Twenty-five to forty percent of loan consultant compensation is tied to loan closings and portfolio performance. Opportunity Fund intentionally hires staff with a sales background and mentality. “We use incentive compOpportunity Fundensation to promote sales,” said Eric Weaver, Opportunity Fund CEO. “Few people will be high producers without financial incentives.”

Their goal is to reach out to as many borrowers as possible. “We strive to bring working capital to working people,” said Marco Lucioni, OF’s Vice President of Lending. “We achieve impact through scale.”

OF is competing with many online lenders and want to appear as an attractive business alternative, with all the speed and ease the MCAs offer. Check out Opportunity Fund’s study, Unaffordable and Unsustainable, on the danger MCAs present to small business.

Training the Business Trainers

PDC Logo

Portland Development Commission

Using CDBG funds, the Portland Development Commission (PDC) runs a business development program for low and moderate incomes residents.  To deliver services they contract with about a dozen organizations that work with youth, Native Americans, immigrants, Latinos, child care businesses and more.

They hired me to provide financial management training to their business advisor team – training the trainers.  A needs assessment of their business advisors revealed that they all struggle to get business owners to be motivated and the take time to do basic bookkeeping, much less financial analysis.

We addressed this issue through shifting resistance training; learning how to build trust; developing better communication skills; and reviewing adult learning processes.  I built in several practice sessions, case studies and small group breakout sessions.

The second part of the training focused on a microenterprise financial management tool kit:  assessment; pros and cons of bookkeeping tools like Xero and QuickBooks; how to get to quality financial statements; Profit and Loss statements with trend and margin analysis; pricing strategies; cashflow projections and creating a financial dashboard.

The PDC’s mission is to create one of the world’s most desirable and equitable cities by investing in job creation, innovation and economic opportunity throughout Portland.  It’s wonderful that they include microenterprise development as one element of their vision.

Authentic Communication

As my blog posts and client lists attest to, most of my consulting practice revolves around small business and community development.

I was at a board retreat last month and mentioned that I enjoy designing and facilitating authentic communication processes. One of the board members came up to me at the break and asked me about my communication services to help with staff team building.

I love doing this work, and want to include it in my professional offerings.

I have a long history in communication facilitation, consent decision making and authentic circle processes. I am a trained facilitator in M. Scott Peck’s Community Building Process as well as Girls Circle process. I’ve participated in Wings seminars, Leonard Jacobson retreats and Graceful Warrior weekends. I’ve made a study of sociocracy consent decision making.

I use some of these skills when I facilitate business groups, as well as in small groups that have nothing to do with business development: my local food sustainability project (Grub Club), the community garden in Mt. Shasta and women’s circles.

These methods are a means to bring more authenticity, humanity and equality to a group, while at the same time asking participants to own their participation, expression and feelings. They are a path to community, where people feel more connected, seen and alive.

All of this can be brought into the workplace to enrich and strengthen any project, business or organization. Call me to discuss bringing this to your team.

More Flawless Consulting

I participated in a Peter Block webinar based on his book, Flawless Consulting. As I’ve written in a previous post, his authentic-communication-with-compassion approach is refreshing. Here are some of the highlights.

Get clear with clients on your role as a consultant: expert, collaborator or pair of hands.

There are three tiers of business communication in identifying the issue and framing the project: listen, acknowledge what you heard and offer support.

Get clear on all the client’s needs for the project and state your needs, as consultant, as well.

Come right out and ask about doubts upfront: What doubts do you have about the project or working with me? What can we do to alleviate the doubts?

Bring transparency to underlying emotions disguised as resistance by naming it, not interpreting it. Just name the behavior as neutrally as possible. The words confront, but the tone supports.