Insights from one CDFI’s portfolio
By Frances A. McMorris
Reduced revenues, decreased hours for employees, furloughs and even shuttered doors were just some of the challenges facing small business owners across the country as the COVID-19 pandemic raced through the country last year.
But a recent survey of more than 1,000 small business owners by Pacific Community Ventures (PCV), a national CDFI based in Oakland, provided insight into how community-focused lenders can help keep businesses afloat during crises like the COVID-19 pandemic, as well as what extra help beyond finances small businesses need most. Their annual “State of Small Business” impact report found that many resourceful entrepreneurs managed to survive 2020 and avoid layoffs as much as possible with monetary aid and guidance, particularly around marketing and finances.
Once California began mandating shutdowns and stay-at-home orders, PCV reached out to its small business owners to help them with loans and advice. Some 70% of PCV’s clients received an approximately 6-month postponement on their loans, according to Bulbul Gupta, president & CEO of PCV, giving them crucial time to focus on their businesses during a rapidly changing environment.
Consider Nani Tsegaye. She had taken out a loan from PCV to open her second restaurant — House of Tadu Ethiopian Kitchen — in San Francisco’s Mission Bay neighborhood when COVID-19 hit. Instead of demanding payments, PCV asked what Tsegaye needed and placed those payments on flexible terms. “We didn’t stay too much behind,” she says. “If there were grants, they would tell us to apply.”
As the co-owner of the already established Tadu Ethiopian Kitchen, Tsegaye struggled to keep both establishments open. “It’s a very small business and family-owned and very hands-on,” says Tsegaye, an accountant turned restaurateur. “Sometimes it was just me or one more employee. We were putting in at least 60 hours per week.” Eventually, her strategy was to create an outdoor eating space and switched to takeout and delivery services.
From the survey:
“When COVID hit, demand for [PCV’s] capital grew almost 10,000%. We received 1,945 loan inquiries totaling $172 million. While many investors pulled back and stopped lending entirely in 2020, PCV kept our lending open without interruption, and rapidly responded to our clients by refinancing their loans, providing payment deferments and interest-only payment periods, and helping them plan ahead for extended shutdowns and necessary business pivots.”
Gupta says 87% of PCV’s client portfolio is entrepreneurs who are women and people of color. Investing in those businesses seems to have paid off. Some 4,559 jobs were retained at PCV businesses and 26% created jobs in 2020. While 37% of PCV businesses had to let go of at least one employee due to COVID and there was a 12% year-over-year median revenue drop, that compared favorably to an average revenue plunge of 72% for non-PCV restaurants and a more than 52% drop for other types of small businesses. Additionally, only 26% of PCV clients had to close their business temporarily compared to 60% of non-PCV businesses.
General marketing and online marketing, are the two biggest areas for which small business owners in the PCV portfolio seek help, says Patrick Duggan, PCV’s marketing and communications director. After that, it’s finance, as many small businesses don’t have an on-staff financial advisor or bookkeeper.
“When they apply for loans and federal assistance, many don’t have the basic documents that lenders need, like a profit and loss statement,” Duggan says. “Giving someone an advisor who they can work with to set up P&Ls — that goes a long way.”
Business coaching and advice continue to be essential for small business owner clients, especially when it comes to getting Paycheck Protection Program (PPP) funds and other grants. “Being an entrepreneur can be isolating,” Gupta says. “We have had so many entrepreneurs say to us over and over and over again: having a mentor in your corner, just one-on-one coaching, is so valuable.”
This story is part of our series, CDFI Futures, which explores the community development finance industry through the lenses of equity, public policy and inclusive community development. The series is developed in partnership with Next City.