After nearly running out of money in its small-business loan funds last month, Valley Economic Development Center Inc. of Van Nuys says it is getting $16 million to enable it to continue to lend to Southern California firms caught in the stubborn credit crunch.
Most of the money -- $15 million -- is coming from the city of Los Angeles. Last week, Merrill Lynch & Co. said it would supply the group with $1 million.
Center President Roberto Barragan said he also was working with two major banks to secure capital: Wells Fargo & Co., to set up a $1-million loan fund for local firms, and Bank of America Corp., on a national micro-enterprise initiative.
"Most economists say recovery and new job creation are going to come out of small and microbusinesses, not large companies, so our ability to feed that with dollars and capital becomes extremely important," said Barragan, whose organization aims to create jobs by consulting with, training and financing local businesses.
The city funds, in the works since last spring and approved in December, will be used to make business loans of $100,000 to $400,000. The city borrowed money from the federal government, including additional money to set up a reserve to cover loans that may go bad. Barragan expects to begin lending the new money by the end of the month and to have lent as much as $10 million by year-end.
The Merrill Lynch funds are meant for microloans of $5,000 to $50,000, he said. Half the $1 million has already been tapped for loans. Merrill Lynch also gave the center a $50,000 grant to create a streamlined, computer-based loan approval process it hopes other microlenders can copy. The money will also pay for a new loan officer in the center's downtown L.A. office.
In addition to running its own loan funds, which are often set up by banks or other lenders in part to meet their federal community reinvestment requirements, the center is a middleman for Small Business Administration loan programs. It funnels potential business borrowers to bank and nonbank lenders that make loans that are partially guaranteed by the SBA.
Demand for all loans has soared in recent months at the center, eventually using all the money available in several of its loan funds.
Although the souring economy has driven some of the demand as struggling small-business owners try to borrow capital, demand also has been fueled by new restrictions on a popular SBA loan program geared to loans under $35,000, Barragan said.
