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Nonprofit Goes Extra Step To Open Doors To Startups-The Sacramento Bee

Posted on: June 20, 2004
Nonprofit goes extra step to open doors to startups

Executive Session: Clarence Williams, president of California Capital
By Jon Ortiz -- Bee Staff Writer
Published 2:15 am PDT Sunday, June 20, 2004

Clarence Williams has heard just about every business idea you can imagine.

As president of California Capital since 1988, Williams has loaned money for everything from a horse-drawn carriage tour business to an Internet service startup.

California Capital is a nonprofit Sacramento corporation that supports small business entrepreneurship by offering financing, education and technical assistance to people who cannot access mainstream lenders because of language, education or economic barriers.

The company puts potential lenders and borrowers together through its network of more than 50 banking and business institutions. It has about 120 loan guarantees on its books totaling $9 million.

The company also promotes its own $1,000 to $25,000 "micro loan" program for startups or expansion and sponsors a nine-week finance course.

Williams, who was the state director of small business development under Gov. Jerry Brown, talked with The Bee about entrepreneurship and his company's role.

Q: Over the years that you've been underwriting business loans, what are some common characteristics of people who have succeeded and people who have failed?

A: Look, a lot of people out there have a dream of owning a business. The key is their willingness to take on a certain amount of risk. A lot of people don't understand or appreciate the risk involved.

A lot of people call us up and they have an idea. We call them "I have a dream" phone calls. They say they have a great idea for a great business that they know will work - and they may be right, it may be the next Pet Rock or something like that - but behind any idea is a lot of hard work.

The successful people are willing to stay with it when times get tough. The first time many people hit a rough spot and the dream isn't as clear as it once was - they can't make a payment, cash flow is tight, whatever - they'll cut and run.

There are others who are willing to stick it out, and we're willing to stick it out with them. Those folks will find support and help. They have a tendency to draw more resources and commitment from other people and institutions to help them.

Q: How does the successful small businessperson weather the hard times, especially early in the life of a business?

A: First, they accept the reality that business ownership isn't a 9 to 5 job, that it may be 16 hours, 18 hours a day because you take the worries and stress home with you.

People who think early on that they can just hire someone to run their business, or they have a misconception that everything will go smoothly and that there won't be any bumps, or that business ownership equals getting rich quick, those people have a lot of trouble handling a business.

Q: What criteria does California Capital use to decide whether it will underwrite, say, a $10,000 loan to start a hot dog stand?

A: Well, it's not a science, but it's as close as we can get to it. Obviously, we're a lender and we want to be repaid.

So we look at the classic criteria that most lending institutions look at, but we're willing to be a little more flexible. For example, mainstream lenders look at the borrower's credit score and know that people with a score above 720 have an established good credit history and are likely to repay.

The question becomes whether that misses people with credit scores below 720, and the answer is yes. When we look at the communities we target, we find that their scores are often below 700.

So then we ask what range can we still underwrite them and provide other enhancements to mitigate our risk, even though our risk is obviously greater than the mainstream lenders. We've decided to look at folks with a credit score of 600 for loans of $1,000 and 650 for loans up to $25,000.

We also want people to break down how they're going to use the money, so we want to see a business plan.

We have application and collateral requirements, too. Finally, we take all of it and bring it to our loan committee. The committee has bankers and nonbankers, a wide array of people who kick the tires on each loan application. They sit around the table and argue the merits.

Q: Many of your programs are designed to increase business literacy. To what degree does a person need to know business before coming to you?

A: We're a conduit of information for potential entrepreneurs; that's how we like to think of ourselves. We sponsor forums and classes in conjunction with organizations like Antioch Progressive Church, several lending institutions and government agencies like the SBA (Small Business Administration).

One thing that has been missing from a lot of business schools until recently are courses in entrepreneurship. Most business courses tend to focus on business management; they're designed to train you to enter at midlevel management and then move up.

We're kicking off a business literacy class in conjunction with Golden Gate University on June 21. Adjunct professors and some other folks will be coming in to teach classes all about entrepreneurship. We'll be talking about things like marketing, putting together your business plan, legal issues and business insurance. We're calling the class the Entrepreneurship Academy at Golden Gate, and we're designing it for people who have been in business for themselves for less than two years.

Q: Those early years are key to the life of a business, right?

A: The failure rate for small business is highest during the first five years. That's why we're setting up this course for people in the first two years of entrepreneurship. It helps us to weed out people who had a dream but didn't fully commit to it. It says something if you're able to stick with it for a couple of years.

I want to say this: Everything we do, including this class, is intended to get people to mainstream lending institutions. What you can get from California Capital is just pocket change. We're trying to move people to the bank vault.

Q: Do you see a connection between entrepreneurship and success in other areas, such as homeownership or even interpersonal skills?

A: I think the correlation between business and personal success comes through learning management skills that are common in business and the home.
Everything from bills that you have to pay on time, insurance, liability, reinvestment that you have to make in an asset like a home or business, establishing and maintaining good credit and so forth.

Business ownership can really enhance a person's sense of others, too, that sense of connectedness to people who you depend on to do work and supply goods. Those kinds of lessons carry over from business life to personal life.