California small business loans paid down with swipe of credit card

150 150 Alexandra Bjerg

EasyPay program limits interest to 12% annual for small businesses. (Photo Credit: Alan Levine/Flickr)

One nonprofit lender is helping small businesses repay loans one credit card swipe at a time.

Limited access to capital is one of the greatest obstacles faced by small business owners and entrepreneurs in starting and growing a business. Access to affordable financial capital can mean the difference between success and failure.

Unfortunately, as a result of the financial crisis, banks have pulled back from offering just about any kind of loan, especially those less than $250,000. Community Development Financial Institutions (CDFIs) like Opportunity Fund, California’s largest non-profit microlender, are stepping up to fill gaps in the credit market with particular focus on underserved or low-income communities.

“Too often, underserved entrepreneurs only have access to predatory financing options that are asset-stripping rather than asset-building,” said Marco Lucioni, director of lending at Opportunity Fund.

What if small business owners qualified for loans based on credit and debit card sales rather than credit histories? What if loan payments were tied to revenue? Well, Opportunity Fund, the San Jose-based nonprofit, launched a micro-lending tool, EasyPay,   

“EasyPay is tied to a small business owner’s cash flow,” said Lucioni. “Unlike a traditional loan, which requires a small business to make the same loan payment at the same time each month, EasyPay collects repayment only when a credit or debit card is swiped. This way, the loan repayment is always affordable.”

On big sales days merchants pay off more of their loans, on slow days they pay less.

“We call it EasyPay because you don’t even realize you’re paying; you don’t write a check every month, it comes straight out of your credit card sales,” said Opportunity Fund’s Chief Executive Officer, Eric Weaver. “We’ve taken the concept of the merchant advance and turned it into a real loan.”

Merchant advances are a relatively new credit product that also collect repayment as a percentage of daily credit or debit card sales. Since they’re designed to not qualify as a loan, they operate in unregulated markets. Providers are neither required to report to credit bureaus nor bound by usury laws, which often results in exorbitant interest rates in excess of 104 percent.

By contrast, EasyPay offers loans with a fixed annual interest rate of just 12 percent.

Because repayment is automatic, Opportunity Fund reports to the credit bureaus that borrowers are paying installments on time, allowing small business owners to build good credit which is vital to qualifying for future loans.

“It’s really a revolutionary loan product for small businesses,” said Weaver. Borrowers, like David Manzo, owner of Mirna’s Market variety store in Los Angeles, seem to agree.

Although Manzo was initially hesitant to take out a loan, worried about the seasonal nature of his business combined with high interest rates, he says switching to EasyPay is one of the best things he’s ever done for his business.

“The payments are always affordable,” said Manzo.”I almost forget about the loan because I repay it automatically!”

Weaver, whose team has been rolling out the loan product across the state, hopes to eventually be able to provide other CDFIs with the technology needed to replicate the model.

These tiny loans can have a big impact. Micro businesses, firms employing 10 people or less, account for more than 95 percent of all small businesses in the nation. Over the last few years, the small business sector has emerged as the only net job creator. Yet these business owners have found it increasingly difficult to acquire the capital necessary to maintain and expand their business.

“We are lending to small businesses that are shut out without us,” said Weaver.

Small businesses are a vital component of the California economy, and like all businesses, they require reliable access to working capital to survive. To ensure that California maintains the robust small business sector so essential to any vibrant economy, the state needs to put into action ways to remove barriers to capital, as laid out on the Economic Summit’s SMART Capital Access progress page.

“Technology is often seen as something that is leading to globalization and outsourcing, but there are some potential bright spots offered by technological advances that can benefit the little guy,” said Weaver. “EasyPay is a great example of how technology can be harnessed for a positive use to help small businesses in low income communities.”


Alexandra Bjerg

All stories by: Alexandra Bjerg