March 1, 2024

You’re the Boss: Drilling Down: The Impact of a Very Small Loan


A weekly roundup of small-business developments.

This week’s Dashboard roundup of small-business news includes a link to an article about a new program introduced by the New Jersey Department of Labor in partnership with the nonprofit Intersect Fund, a microlender. With loans as small as $500, the program will support small-business development in poor and distressed areas of the state. We decided to contact Rohan Mathew, one of the founders of the Intersect Fund, to learn more. A condensed version of the conversation follows.

When was the Intersect Fund founded?

The Intersect Fund was founded in 2008 and made its first individual loans in 2010. In two years since then, we have made 160 loans totaling more than $290,000.

What’s different about your fund?

Microbusinesses are a big market — there are 25 million in the U.S. — but the microlending industry remains small. We made more loans in our second year of lending than the four other New Jersey microlenders combined. I see our primary competition as credit cards, loan sharks, subprime auto lenders, friends and family, and in many cases inaction — deciding against making an investment to grow the business.

We try to differentiate ourselves with a quick and easy process with few hassles — even if we decline your application, we do it promptly and with dignity — and great customer service. Our borrowers have a single point of contact rather than a 1-800 number, so they are able to develop a relationship.

Our most significant constraints for growth are finding great people to grow our staff and access to affordable capital.

How do you expect to achieve a return on investment on a $500 loan?

Because we are a nonprofit, we are able to consider not only the financial R.O.I. but also the social R.O.I. We also have a very high number of repeat borrowers, so even though the $500 loan may be a loss leader, it can lead to a larger loan which has more favorable economics.

There’s a phrase we’ve coined internally — the just-right-amount loan — which means that we try to put entrepreneurs in a loan amount that’s a good fit for their current situation. Sometimes this means we are only able to accomplish one of a borrower’s goals instead of the 10 she came to us with. We determine our loan amounts with an eye toward not taking on undue risk for the borrower, making sure the loan can be repaid in a short amount of time, and financing the investments that will generate the greatest return for the business.

Once, we made a $350 loan to a seamstress who lived on $800 a month of public assistance along with sporadic business income. Rather than just declining her due to her poor credit history and low income, we found a loan amount that was right for her that allowed her to register her informal business and obtain a secured credit card to purchase supplies.

How do you raise capital?

We have a program for individuals to invest up to $100,000 with us for a minimum term of two years and receive a return of 1 to 3.5 percent. We liken it to a “C.D. with a conscience,” allowing investors to earn a return while knowing their money is doing some good.

Who is your ideal client?

We primarily target existing businesses that are unable to access mainstream financing due to the informal nature of the business, limited or no credit history, or language barriers. Our ideal client is looking for a small amount of money — around $5,000 — for a specific purpose. We target sole proprietors with one or no employees that operate in traditional, bread-and-butter industries — i.e., beauty salons, cleaning services, caterers — that are not capital-intensive or ultracompetitive. These businesses may not grow into million-dollar businesses, but they are more than able to make a good living for the owner.

What is the biggest reason some of your customers fail?

Landlords. We often see entrepreneurs get so infatuated with nice retail spaces in great locations that they end up overpaying. Renting commercial space requires experience and knowledge of the market, so first-time tenants need an adviser to look out for their interests. Sometimes an extra $1,000 to 2,000 a month is the difference between a business making money and losing money.

Do you ever have to sue for payment?

Yes. It doesn’t happen often — 2 percent loss rate — but we are serious about collecting on delinquent loans and will use the courts and repossess collateral if necessary.

Has your business benefited from or been hurt by the slow economy?

The dearth of financing options for small businesses as well as increasing numbers of people that are turning to entrepreneurship has been a boon to our business in recent years. For us, it’s not commercial lending, but rather pullbacks in credit card and auto lending that increase our market opportunity.

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

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Economix: What Health Insurance Does Cover, and Doesn’t

As required by last year’s health reform legislation, the Labor Department has put together a report on employer-sponsored health insurance coverage that shows what benefits are typically covered by these plans. The results, in one chart:

DESCRIPTIONSource: Labor Department, “Selected Medical Benefits: A Report from the Department of Labor to the Department of Health and Human Services”

A service is counted as “covered” whether or not 100 percent of the service is paid for by the insurance plan. The report listed a service as “covered” if the health plan documents specifically mentioned coverage of it (as opposed to not mentioning it, or specifically saying that the service was excluded).

As you can see, having private insurance doesn’t guarantee that the life-saving service you need — like kidney dialysis, or an organ transplant — will be covered at all by your plan. And even some services that would be considered relatively basic by many patients, like regular gynecological exams, are excluded.

It’s important to keep this in mind in discussions about giving more Americans access to “health insurance.”

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