ILWACO — Craft3 continues to evolve into a regional lender with six offices mostly west of the Cascades and a Spokane location planned for the first quarter of 2015.
The nonprofit community development financial institution also expects to open two additional offices in the next 18 to 24 months, said David Oser, chief financial officer.
They have made not any concrete decisions about where the next offices will be located, but possibly in Central Washington and Southwest Oregon.
“What we’re looking for is what we call the rural economic centers,” he said.
The company is not willing to give up its rural business despite its metro offices in Portland and Seattle. Many people make a distinction between rural and urban economies, Oser said. Craft3 seeks businesses that make connections between the two.
Those urban offices do a lot of energy efficiency lending for individuals and businesses as well, Oser said.
Much of the funding comes from grants, some from loans, he said. Most loans for individuals are in the $12,000 to $15,000 range, but they can go up to $30,000. It depends on the type of work done.
They’re low-interest loans and not based on home equity. Craft3’s been participating in the program for four or five years and has loaned about $30 million, Oser said.
The bulk of the organization’s lending in terms of dollars goes to businesses that don’t fit into traditional lending models, Oser noted. He said Craft3 offers banks an option for business customers who don’t qualify for traditional loans. Craft3 can sometimes make the loans, but because it doesn’t have deposit accounts, it doesn’t compete with the referring banks.
“And with us, after a few years, they can ‘graduate’ to you for lending,” he said. “Everybody wins in that situation.”
Traditional lenders can be especially tough on startups, he said. The bank is looking backward at what you have done.
“We’re going to look at your history, of course, but we want to look at your history as informing your projections,” he said. “What do you expect to be able to do over the next couple of years? And that’s how we do our analysis, because that’s how we’re going to get repaid, is from what happens in the future, so we really need to understand that.”
It ends up being responsible debt at reasonable rates, he added.
“The point is not just to make money from a particular loan, but to create a success for the borrower and for the community where they’re operating,” Oser said.
The organization works closely with borrowers, he said.
Craft3 worked with a startup brewery that wanted to put in a pub. They knew brewing but didn’t know restaurants.
“We went back with them several times and made changes to the loan and allowed them the space they needed to get on their feet, and they got on their feet,” he said. “And that kind of business, they’re slower in the winter than they are in the summer, so we’re working with them so our repayment can match their cash flow.”
It’s the kind of advantage an unregulated lender has over a regulated institution such as a bank. Banks insured by the Federal Deposit Insurance Corporation are subject to strict lending regulations.
“We are not regulated because we are not a depository,” he said. “Our funding comes from large banks, it comes from foundations, there’s some individual funding, religious orders — a whole variety of different funding sources, but all of them have one thing in common: They are lending money or granting money to us.”
They understand the risks and they understand the company’s mission, he said. They know insolvency is a possibility, although Craft3 has never missed a payment.
Craft3 also sees a growing market in the “formerly banked.” These are businesses that wouldn’t have had trouble getting a loan before the Great Recession but now find traditional funding unavailable to them, most likely due to new regulations.
The company has an established contractor in the Seattle area that had two or three rough years during the recession. His bank declined to extend a line of credit as it had in the past and demanded payment of outstanding debts.
“That story’s repeated over and over,” Oser said.
Craft3 recently celebrated its 20th anniversary. Nonetheless, the company struggles for name recognition.
“Even here when we’ve been established for two decades we’re not the first thing that people think of,” he said. “We don’t have the advertising budget.”
The company relies on relationships with accountants, lawyers, bankers and others to get the word out.
Craft3 also gets the word out using its own website (www.craft3.org), an email newsletter and social media including Facebook, Twitter and Linked In.
“There’s no blueprint for how an organization like us is supposed to evolve,” he said. “We have a general sense of where we want to be over the next some number of years, but it’s a continual business plan that can never be static.”
The plan will change based on the nature of the economy and funding.
“None of that stuff is static,” he said. “It’s all fluid and it’s all changing.”