Inclusive Action for the City Discusses Lending in a Pandemic

By Maribel Garcia + Andrea Avila, Inclusive Action for the City 

This piece originally appeared on Inclusive Action’s website on November 18, 2020 and is cross posted here with permission. Inclusive Action is a grantee partner of the WES Mariam Assefa Fund. 

It’s hard to lend in a pandemic, especially when lending to entrepreneurs from underserved communities. For us at Inclusive Action, this reality was never more evident than it was last week. We were processing an emergency grant and loan for Mario, a street vendor who has sold nieve de garrafa (artisanal, hand-churned ice cream) for more than 10 years on the corner of Dozier Street and Ford Boulevard in East Los Angeles.

Before finalizing each loan, our economic development team works with clients to help them and their businesses get “loan ready.” This is done through what we call the pre-loan technical assistance phase, when we help clients complete their loan application and compile their financial documents. It is a crucial step for those seeking to help historically underserved communities, which often lack access to services like tax preparation and accounting, and even basic access to technology. Mario is one of many entrepreneurs we’ve worked with to overcome barriers and access our low-interest loans.

While assisting Mario during the pre-loan technical assistance phase, we learned that he had not filed a tax return for the previous year. Mario had a number of negative experiences with his tax preparer and now suspected that he was a victim of tax fraud because his son had been denied financial aid at his college due to a “red flag” on Mario’s tax returns. This isn’t a surprise, as many Black and Brown communities are preyed upon by predatory financial services. Nearly a decade ago, Reuters reported that minorities were more likely to be targets of predatory financial practices. Unfortunately, these practices continue.

To help Mario get his taxes in order, we connected him to Maria, a tax preparer who provides free services via the IRS VITA program. Maria discovered that Mario’s previous tax preparer had, in fact, unethically prepared separate tax returns for Mario and his partner, not because his partner needed to file a separate return, but likely because the preparer wanted to receive the extra filing fee. Mario disclosed his self-employment income, but his preparer instead forged W-2 forms—triggering the red flag for fraudulent activity that would prevent his son from receiving financial aid. Mario had no idea that this fraud had gone on for nine years. On the contrary, he thought he was paying higher fees to receive quality service.

Another barrier we helped Mario overcome was his lack of income verification. In a typical year, we work with loan applicants that lack financial statements, and we help them document their earnings. We reassure clients that they can indeed make their loan payments and that their businesses will grow from the input of healthy capital. This, however, is now incredibly hard to accomplish because of the burden that COVID-19 has placed on low-income entrepreneurs like Mario.

Like many others, Mario had difficulty helping us document his current month-to-month financials because he simply would not deposit his cash earnings into his bank account. Instead, Mario would take his cash earnings directly to his landlord so he could pay portions of his past due rent. Many of the entrepreneurs we serve have had similar issues. Our clients are struggling to pay what they can so they can keep their homes. Their priority is, rightfully so, not to prove that they are good borrowers, but to provide for themselves and their families. It is hard to demonstrate an ability to repay and also manage the hardship of COVID-19.

Experiences like this remind us that as we move into 2021, small business lenders and community development practitioners, like ourselves, must meet community members “where they are.” Our Programs and Operations Director, Eva, always reminds us to ask, when we are working with our clients, whom does this serve? The way we design our programs and the expectations that we have of our clients must be revised to serve them if our goal truly is to help them recover.

Here are a few adjustments we’ve made since the pandemic began:

• We have increased pre-loan technical assistance. Just as with Mario’s case, we need to help people get help. COVID-19 presents new challenges to find resources, convene in public spaces, and even submit documentation, especially for those who don’t have access to technology. Providing people with pre-loan technical assistance helps our community access what may be available.
• We offer appointment-based office hours. Our office hours provide access to printers and document scanners. Submitting applications and documents online can be a burden for the population we serve. Some applicants do not have access to smartphones or computers. We need to provide alternatives.
• Application processes may need to be redesigned. Applications should be as simple as possible and available in a borrower’s primary language. In helping applicants fill out applications for relief aid, we ask ourselves, whom do these questions serve? In many instances, they make the applicant relive a traumatic experience. If the purpose is to help those who are most in need, the process should be seamless for them. We do not need to overwhelm applicants with questions that only serve our desire to provide metrics for others.
• In-person outreach still works! Of course, there are a number of implications to this kind of outreach. Our team members need PPE and proper protocols to keep them safe. In-person outreach also requires new ways of approaching people and building relationships behind a mask. Many people are suspicious! This is, unfortunately, because they have been taken advantage of during (and, of course, before) the pandemic. We’ve had people refuse our grant flyers because, in their words, “[they’re] not falling for that again.”
• Small business and personal expenses are often interlinked. Many entrepreneurs are struggling to pay their rent at their business and at home. We have to be flexible when we ask for funds to be exclusively used for business purposes. To continue to work, entrepreneurs need to keep a roof over their heads.
• Entrepreneurs need our support to learn to use technology. One of the tools we are using to minimize contact is DocuSign, a technology that is new to many of our clients. As we go through the lending process, we explain to them what the system is and how it’s used, and offer to walk them through it step-by-step over the phone. Many of our clients decide that they want to learn how to do it on their own. Especially during the pandemic, they’ve come to see the need to learn how to use technology. While ensuring that it’s a very easy process, we also reassure clients that we’re available to help them if they need assistance. Our goal is to empower clients to use new technology so they can utilize that knowledge in the future.

After weeks of working together, Mario got his Small Business Recovery Grant. Upon hearing the good news, Mario delivered fresh mole, chicken, and bread to our office. The gratitude Mario displayed, as with most applicants so far, is immense. The display of gratitude breaks our hearts because it vividly demonstrates that people aren’t asking for a favor. They are asking for real help and opportunity. Real help is hard to get when low-income entrepreneurs are surrounded by predatory services. It is hard for those most in need to secure a lifeline of emergency relief when we weigh them down with the responsibility and burden of providing proof.

It’s hard to lend in a pandemic, but that won’t stop us from making it as easy as possible for our clients to get money.

The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the official policy or position of World Education Services (WES).