Q&A with Roberto Barragan

Roberto Barragan has been with the Valley Economic Development Center (VEDC) for 17 years, 12 of them as the organization’s president. The VEDC, which is celebrating its 35th anniversary, has grown to become the largest nonprofit business development corporation in the metropolitan Los Angeles area involved mostly in lending to small and medium-sized businesses. Many of these businesses are unable to obtain financing from traditional banks because of the extreme tightening of credit the past few years.

The VEDC, although based in Sherman Oaks, does business throughout the state with a heavy focus on Los Angeles, Orange and Ventura counties. Barragan said the Santa Clarita Valley is a prime place for the VEDC to boost its services due to the area’s mix of small businesses and the city of Santa Clarita’s business-friendly attitude.

Q: How did the VEDC get started?

A:It came out of the Mid Valley Chamber in Van Nuys in 1976. It originally was a group called Vitalize Van Nuys to provide technical assistance to small businesses on Van Nuys Boulevard and to focus on commercial revitalization.

In 1989, they changed the name to the Valley Economic Development Center with a purpose of providing technical assistance, training and workshops to small businesses in the San Fernando Valley. It was the only organization that did such a thing and it grew. It ballooned to 30 employees after the Northridge Earthquake to help businesses get disaster loans — to help figure out the whole SBA (Small Business Administration) process. We helped 10,000 businesses secure about $125 million in disaster loans.

Q: How has it changed over the years?

A:In the 1990s, the federal government gave the VEDC a planning grant to help it come out of the recession and the defense industry downsizing that was happening. That planning grant gave birth to the Valley Economic Alliance. The U.S. Economic Development Administration (EDA) gave us a $6 million grant for businesses that were denied loans from the SBA. We stepped in and made loans to those businesses in some cases restructuring their existing debt. That is when the VEDC really started lending. It became one of the largest alternative lenders in Los Angeles.

Q: How are you different from other organizations such as the Los Angeles County Economic Development Corp.?

A: We provide direct services to businesses. By 2005 we were building up our loan portfolio and building up funds not only from the EDA but from the SBA micro-loan (loans of up to $50,000) program. We are the largest SBA micro lender in California. And we are the largest direct small business lender that is not a bank in California. We are a community development financial institution whose purpose is to provide alternative financing – almost exclusively to small businesses.

Our lending has expanded to include all of L.A. County, Ventura County and Orange County. In 2008 when banks’ credit dried up, some of our sister organizations either failed or went into hibernation because of their portfolios. But our portfolio held up very well. It held up better than most banks.

Q: And why did the VEDC portfolio hold up?

A:Our loan board is made up of three bankers and three non-bankers. When making loans to businesses that have been denied credit from a bank, it is about doing something differently. It is about how you look at credit differently, how you look at cash flow differently, and how to look for other collateral to secure your loan. We require a much higher level of underwriting – such that you really get to know the operator of the business and get to know what the business is like. We also collect well. We really believe that this money is taxpayer money. And if someone does not pay it back other businesses are out of the opportunity of finding that financing. So we don’t do grants; we do loans. We take that trusteeship very seriously.

Q: What is your total loan portfolio?

A:About $15 million.

Q: How has loan demand grown?

A:In 2008, our demand for loans quadrupled. We were lending out microloans very quickly. In early 2009 we ran out of money. We had been doing 50 percent of our loans to startups. Now we were doing 60 to 70 percent of loans to existing businesses. These businesses simply didn’t have access to capital. Credit completely dried up.

We responded by lending more, not lending less. US Bank stepped up and gave $2 million to expand micro-lending. Then in late 2009, Goldman Sachs was looking for small business lenders. They signed us up and we have already lent $3 million from them to small businesses. That portfolio has been performing perfectly. After that, other banks made additional investments to us. In late 2010, JP Morgan Chase asked us what we would do if they gave the VEDC $5 million in equity. I said we would go statewide and leverage that $5 million to $50 million.

So what we have been doing this year is open an office in Oakland and we have been establishing relationships with other nonprofit organizations statewide to have them act as conduits for us. We have been doing “Where’s The Money: Access to Capital” seminars across the state. Every one of these events has been packed with businesses looking for money. The national banks are less likely to do loans of less than $250,000. And the regional banks and community banks are still struggling with their real estate and commercial portfolios.

Q: So lending is still tight?

A:People are under the impression banks aren’t lending, but they actually are — particularly Chase and Wells Fargo. They’re coming down to lending at $100,000. But are they coming down on their credit requirements? Not really. But they are going after smaller loans.

Q: What level loans does VEDC
focus on?

A:Between $50,000 and $250,000. That’s where we live. We have been approved as an SBA 7 (a) lender which allows us to lend up to $250,000, which is very unusual for a nonprofit organization.

Q: Do you see alternative lending organizations such as yours, not traditional banks, being a greater part of the lending landscape in the future?

A: Any bank with assets below a half billion dollars is going to find it hard to make money in this area. Credit unions and organizations such as ours are nonprofits, so we have some room there that banks don’t have.

Q: What is VEDC’s strategy for growth?

A:We have two strategies: local and statewide. The local strategy is for us to continue to be a real responsible small business development player in north L.A. County: San Fernando Valley, Santa Clarita Valley and Antelope Valley. Our women’s business center is moving back to Pacoima. It was originally headquartered and chartered in Santa Clarita, so I wouldn’t mind bringing it back to the Santa Clarita Valley. The women’s business center has a really good program helping women-owned businesses and creating jobs.

Q: How does the Santa Clarita Valley fit into the VEDC growth strategy?

A:We’ve always seen the Santa Clarita Valley as a great growth area for us. A number of our clients have moved from the San Fernando Valley to the Santa Clarita Valley and a good half-dozen of my employees live there. The Santa Clarita Valley is part and parcel of business development in north L.A. County. Also beyond that there are major needs in the Antelope Valley.

Our local strategy is how we bring all our small business development services together in north L.A. County, particularly in lending. That’s our niche — we are capital providers. We are going to see a demand for capital in the next two years that is not being met by the banks, and we want to meet it. We just picked up $700,000 from the Department of the Treasury from their community development loan fund program. This is more money for us to lend to small businesses. We have a strong partnership with California United Bank. Their footprint is in Santa Clarita, the San Fernando Valley and Ventura County.

Q: How will doing more business in Santa Clarita benefit the VEDC?

A:Santa Clarita is much more business friendly. I think the challenges that small businesses have in L.A. are access to capital and the Departments of Building and Safety and Planning. I’ve seen Building and Safety in L.A. kill businesses all by itself. So people leave the city and go to Santa Clarita particularly if they are in manufacturing, assembling, metalworking and machinery. Look at the studios that are building additional sites in Santa Clarita.

As Santa Clarita develops you’re going to see the city over time be the crown on top of the head of the county of L.A. For us, where businesses expand to is important. And we want a diverse portfolio; we’re looking for the industrial and distribution businesses like the ones that exist in Santa Clarita. We want the businesses that create good jobs. I don’t finance McDonald’s. I’m looking for the companies that manufacture to the world. We are less and less focused on geography; we are more focused on need.

Q: How does the VEDC work with other organizations?

A:Because we are so focused on small business lending supported by entrepreneurial training, I think we are a good partner for multitudes of organizations. We’re trying to be the capital partner. In that arena, we really have no competition. We do loans when banks say no.

Q: Ever think of changing the name from Valley Economic Development Center to just VEDC so that it’s not associated with only the San Fernando Valley?

A:We try to limit the use of the words Valley Economic Development Center. We need to keep the acronym but maybe change the letters to mean something else.

Q: How do you define economic development?

A:Some people define economic development as real estate development. I define it as business development. The businesses create the jobs. And we want the good jobs. I think the training that College of the Canyons is doing is right on target. They’re trying to provide the more cutting edge training for the jobs that are there, as opposed to some other workforce development agencies that are training for jobs that are no longer there. their community development loan fund program. This is more money for us to lend to small businesses. We have a strong partnership with California United Bank. Their footprint is in Santa Clarita, the San Fernando Valley and Ventura County.

Q: How will doing more business in Santa Clarita benefit the VEDC?

A:Santa Clarita is much more business friendly. I think the challenges that small businesses have in L.A. are access to capital and the Departments of Building and Safety and Planning. I’ve seen Building and Safety in L.A. kill businesses all by itself. So people leave the city and go to Santa Clarita particularly if they are in manufacturing, assembling, metalworking and machinery. Look at the studios that are building additional sites in Santa Clarita.

As Santa Clarita develops you’re going to see the city over time be the crown on top of the head of the county of L.A. For us, where businesses expand to is important. And we want a diverse portfolio; we’re looking for the industrial and distribution businesses like the ones that exist in Santa Clarita. We want the businesses that create good jobs. I don’t finance McDonald’s. I’m looking for the companies that manufacture to the world. We are less and less focused on geography; we are more focused on need.

Q: How does the VEDC work with other organizations?

A:Because we are so focused on small business lending supported by entrepreneurial training, I think we are a good partner for multitudes of organizations. We’re trying to be the capital partner. In that arena, we really have no competition. We do loans when banks say no.

Q: Ever think of changing the name from Valley Economic Development Center to just VEDC so that it’s not associated with only the San Fernando Valley?

A:We try to limit the use of the words Valley Economic Development Center. We need to keep the acronym but maybe change the letters to mean something else.

Q: How do you define economic development?

A:Some people define economic development as real estate development. I define it as business development. The businesses create the jobs. And we want the good jobs. I think the training that College of the Canyons is doing is right on target. They’re trying to provide the more cutting edge training for the jobs that are there, as opposed to some other workforce development agencies that are training for jobs that are no longer there. their community development loan fund program. This is more money for us to lend to small businesses. We have a strong partnership with California United Bank. Their footprint is in Santa Clarita, the San Fernando Valley and Ventura County.

Q: How will doing more business in Santa Clarita benefit the VEDC?

A:Santa Clarita is much more business friendly. I think the challenges that small businesses have in L.A. are access to capital and the Departments of Building and Safety and Planning. I’ve seen Building and Safety in L.A. kill businesses all by itself. So people leave the city and go to Santa Clarita particularly if they are in manufacturing, assembling, metalworking and machinery. Look at the studios that are building additional sites in Santa Clarita.

As Santa Clarita develops you’re going to see the city over time be the crown on top of the head of the county of L.A. For us, where businesses expand to is important. And we want a diverse portfolio; we’re looking for the industrial and distribution businesses like the ones that exist in Santa Clarita. We want the businesses that create good jobs. I don’t finance McDonald’s. I’m looking for the companies that manufacture to the world. We are less and less focused on geography; we are more focused on need.

Q: How does the VEDC work with other organizations?

A:Because we are so focused on small business lending supported by entrepreneurial training, I think we are a good partner for multitudes of organizations. We’re trying to be the capital partner. In that arena, we really have no competition. We do loans when banks say no.

Q: Ever think of changing the name from Valley Economic Development Center to just VEDC so that it’s not associated with only the San Fernando Valley?

A:We try to limit the use of the words Valley Economic Development Center. We need to keep the acronym but maybe change the letters to mean something else.

Q: How do you define economic development?

A:Some people define economic development as real estate development. I define it as business development. The businesses create the jobs. And we want the good jobs. I think the training that College of the Canyons is doing is right on target. They’re trying to provide the more cutting edge training for the jobs that are there, as opposed to some other workforce development agencies that are training for jobs that are no longer there.