A LENDER THAT SMALLER BUSINESSES CAN TURN TO : COMMUNITY DEVELOPMENT BANK ASSISTING L.A. COMPANIES.

Byline: Gregory J. Wilcox Daily News Staff Writer

Emboldened by an improving economy, Miguel De Leon sought a $50,000 bank loan earlier this year to expand his electronics assembly shop in an industrial strip next to Whiteman Airpark.

The bank rejected De Leon's application, and the decision came as a surprise.

After all, in February 1995 the federal government thought his balance sheet was sturdy enough to support a $205,000 loan that would help the company recover from the devastation of the Northridge Earthquake the year before.

In this case, though, the bank was bound by more stringent requirements than a federal agency and it said no.

``They said that I didn't have the sales,'' De Leon recalled. ``Even though they averaged about a half-million dollars a year.''

De Leon slipped that rejection letter into an office file.

Today, it could be worth up to $400,000 at a new bank in town that doesn't have any deposits, teller windows or the strict requirements of a traditional commercial bank.

Called the Los Angeles Community Development Bank, this nontraditional lender has about $430 million from the federal Housing and Urban Development Department to offer businesses in sections of the city, including Pacoima, that are designated as economically depressed.

How nontraditional is it? A bank rejection letter like De Leon's is a requirement for getting financing.

De Leon, who employs 27 workers, is anxiously awaiting his application packet, which should arrive sometime this month.

``My sales this year are already double from last year, they are going to be about $1.2 million and in order to keep growing I need more money,'' De Leon said.

He's going to seek up to $400,000 to increase the inventory, and thus the sales, at De Leon Enterprises. He'll establish a credit record with the bank and a couple of years down the road he plans to seek a real estate loan to buy his own facility in Pacoima.

For De Leon, it's a labor of love. He was a vice president at the company when it went into foreclosure six months after the 1994 earthquake. Four days after losing his job, he put together the financing to buy the business back from the bank and rehired 14 of his 30 former co-workers.

Now he's looking for permanence.

``I'd like to own my own place because it would make my company more valuable,'' De Leon said.

The development bank was established in May 1995 by federal officials as a consolation prize after Los Angeles was passed over for designation as an ``empowerment zone'' a year earlier. The zone would have targeted depressed neighborhoods for government grants.

Subsequently, the sections of the city were deemed ``supplemental empowerment zones'' and made eligible for federal aid.

Vice President Al Gore attended a news conference announcing the bank's creation.

``By all measures, this is the largest and most extensive community development banking opportunity in the United States of America or anywhere else,'' he said at the time.

Federal regulations limit the neighborhoods the bank can do business in. Basically, its territory includes Pacoima and parts of South Central and East Los Angeles.

Nearby businesses that employ workers living in the zones also can draw on the funds.

The nontraditional banking approach extends to ways the loans are packaged. In some cases, the bank will help firms get financial aid by putting together a loan from multiple lenders.

The goal is simple: creating or preserving jobs.

``We are willing to take the risk they (traditional banks) were unwilling to take,'' said C. Robert Kemp, the community development bank's chief executive officer.

He took charge of the program in May and will oversee implementing its lending programs. They include co-lending, in which funds are gathered from several sources; direct lending; and a venture capital program that is still awaiting HUD approval.

To date, six loans have been approved, three have been funded and 50 are being processed.

Interest rates are pegged at prime, which is what banks charge their most creditworthy borrowers, or the prime rate plus 1 percent. Terms can be flexible, with real estate loans extended to 30 years.

Even so, applicants should not anticipate a giveaway.

``Eventually the deal has to pencil out and the funds have to be repaid,'' Kemp said. ``And understand you have to have something at risk. We will be asking for collateral.''

And there are limits to what the program can accomplish. For example, the funds can be used to finance new commercial development, but not for housing. But businesses, including (rental property) can be refurbished.

``We don't compete with commercial banks, we complement them,'' Kemp said. ``You come and make a proposal to us and we will see that it meets our criteria.''

In the job creation area, applicants can seek $35,000 in loan funds for every employee who lives in the empowerment zone. So, even Valley companies outside Pacoima could qualify.

Marvin West, the loan officer responsible for the Pacoima area, said the bank should be considered the lender of last resort. If companies can qualify for a regular bank loan, they should go that route, he said.

For those who are blocked, West said, ``Our goal is to say `yes.' We're living with guidelines that have been set up but in many respects it's a loan with a kinder eye toward qualification.''

Gary Wehrle, chairman and chief financial officer of Agoura Hills-based Pacific Crest Capital, thinks the program is a good idea. His company is one of the bank's co-lenders.

``If it works right it could be very dramatic for people starting small businesses. I'm really looking forward to it,'' he said. ``I think that in L.A. County, which has more small businesses than any other county in the U.S. and being a hotbed for entrepreneurs, this will be like throwing kerosene on a fire.''

But not everyone is enamored of the program.

West Hills resident Steve Peschansky, a specialist in community development and an activist with the South Central Recovery Project, believes that the some sections of the city are being left out of the program.

For example, he thinks that some of the funds should have been specifically targeted for South Central Los Angeles, scorched by the riots in 1992.

He also believes that the program should be geared to neighborhood improvement.

``It should not be all manufacturing and all commercial,'' he said.

But Rep. Howard Berman, D-Mission Hills, who represents the Pacoima area, said the funds can be put to good use in the Valley.

``I think this has tremendous potential for providing jobs in the Northeast Valley and raising the quality of life here,'' Berman said.

GET WITH THE PROGRAM

Facts about the Community Development Bank:

More than 20 banks or institutions are participating as co-lenders.

Loan amounts can be up to $2 million.

The bank's main office is at 5318 S. Vermont St., Los Angeles. A branch office will open in Pacoima during the first quarter of next year.

Information: [phone]

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Photo

Box: (Color) GET WITH THE PROGRAM (See text)

(Color) Miguel De Leon of De Leon Enterprises in Pacoima hopes to improve his business with a loan from the community development bank.

Myung J. Chun/Daily News