Banks grapple with ways to penetrate Latino sector.

A few years ago, bakery owner Abel Diaz wanted to expand. His three bakeries- two in South Central and one in Huntington Park - were thriving, so he decided to open a restaurant to handle weddings and other large functions.

Despite his solid track record, Diaz was turned down time and again in his requests for a loan from various banks in the area.

"I spent almost a year going from bank to bank," Diaz, said. "It was hard."

He ultimately succeeded in securing a $900,000 loan through the Small Business Administration to build his Fiesta Mexicana Family Restaurant. But for many Latino entrepreneurs, the tale is a familiar one.

Despite years of success, Latino business owners still run into problems when trying to borrow from financial institutions. Yet similar barriers persist, to varying degrees, with respect to mainstream financial institutions trying to attract Latino customers for home loans, consumer loans, depository accounts and other services.

"In the Latino community, it,s a cash economy," said Richard Amador Sr., president of Charo Community Development Corp., an East L.A.-based financial services firm. "It's hard to convince some Latinos to put their money in the bank."

Among the numerous hurdles for financial institutions are Latinos' tendency to transact business in cash; immigrants' general distrust of banks; large portions of income being wired back to Latin America; a general aversion to taking on debt; and a preference for personalized service, which is more expensive to provide.

That's not to say U.S. banks have turned their backs on the Latino community. Far from it. In recent years they have bolstered the ranks of bilingual tellers, loan officers and automatic teller machines, They have instituted no-money-down home loan programs aimed at first-timer buyers, gotten involved in Latino community groups, and held financial education seminars.

Yet those efforts fall far short of meeting the potential demand for financial services.

"I'm not so sure it's fair to say that the (Latino) market has been ignored, but it may have been misunderstood," said Brenda Ross-Dulan, vice president for corporate community development at Wells Fargo Bank. "(But) most corporations in any market specialize in following trends. If you see where the trend is, it is in your best interest to follow."

Between 1992 and 1998, the number of Latino businesses in Los Angeles County almost doubled to more than 200,000. Today, more than 50 percent of all new businesses in L.A. County are Latino-owned. In 1999 alone, Latino businesses in Southern California will generate an estimated $47 billion in revenues.

The prominence of the Latino market is also clearly visible in the home loan sector, another huge potential source of business for local financial institutions.

An estimated 13.2 percent of all California homes sold in 1999 will be purchased by Latinos, according to the California Association of Realtors, up from 9.8 percent in 1998. In fact, four out of the top five, and 13 of the top 25 most common surnames of new homeowners in L.A. County in 1998 were Latino.

The major institutions have made huge commitments to inner-city lending-generally stemming from Community Reinvestment Act pledges that were a condition of getting their huge mergers approved.

Bank of America has pledged to spend $350 billion nationwide over the next 10 years on community reinvestment, including at least $70 billion in California. Washington Mutual Inc. has pledged $120 billion over the same period, with $60 billion slated for California.

In 1997, Wells Fargo set up a six-year, $1 billion loan program specifically for Latino businesses, with much of the :money going to L.A. and Orange counties. Ross-Dulan says $100 million of that already has been loaned out.

But community activists say these mainstream institutions have a hard time getting a handle on the cash businesses that make up much of the Latino economy. Banks have ceded the money transfer business to check-cashing operations, and Western Union has a virtual monopoly over wiring money to the home countries of the many immigrants.

As for commercial lending, Latino business leaders still consider big banks far more restrictive in their loan-qualifying criteria, compared with smaller community banks.

"Traditionally, bankers are pretty conservative," said Alfred M. Ayala, vice president of corporate banking at First American Bank, a community bank that has penetrated the Latino market. "Typically, we want two or three years of a track record. (Latino) businesses will have the experience, but not the financial records. So they will come to a bank for a loan, and the answer will be 'no.' But recently, in the last three to five years, there has been some opening up."

Tracking the volume of bank lending to local Latino businesses is impossible because financial institutions are prohibited by federal law from breaking down loans by ethnicity, although that regulation may soon be overturned.

But the L.A. office of the Small Business Administration, which is allowed to track lending by ethnicity, saw the number of its loans to Latino companies jump from 245 (worth $65.8 million) in 1997 to 373 (worth $86.1 million) in 1998.

For fiscal 1999, which ends Sept. 30, the L.A. SBA office expects to well exceed last year's Latino volume, both in number of loans and aggregate amount.

"Until 25, 30 years ago, banks didn't lend at all to minorities or Latinos," said Amador. "More than a glass ceiling, it was more like an iron wall. A business might have been going for 10 or 15 years, but doesn't have three years of credit, so they can't get a loan."

While that has been changing, as financial institutions become more adept at serving Latinos, critics charge that more could be done.

"Substantially less than 5 percent, probably closer to 2 percent, of the total dollar loans made in L.A. are made to Latinos," said Robert Gnaizda, policy director of the Greenlining Institute, a consumer activist group in San Francisco.

He calls Wells Fargo's lending program commendable but modest, and says inner-city lending pledges like that of Bank of America are too vague, and must have more specific provisions to be meaningful.

Not all the reluctance is one-way. Many older Latino business owners have operated on a cash basis, and are reluctant to take on debt. That, combined with a distrust of financial institutions, contributes to the lack of bank activity.

"The reputation of financial institutions south of the border is not very positive," said Amador. "In some countries, it takes three months to open up an account. And you borrow at 10 percent, and three months later, it's 30 percent."

Michael D. Lizarraga, president of TELACU, a nonprofit organization in East L.A. that has for-profit subsidiaries, including Community Commerce Bank, believes the large banks are trying to work in the community. But they often are too big and too slow to get things done.

"For some of these institutions, it's like an elephant trying to mate with a mouse," Lizarraga said.

Along with the community-based groups, smaller banks have made inroads to the Latino community. One example is Wilshire State Bank, a Korean-American bank that just opened its sixth branch, in the largely Latino area of Huntington Park. Wilshire State made the second-largest number of SBA loans in L.A. County in 1998.

The bank made the decision to get into the Latino market in the early 1990s, and found surprising success. Before 1992, 10 percent of its loans were to non-Asians; now that percentage is around 35 percent, with most of that being to Latinos, according to Senior Vice President J. Han Park.

"What really works is the person-to-person approach," Park said. "Big banks go through a process where if they interview 10 businesses, they'll take two to give loans to. Now, maybe five of those businesses won't qualify no matter what. That leaves three for US."

Park believes that Latinos and Asians, although from quite different ethnic backgrounds, share a mentality about starting one's own small business. "Ethnic banks, I think, are a little more sensitive and accommodating to certain considerations," Park said.