New inner-city loan fund to be launched in August: RLA program has nearly $6 million in available funds.

Inner-city businesses that have been turned down by commercial banks and turned away from revolving loan funds will soon have another lender of last resort to turn to: the RLA Community Lending Corp.

RLA, formerly Rebuild L.A., has already raised closed to $6 million for its new small business expansion loan fund, which is scheduled to be available to new and existing businesses beginning in August, said Paul R. Martinez, president of the loan fund.

So far, $3 million has been pledged in grants by the U.S. Department of Housing & Urban Development, $750,000 by Atlantic Richfield Co. and $2 million by another large corporation, said Martinez. He declined to disclose the identity of the $2 million contributor, saying the RLA loan fund is preparing to make that disclosure at a press conference.

The corporate and federal contributions are being given as outright grants to the RLA fund, and the fund, in turn, is loaning that money out to qualified businesses.

The loan program is primarily targeting the 50,000 or so businesses that operate in the neglected areas of L.A. A "neglected area," as defined by RLA, is any area in which 20 percent of the population is living below the federally defined poverty level.

RLA, which was formed after the April 1992 riots to help bring money and jobs to the neglected areas of L.A., would optimally like to see that loan fund grow to $20 million, said Martinez.

Loans will be made in the range of $25,000 to $250,000 at market interest rates but with more-lenient qualification requirements than conventional bank loans.

"We will be tough, but we won't be as tough as a standard bank," said Martinez. "If the small business has been struggling for two to three years, but has been able to survive the tough economic situation in L.A., then that business is a good candidate for an expansion loan."

He said, even if that business is just breaking even, it would still be considered for a loan.

Of especially good news to aspiring entrepreneurs is that at least 20 percent of RLA's loan portfolio will be earmarked for start-ups. Start-up capital is widely considered by those in the financing world to be the hardest money for businesses to get.

John Bryant, head of Operation Hope, a nonprofit lending consortium of 48 lenders, said, of the 50 people who call his office seeking capital on any given day, about 40 are looking for start-up loans.

He said the situation that frustrates him most is when a person calls and says he or she has a very good opportunity to get a government contract but first needs some money to hire people and buy or rent equipment.

"We can't do anything to help them, but that's something RLA could do," he said.

His group, which has provided $8 million in financing so far, mainly provides construction, permit and equipment loans.

The RLA loan fund itself won't have a tremendous impact on rebuilding the inner city, but it will strengthen the overall attempts, he said.

The problem with getting small business loans is multifaceted, said Martinez, who has worked with minority firms for years as a turnaround specialist, venture capitalist and real estate developer.

He said major lending institutions look at loans from $5,000 to $200,000 as unprofitable and many banks are not very good at nurturing small businesses. In the past few months, however, Wells Fargo Bank, Bank of America and First Interstate Bancorp. have announced that they will make loans to small businesses.

In a typical scenario, Martinez said, a small business person will go to one of these large banks but will be turned down 99 percent of the time. That person will then try to get a guaranteed loan through the financially strapped U.S. Small Business Administration. If turned down at the SBA, the small business person will then turn to a city or state-sponsored revolving loan fund, referred to as lenders of last resort.

The problem with the revolving loan funds is that they are very small (usually less than $2 million) and are required to put the entire amount of its loan in a trust fund, said Martinez.

RLA will be able to make start-up loans and other loans which are considered too risky or unappealing to other lenders because it is using private sector money. Unlike lenders which have federally insured deposits or government backing, RLA will have far more freedom to make loans based on a business person's reputation, said Martinez.

After the RLA applicants are screened initially, they will either be rejected, sent to RLA's technical assistance center for help on developing a business plan, or they will go through a due diligence process.

It's during the due-diligence process that Martinez will check the applicant's standing in the community.

He said he will make a recommendation to the loan committee, which will consist of any five of the program's 15 board members.

The right character judgment and understanding of the business will be the key to making the loan fund a success, said Martinez.

Outreach certainly won't be a problem, he said, because already the lending corporation has received a few hundred inquiries.