SMALL PACKAGES NEED JUST A BIT OF MONEY? BUSINESSES CAN SIGN UP FOR A MICROLOAN.

Byline: Evan Pondel Staff Writer

Flippers and a snorkel weren't enough to help Don Kreuter kick-start his land-and-sea photography business.

Having lived in the Caribbean for two decades, he returned to his native Long Beach and soon realized his seaworthy legs didn't impress the loan officers who were looking for watertight credit.

That's when he sought the advice of the Community Financial Resource Center, which helped him secure a small-business loan that totaled just $500.

Known as a microloan, the product is opening doors for entrepreneurs who lack stellar credit but need a little seed money to start a business or propel an existing one. And while microloans have been around for several years, California's treasurer is touting a home-grown program that he claims will keep more businesses in the state.

The California Capital Access Program - responsible for helping people like Kreuter secure capital - has financed nearly $1 billion since the program's inception a decade ago. Of those loans, approximately $2.5 million fall into the micro category, ranging between $500 and $40,000.

The popularity of CalCAP's microloans has grown nearly twentyfold in the last five years, and economists say that's a function of a lackluster economy and more attention by California State Treasurer Phil Angelides. The Treasurer's Office is responsible for administering the program.

``It's been hugely successful,'' said Glenn Yago, director of capital studies for the Milken Institute, a Santa Monica-based think tank. ``The program has enabled businesses to survive, and if it wasn't around many wouldn't have been able to open.''

Kreuter is all too familiar with the fragility of business these days. Because of his stint in the Caribbean, it was difficult to establish his credit history, making him an unlikely candidate for a traditional bank loan.

But the Community Financial Resource Center, a CalCAP microloan partner, isn't bound by the same rules governing large banks. They don't access tax records and credit scores to determine if someone is eligible for a loan, according to Isabel Duran, a San Pedro-based manager for the CFRC.

CalCAP has partnered with approximately 10 of these nonprofit financial groups throughout the state, each seeking to promote community development.

Often, lower-income communities are underserved by banking institutions because of the financial risk associated with the population, Yago said. But CalCAP mitigates the risk by contributing to loan-loss reserve pools at the CFRC and several partner banks, essentially providing enough financial backing to reduce the lenders' risk. The lender also benefits by establishing a business relationship with an entrepreneur who could potentially drum up even more business.

The default rate on CalCAP microloans ranges between 3 percent and 4 percent. The industry standard is approximately 8 percent to 12 percent.

``This is a real model program, one that other states have followed. But the program also deserves to be expanded in the state, and that can only be done by bringing in more liquidity,'' said Yago, noting that Michigan, Kansas, New York and Oregon have replicated the program.

The question is whether the interest rates on CalCAP microloans is worth the borrowers' time. The rates vary from lender to lender, spanning 4.25 percent to 10 percent. Duran said even though the CFRC microloans don't reach the levels of banks, the Los Angeles-based group does report borrowers' payment histories to credit rating bureaus. ``And people can certainly look at banks for loan options if their credit improves with us,'' she said.

Sal Perez, president of American Muscle Car in Ontario, is in the process of repairing his credit history through a CalCAP-backed microloan. After filing for bankruptcy protection, Perez said it was difficult to receive any kind of loan, let alone a microloan.

But then a loan officer at Union Bank of California told him about the CalCAP product. Perez filled out the necessary paper work and about six months ago he received a loan for $10,000.

``It's not a lot and I could probably burn through the thing in a week, but it has made me financially wiser with my money,'' Perez said.

Mario Gallo, a senior vice president of Small Business Services at Union Bank, said borrowers have limits on what CalCAP loans can be used for, but ``it certainly helps us manage a portfolio that we would not have normally been able to fund.''

Evan Pondel, [phone]

evan.pondel(at)dailynews.com

CAPTION(S):

photo, 2 boxes

Photo:

(color) Sal Perez, president of American Muscle Cars Inc. in Ontario, got help through the state's microloan program, which aids small businesses.

Will Lester/Staff Photographer

Box:

(1) MICROLOANS MAGNIFIED

(2) MICROLENDERS

Sources: California State Treasurer's Office/Community Financial Resource Center