Mom-and-pop economic development
Boosting unbanked immigrant entrepreneurs in Lawrence
Photographs by Meghan Moore
JOSE ROSARIO CAN barely walk a step without pointing to some of the changes he’s made since becoming the owner of Universal Auto Repair in Lawrence. There are the four new vehicle lifts; the diagnostic computers; the uniforms for his staff, complete with name tags; the fresh coat of interior paint; the break room for his employees; and the waiting area for his customers.
“If this garage is mine, I’m going to make my people comfortable,” says Rosario, who has worked on cars since he was a little boy in the Dominican Republic. He immigrated to the United States in the early 1990s, and worked for dealerships in the New York City area before settling in Lawrence.
It was only about a year ago that he was working as a mechanic at this very garage, chafing under a boss who, in Rosario’s view, mistreated his customers and employees, who ran the place like a “Mickey Mouse business,” keeping shoddy records while trying to avoid taxes. When the owner’s health took a turn and he wanted to sell the garage, Rosario saw an opportunity to finally realize his dream of owning his own shop. But even then, the prospects were dim because Rosario couldn’t find a bank willing to give him a loan, in large part because the balance sheets of the business were so sketchy.
The loan fund was one of the first initiatives of the Lawrence Partnership after the nonprofit was founded two years ago with the goal of bringing together people from various spheres—business, academia, health care, city government—in the interest of reviving the long-struggling city. The Venture Fund does not target immigrants for support. But in a city such as Lawrence, where more than 70 percent of the population is Hispanic and more than 40 percent are foreign-born (many from the Dominican Republic), immigrants have been the greatest beneficiaries.
Economic development often revolves around groundbreakings for sleek mixed-used buildings or efforts to lure corporate headquarters. But with its loan program, the Lawrence Partnership is taking a decidedly down-market approach, providing modest loans to the bakeries, garages, and other mom-and-pop businesses that form the lifeblood of the city’s economy.
Lawrence is not alone in attempting to tap the entrepreneurial energy of immigrants as an economic development strategy. There are programs in such diverse locales as Philadelphia and Des Moines, Iowa, that offer financial and technical assistance to immigrant business owners and which attempt to market districts with large concentrations of immigrant-owned shops as tourist destinations.
Similar initiatives have cropped up closer to home. Indeed, the basic structure of the Lawrence program—local banks contributing to a loan pool—was modeled after a program in Lowell. A 2014 MassINC report, entitled “Going for Growth: Promoting Immigrant Entrepreneurship in Massachusetts Gateway Cities,” took note of some of these emerging efforts. Other immigrant-heavy Gateway Cities, including Fitchburg and Haverhill, are showing interest in what’s happening in Lawrence.
But while there have been some promising developments, success is not guaranteed. The MassINC report noted that loan programs can face political resistance, and that immigrants are often disinclined to trust banks or government agencies. “Engagement from outsiders, no matter how potentially useful, may be dismissed,” the report said.
The Malden-based Immigrant Learning Center launched a pilot program to assist immigrant business owners in Lynn in 2012, but after getting off to a strong start, the program fizzled. Language barriers were a problem, but it was also difficult convincing immigrant entrepreneurs and city officials to buy in to the concept.
THE LAWRENCE LABORATORY
All Gateway Cities have struggled since large-scale manufacturing decamped from New England. But the flight of capital from Lawrence, once a global textile powerhouse, has been especially stark. There used to be four regional banks headquartered in the city; now there are none.
Lawrence has the lowest median household income in the state—about $34,000, nearly half the state average. Its poverty rate is among the highest. The Lawrence School District is in state receivership, and the city’s finances are subject to state oversight.
The city has been dogged by the kind of statistics and press coverage—corruption, drugs, crime (most recently there was the horrific beheading of a high school student)—that tend to scare away investors and corporations, not to mention would-be tourists.
Yet one could hardly say that Lawrence is devoid of economic activity these days—far from it, at least judging by the lunch rush on a recent day at El Pez Dorado, a restaurant that serves up roasted chicken, rice, fried plantains, and other Dominican specialties. El Pez Dorado is among scores of small immigrant-run businesses in Lawrence—salons, barbers, hardware stores, taco shops, many of them with storefront signs exclusively in Spanish.
“This is where the action is,” says Derek Mitchell, the executive director of the Lawrence Partnership, as he dug into a plate of chicken with rice and beans. “This is the kind of immigrant entrepreneurship that’s all over the place in Lawrence, but that doesn’t always get seen in the larger state picture.”
The line of customers at El Pez Dorado stretches to the door, through a cramped dining area with a handful of tables. But the restaurant’s owner, Saturnino Peralta, wants the place to be more than a popular hole in the wall. And thanks to a recently approved loan from the Lawrence Venture Fund, an expansion into an adjacent property is nearly complete. He is adding a dining room and bar with a shiny new tile floor and a full professional kitchen, which will allow Peralta to expand his catering operation. The restaurant is almost tripling in size, and Peralta expects to nearly double the number of employees to 18.
“I’m happy right now,” Peralta says in halting English. “The money will let me finish the new restaurant. We’re going to try to open for the new year.”
Peralta says the venture fund loan will also help him get out of another loan, one that he describes as “very bad.” It’s a predicament that many immigrant business owners of modest means face, Mitchell explains. Many are “unbanked,” meaning they rely on informal lenders who often charge high interest rates that can hobble a business’s growth.”
Such “hard money” loans can carry interest rates as high as 47 percent, says Frank Carvalho, the executive director of Mill City Community Investments, a federally-chartered institution that is administering the Lawrence loan fund.
“Sometimes they have such heavy losses because they can’t afford the payment,” Carvalho says. “It’s not infrequent to see bodegas change hands every year because there was a private investor and the owner couldn’t keep up, so it had to go to somebody else.”
Venture fund loans, typically in the range of $75,000 to $100,000, have interest rates in the range of 6 percent.
BANKS AT THE TABLE
Soon after the Lawrence Partnership launched the loan program in the fall of 2015, it became clear that it had tapped a profound need in the community. The fund began with $1 million in available funds, fronted by Eastern Bank, Enterprise Bank, TD Bank, and Merrimack Valley Federal Credit Union.
With an early crop of loan recipients, including a bakery and car audio store, leaders of the partnership were able to convince six more banks to join up, and the loan fund grew to $2.5 million. The city of Lawrence has agreed to guarantee 10 percent of the value of the loans, or $250,000. Only businesses that will add jobs and/or are deemed to add to the city’s retail climate are eligible for the loans. Pot, gun, and adult entertainment shops are specifically excluded.
From its inception, the Lawrence Partnership has sought to make members of the business community, including bank executives, part of its plans for boosting the city’s fortunes. And so it was that a core group of regional banks grew to see how investing in an often overlooked segment of the market, including the humble mom-and-pop shops that fill the city, could uniquely benefit Lawrence.
“They’ll create jobs,” says Chester Szablak, an executive vice president at Enterprise Bank and a member of the Lawrence Partnership’s board. “Ultimately the more jobs we can create by making capital available, the better for the city socially and economically.”
“What I feel so excited about is that for the first time in a long time banks are at the table with the city,” says Lawrence Mayor Daniel Rivera. “Lawrence at its core has always been supported by immigrant entrepreneurs, so there’s always a hunger for financial support, especially when banking institutions have failed in the past to make lending products to support them.”
That the venture fund has been able to make inroads in the Lawrence immigrant community is a credit to Mitchell, who was hired by the Lawrence Partnership to be its first executive director shortly after its founding. Mitchell, 36, served in the Peace Corps in Nicaragua, and has led organizations that assist at-risk youth, refugees, and immigrants. At the same time, he graduated from Brown University and holds a master’s degree in economic development from UMass Lowell. Affable and intense, he seems to flow easily between conversations with business executives and working class immigrants. It helps that he’s fluent in Spanish, as well.
Still, Lane Glenn, the president of Northern Essex Community College and a founding member of the partnership, says no one knew what kind of response the loan program would have in Lawrence. “Our biggest fear was we wouldn’t have anybody asking for money. But quite the opposite has happened,” he says.
While the loan fund has primarily benefited small family-owned businesses, it’s not limited to this purpose; one recipient, 99Degrees Custom, is a startup that aims to use advanced manufacturing to produce athletic apparel.
There is a less altruistic reason for banks to participate in the loan fund: they can score points with federal regulators who oversee compliance with the Community Reinvestment Act, which requires financial institutions to make an effort to lend in traditionally underserved communities. Poor CRA scores can hinder a bank’s expansion or merger plans.
“The CRA credit is very attractive to banks. Left alone, it’s difficult for banks to find those borrowers,” says Robert Rivers, the president of Eastern Bank. Eastern Bank is a sponsor of MassINC, the publisher of CommonWealth.
“It’s good business,” Rivers adds. “But it’s also an investment in the community.”
For all of their good intentions, the banks supporting the venture fund are highly-regulated entities that have a fiduciary responsibility to avoid risky loans. And new business loans are inherently risky, especially in the case of borrowers who are new to the country with limited resources.
The Lawrence Venture Fund is structured to mitigate these risks. With 10 banks participating, each bank is on the hook for only 10 percent of any given loan. And technically, the banks are not loaning the money directly to the businesses, but extending a line of credit to Mill City Community Investments, the Community Development Financial Institution that administers the loans. (CDFIs are federally chartered to assist communities underserved by banks.)
MCCI helps borrowers with what may be the most crucial step in the loan application process: technical assistance. The organization works with applicants to get their records in order and to develop concrete financial plans, a process that can take months.
“We do due diligence underwriting the loan, understanding where (the borrowers) are going to go, and where their numbers are coming from,” says Carvalho, the organization’s director. “Are they just pulling numbers from the sky? There’s got to be real planning and a realistic approach.”
He adds, “We’re hoping with our intervention, helping them get their records straight, that they will become bankable and get out of (our loan). And then we’ll have money to lend to other businesses.”
There is yet another potential benefit of integrating immigrant-owned enterprises into the formal banking system: boosting tax collections. According to several people involved in the Lawrence loan program, some businesses understate their revenue in the interest of lowering their tax bills, a practice that would make them poor candidates for standard bank loans.
“We want all these businesses to become bankable, and to do that they’re going to have to have the type of returns that reflect cash flow,” says Szablak of Enterprise Bank.
So far, none of the eight businesses that have received venture fund loans have missed a payment, according to leaders of the Lawrence Partnership. And the program is steadily gaining the attention of officials in other Gateway Cities, including Haverhill and Fitchburg.
“The idea is certainly replicable because all these communities have a similar asset,” Mitchell says. “We all have immigrant communities that are entrepreneurial and unbanked; we all have third-party entities, whether municipal or nonprofit. So the trick is getting people to yes.”
Back at Universal Auto, Jose Rosario says the garage is doing more business than ever—about 20 vehicles a day. He’s hired one new employee and more hires may be coming. Now that he’s bought the business, he’s hoping to buy the building, another development that he could’ve scarcely imagined one year ago.
Rosario has a palpable sense of pride. After toiling under the previous owner, he seems to relish the chance to run the shop his way, from having a proper waiting area for his customers to keeping his books in order.“I’m very happy. No bank would give me opportunity, and then the program give me. And now I am the owner, thank God,” he says. “Now look at the change.”