Nonprofit alternative lender Craft3 helps businesses start and grow

By: Bethany Overland - Mar 02, 2012
Source: Puget Sound Business Journal

It’s not Teatro ZinZanni — but some regulars might say you’d be hard-pressed to find a more welcoming and entertaining dinner experience in Seattle. At Gorgeous George’s Mediterranean Kitchen in the city’s Greenwood neighborhood, the accompaniment to your spring lamb rib dish just might be the chef himself — dancing while balancing a bottle of wine on his head.

Despite running a restaurant that boasts stellar reviews from just about every local media outlet and foodie website, George Rashed, chef and owner of Gorgeous George’s, will be the first to tell you that making money isn’t as simple as having a good reputation. In fact, as Rashed approaches that tell-all five-year mark of running a restaurant, keeping the doors open hasn’t been easy in the least.

“I feel like I’ve done everything right,” said Rashed, an Israeli immigrant and former Catholic priest turned chef. “I pay my bills on time. I work every day of the week, long days. But this is the restaurant business. It gets hard and you need some help.”

When it comes to loans and financing, even just one mark on a business’ credit history can render the company ineligible for a bank loan. But somewhere between that conventional small-business loan and hard-money loan exists a type of financing that might be the right avenue for growing a business: alternative lending.

Rashed and other struggling businesses have found help from alternative lending sources such as Craft3, a nonprofit that offers loans from $5,000 to $5 million at interest rates of between 8 percent and 14 percent. Those rates are undeniably higher than what you’d expect to see in a traditional business loan — but hey, this isn’t a traditional loan.

“These loans are for people whose businesses have maybe a year or two of losses, maybe not so great of credit, or don’t fit in the ‘credit box’ for whatever reason,” said Craft3’s Arnie Gunderson, senior vice president. “They are a risk.”

Rashed first noticed his restaurant sales start slipping in 2009 as people began dining out less due to the economy. Even though he paid his bills on time, Rashed knew his sales looked bad on the books and that he wouldn’t qualify for a bank loan. Then someone at BECU who saw that he did not qualify for a traditional loan referred him to Craft3, where he was able to take out a loan. He used the money to advertise — and Gorgeous George’s continued to delight customers.

But in late 2011, Rashed watched his sales fall again as construction began on Greenwood Avenue. As road traffic congested, restaurant traffic shriveled. Rashed wasn’t breaking even any longer — some months, not even close.

He stayed on schedule with his payments to Craft3. And in January, Rashed turned once again to Craft3 for a loan. Though it’s still uncertain what his business will look like past that looming five-year mark in March, the alternative loan money has given him a new lease on staying in the restaurant business — for now.

“(Other big banks) have never helped me, given me anything other than a personal credit card,” said Rashed. “Craft3 sees me work hard… this has been the best experience, and made my life more peaceful. It’s given me room to build my savings.”

Craft3 has also proven handy when financing is necessary to launch a business. Doris Minor, owner of Seattle-based Attenuation Environmental Services, a hazard and waste management assessment and cleanup company, had won a $6 million contract from the U.S. Nuclear Regulatory Commission for a job in Wyoming. But because she’d previously worked as a freelancer in the field, Minor had a few costly changes to make to get ready for such a big project.

“I went to two banks, and both indicated that yes, I did have this contract, but because my first task order hadn’t come through, I wasn’t qualified for a loan,” said Minor. “It didn’t mean anything to them that I had a $6 million contract from the government.”

Minor ended up turning to the Small Business Administration, where she was referred to Craft3.

“In the end it enabled me to construct the office I needed, and hire an assistant to get organized,” she said. Minor’s first task order came through shortly afterward, and she now has six employees.

Craft3 works with both banks and private investors to fund the loans it gives out.

Typically, said Gunderson, banks loan money to Craft3 at interest rates of 3 percent to 4 percent, and Craft3 uses the difference between that and the interest it charges (8 percent to 14 percent) to cover its cost of doing business. Gunderson noted that private investors usually lend to Craft3 for less interest than what banks charge.

As a certified community development financial institution (CDFI), one of Craft3’s goals is to serve a target market — low-income communities or low-income individuals. As a result, Craft3 was recently given a $240,000 grant from the Paul G. Allen Foundation, of Seattle, to fund Native American entrepreneurs and support tribal involvement in the economy.

“Our name is Craft3. Craft because we make loans that banks won’t do — our lenders are more crafts people than anything else,” said Sue Taoka, Craft3 executive vice president. The “3” represents equity, economy and the environment, which are part of the nonprofit’s mission statement.

Craft3 spends a lot of time working with its clients to ensure successful repayments, said Gunderson, and the numbers are there to prove it with a loan repayment rate of more than 97 percent. Should a client default on a loan, Craft3 acts like a bank and uses collection services to recoup its losses.

The Seattle branch of the SBA said it’s pleased to be partnering with Craft3.

“It’s great help in creating additional opportunities for folks in need of that — someone who maybe isn’t an ideal candidate for a commercial loan from a bank,” said Mark Costello, a lead lender relations specialist for the federal agency’s Seattle branch. “We’re excited about that relationship with them and what they’re doing.”

“Such loans really do have a pretty outstanding success rate,” he added.

Source URL: