The Arizona Republic
By YVETTE ARMENDARIZ
The Arizona Republic
This isn’t an ordinary bank that takes deposits and markets checking accounts. Arizona MultiBank Community Development Corp. is best known for building small businesses.
The nonprofit lender, recently lauded by the U.S. Small Business Administration, works with community groups and bankers to mine out projects deemed a little too risky for traditional lenders.
Arizona MultiBank has quietly lent $30.4 million on more than 330 projects since 1992.
Most are small-business deals. Among the projects have been a magazine, a rural radio station, a boat manufacturer and a grind shop that smooths out metal.
The organization also hands out cash around the state for low- to moderate-income housing and nonprofit projects.
“We’re doing deals that are nearly bankable, but the lenders can’t totally get their arms around them. We help them with the reach,” said Andrew Gordon, MultiBank’s president and CEO.
Tucsonans Carmella and Robert Arriola found the Arizona MultiBank open to lending to a start-up plumbing business back in 1995.
They received a $25,000 credit line and used it to buy equipment and a van to get Arriola Sonrise Plumbing off the ground.
More important were the resources Gordon directed to them and the questions he asked, Carmella Arriola said.
“He asked if we carried liability and made sure I had a certificate of insurance on big jobs,” she said.
Gordon has been in charge since Multibank’s inception.
MultiBank formed in late 1991 with more than $10 million pooled from 18 Arizona banks.
Bankers, motivated by Community Reinvestment Act requirements to make loans in low- to moderate-income neighborhoods, wanted a way to reach customers who were unable to access traditional credit.
MultiBank gets more than 250 customer referrals annually, about half from bankers.
It generally charges about 3 to 4 percentage points above the prime rate, which now is at 6 percent.
The amount charged depends on collateral and risk.
The higher-than-market rate also ensures clients move on to regular banks when they build their credit.
A few projects have failed, but MultiBank’s default rate is less than 1.2 percent, Gordon said.
That’s about three times higher than commercial-loan charge-offs at banks, according to data from the Federal Reserve Bank.
But the rate is much lower than other higher-risk lenders, where charge-offs of 4 percent or more are common.
Client’s cash flow
“We’re taking on more risk, but it’s how you manage the credit and structure the deal,” he said.
A key component is checking up on a client’s cash flow and business management.
Nearly 80 percent of loans to small businesses are for less than $50,000, an amount traditional banks typically stay away from because they are too expensive to manage.
Arizona MultiBank has been able to offset some of those costs with a few large projects worth as much as $500,000.
Gordon wants to arm businesses with a good foundation for success.
That means helping them make connections to groups that can help entrepreneurs develop better financial and marketing tools.
“As soon as we book a loan, our work just begins,” he said.
His strategy proved successful with Louie Majors of Kachina Boats Inc.
Majors lacked a credit history sufficient to attract a banker’s interest.
But Majors also didn’t like the idea of borrowing a huge sum to help him increase inventory.
With a little planning and the help of a small line of credit in 1999, Majors’ business flourished.
Arizona MultiBank hooked him up with a business consultant.
Sales more than quadrupled as better inventory management was put in place and the company stocked more inventory.
He now employs about 25 people, up from 11 five years ago.
Arizona MultiBank Community Development Corp. makes loans to credit-risky housing, nonprofit and small-business projects that show strong potential.
The nonprofit lender avoids start-up financing; an exception is sometimes made if the entrepreneur is taking a business training course with an approved nonprofit.
The average loan is $91,000.
Address: 101 N. First Ave., Suite 1880, Phoenix.
Information: www.multibank.org or (602) 643-0030.