Ideas That Work - Small Loans Fuel Big Dreams | The Bell Policy Center

Ideas That Work - Small Loans Fuel Big Dreams

Date: Feb 22, 2017

The barber shop is already crowded by 9 a.m. on a Saturday. An 8-year-old boy and his dad take turns sitting in the red swivel chair in the front as soul music emanates from speakers. Another customer relaxes as he waits in a chair by the door, easing his head against the wall, shutting his eyes and tapping his feet to a drum solo.

In the back, a swanky young barber uses a straight razor to shave an older man on his face, then on his head. This, it turns out, is a twice-weekly indulgence that the proprietor, Patrick Efferson, 36, provides for his grandfather, Pat Efferson, 79, also known as Junior.

The younger Efferson is the owner of Exclusive Cuts on Colorado Boulevard in Denver’s Park Hill neighborhood. The shop feels both retro and hip. The logo features traditional red, white and blue barber’s stripes. White and black checker boards decorate the floor. And inspiring posters and quotes hang on the walls. There’s one with an iconic photo of Martin Luther King and his famous quote from the “I Have a Dream” speech during the 1963 March on Washington: “I look to the day when people will be judged not by the color of their skin, but by the content of their character.” Near the door is another quote that is especially meaningful for Efferson. It’s from Thomas Edison: “Opportunity is missed by most people because it is dressed in overalls and looks like hard work.”

Why Rocky Mountain MicroFinance Institute works

  • Microentrepreneurs who receive small business loans provide jobs and needed income for themselves and for others in their communities. There are almost 500,000 microbusinesses statewide, making up 89 percent of all businesses in Colorado. They employ over 260,000 people in urban areas, and over 15,000 in urban areas.
  • Many people from low and middle income households don’t have the capital to start a business and face barriers to receiving traditional bank loans. Rocky Mountain MicroFinance Institute (RMMFI) gives loans to people who have been told they are not creditworthy by big banks, and invests trust, time, and money into proving that they are. In 8 years, RMMFI has distributed over $250,000 in loans to low-income entrepreneurs in Denver who otherwise would not have had access to capital. And with only a 5 percent default rate, that trust and capital is repaid.
  • Studies show that successful microfinancing doesn’t just provide financing; it also provides education, entrepreneurial skills, and leadership training. RMMFI helps their clients construct the best framework for their business by teaching them these skills in their Business Launch Bootcamp. In the 8 years since it began, RMMFI has graduated 16 classes from the Bootcamp, resulting in the launch or expansion of 135 businesses in Denver. 
  • Microbusinesses like the ones RMMFI finances help foster community wealth and continuing economic impact. Research shows that children of self-employed parents in microbusinesses are two to three times more likely to engage in similar employment, growing their community economy. Business outcomes are also stronger among individuals who worked in a family member’s business before owning their own. The entrepreneurial ventures that RMMFI finances create much-needed income for the owner and their family, and creates jobs and prosperity for their community.
  • RMMFI grows jobs, income and wealth by encouraging budding entrepreneurs to make responsible, creative, and informed decisions when starting their businesses, and giving them the capital and skills to start them off. The effects are intergenerational and community-wide: RMMFI doesn’t just grow businesses, it grows communities. 
  • Awarded 2016 Small Nonprofit of the Year by the Denver Metro Chamber of Commerce, 2011, 2012, and 2014 Right on the Money Award from Consumers United Association, and the 2011 Colorado Innovation in Philanthropy Award from Bank of the West

Work is the story of Efferson’s life these days. Along with keeping the barber shop open six days a week (and Sundays by appointment), the father of four is studying to complete his Associate’s degree in IT at Aurora Community College, working to earn his pilot’s license and doing frequent gigs as a DJ after hours. Efferson also wants to open a brewery someday. He is daring to dream after a rough patch as a teen.

Helping Efferson chart his course is Rocky Mountain MicroFinance Institute (RMMFI), a non-profit that fosters entrepreneurship to create economic and social mobility. RMMFI trains and nurtures business people who are coping with poverty and other obstacles to success. Through intensive mentoring and loans, entrepreneurs like Efferson build businesses and achieve self-sufficiency.

Efferson was in the wrong place at the wrong time when he was 16 and paid a heavy price. A cousin shot another man in the foot and Efferson faced adult charges as an accessory. He served time in a program for young offenders where he first learned to cut hair. Then at age 22, just 18 days before completing his program, Efferson said he made a foolish choice. He smoked marijuana and got caught. That violated the terms of his program and Efferson ended up being sent to prison. He does not minimize the mistakes of his youth, but every day, faces the challenges of coping with a felony in his past. For instance, when he applied to drive for Lyft, they rejected him because of his record.

Challenges have fueled Efferson’s determination.

“Some people don’t want to give you an opportunity. You have to build your own bridges,” he said.

Efferson opened his first barber shop across the street from his current location about six years ago and needed help improving his business. Last year, he participated in RMMFI’s intensive four-month boot camp.

The mentoring has proved essential as was access to a $2,500 loan.

“They really helped me. It’s one thing to cut hair, but it’s another thing to run and manage a business,” said Efferson. “They provide direction and mentoring. They protect their investment by following up with you.”

Efferson recently faced a scary personal setback. He was returning late from a DJ gig in Breckenridge and was driving on I-70 when his car hit a patch of ice. The car skidded and flipped upside down. Efferson managed to unclip his seatbelt, escape from the car and wander to the side of the highway. Dazed, he watched minutes later as a semi-truck barreled into his car. Had he been pinned inside, he would have died. Efferson is grateful for his life. But he carried only liability insurance. So he lost his car, phone, laptop and all his gear.

As Efferson has worked to recover from the accident, his teachers and mentors at RMMFI have been supporting him.

“Trust is everything in this business,” said Rob Smith, executive director of RMMFI.

“Our loans are character-based. That’s why trust is so important. They need to trust that we’re going to do what we say we’ll do,” Smith said. “They’re incredible people, but some have been squashed, stopped, held down.”

RMMFI also must trust the entrepreneurs to pay their loans back. Most would not qualify for a bank loan. But RMMFI has recouped 95 percent of the $350,000 it has lent out across 150 loans since 2009.

They made the first loan to a woman from Sierra Leone who had sought asylum in the U.S.

She had grown up watching people in Africa sell goods at markets. She wanted to sell products to merchants working on Denver’s 16th Street Mall and at flea markets.

“She came to us looking for a loan because no one else would touch her,” Smith said.

RMMFI gave the woman $750. She repaid it, borrowed more, grew her business and has growing ever since.
“We think of business ownership as a transformational tool. We’re finding ways for people to preserve opportunities in the communities in which they were born. Many have rich cultural histories and deep engagement,” Smith said.

RMMFI fosters entrepreneurs from the idea stage to business launch and the “thrive” phase when they can stabilize and grow.

Anyone can come to RMMFI at the first stage to work on ideas. But entrepreneurs who qualify for the intensive boot camp must be low or very low-income people who are dedicated to their concept and complete an extensive application.

Many need help simplifying their business ideas. For instance, one woman who was making and selling burritos, wanted to jump up to owning a food truck. RMMFI teachers helped her focus first on selling more burritos on her existing route so she could increase her profits before making a big investment.

“We need to get to a place where they can see immediate success at less risk,” Smith said.

Yes, entrepreneurs need to be willing to fail. But for people living without safety nets, too much risk can be overwhelming.

“We are working with folks who are more susceptible to rent issues and child care issues. Those things can get in the way. So we work hard on ideas. Is your idea feasible? And are you feasible for your idea?” Smith said.

For the burrito maker, life sometimes gets in the way.

“But she gets right back on her feet. She has moved five times in the last five years because of Denver’s economy,” Smith said.

“If we can connect them with a resource in the community we do so. It’s all based on the needs of the entrepreneur.”

In Efferson’s case, financial advice was key. He likes providing hair cuts at schools before picture days so students can look especially spiffy. He thought that it would be great to have a mobile barber shop. But mentors worked with him to evaluate costs before taking out big loans.

“They teach you not to borrow what you qualify for, but rather what you need,” Efferson said.

During the idea phase, entrepreneurs have a range of concepts. Among this year’s participants, one man is making and selling fermented food and drinks. Another woman is providing composting for apartment dwellers who can’t access Denver’s city composting program. Urban apparel is popular among young African American entrepreneurs.

“We see a lot of food-based businesses, catering and bakers,” Smith said. “If you can prove there’s a market out there, we’ll help you launch.”

Each year, RMMFI conducts three four-month long intensive boot camps. About 10 to 12 entrepreneurs get selected for each session. That’s when they get what Smith calls the “secret sauce.” Each entrepreneur gets three mentors: a business mentor, a financial mentor and an accountability coach. The business teacher might help with the mechanics of how to grow a business while financial mentors are often bankers who focus on issues like costs and revenue projections. Accountability coaches are more like social workers. They help entrepreneurs achieve stability in their lives so they can succeed in business.

Funding for RMMFI comes from bank, community and family foundations. The micro-lender has also received some contracts from Denver and will be working on boosting business development in low-income neighborhoods like Sun Valley and Swansea.

Wherever entrepreneurs emerge, Smith says they have some common traits like those Efferson has illustrated.

“They dig in when times get tough. They question. They are willing to listen and take advice and get feedback. They’re willing to be a little vulnerable,” Smith said.

During his time in prison, Efferson focused on improving himself so he could get a second chance.

“I’m trying to follow up from when I was an adolescent and do some of the things I didn’t get the opportunity to do,” Efferson said.

And he’s trying to serve as a great role model for his kids.

“It’s not always about how you start something, but how you finish. You need to seize opportunities, stay positive and be around positive people.”