Los Angeles is becoming the U.S. center of alternative small-business lending. Over the summer, California-based microlender Kiva unveiled a new program to loan modest amounts of money to entrepreneurs in the region. Now one of America's most famous brewers has gotten in on the act.
"This all came from my experience starting Sam Adams in my kitchen 28 years ago," said Jim Koch, a cofounder, chairman, and public face of the Boston Beer Company, which kicked off the American craft-beer — or microbrewing — revolution three decades ago.
Koch was talking about Samuel Adams Brewing the American Dream, his company's microlending initiative, which debuted in Los Angeles this month with an event at the Grace E. Simons Lodge near Dodger Stadium. The program has two objectives: provide financing for food, beverage, and hospitality businesses that are too small to pursue truly big bucks; and furnish those entrepreneurs with high-caliber advice, in the form of mentoring and coaching.
Politicians on the stump often talk a good game about small businesses being the engines of job creation in the U.S. economy. However, banks are reluctant to lend to minor players. In Los Angeles, home to an unusually large proportion of small enterprises, this hole is being filled by the likes of Kiva; Sam Adams and partner Accion, a leading microfinanancier; and L.A.'s Valley Economic Development Center (VEDC).
Microlending is what it sounds like: financing borrowers at a very early stage, when risk levels are high. That risk is offset by keeping the loans small. Kiva utilizes a crowdsourced model, with donors choosing borrowers, most often from the developing world, then recycling their donations as they're paid back. Brewing the American Dream is involved with Accion and VEDC in more of a direct-lending capacity, providing a service that mainstream banks have avoided.
"There's a very serious funding gap in our economy," Koch said.
Even the Small Business Administration, the government agency whose mission is to support the small-business community, doesn't want to lend less than $50,000, Koch notes. At that level, qualified applicants are difficult to come by and the screening process undermines the end-goal: to help small businesses get a start.
"Making loans at that size is not a profitable line of business," Koch said. "That's why our program has to be philanthropic."
Brewing the American Dream isn't designed to deliver profits, which enables it to loan outside the traditional banking system, in amounts from $500 to $25,000. After seeding the program with $100,000 in 2008, Koch and his team saw regional success around Boston and decided to move into other parts of New England, New York, Ohio, and Pennsylvania — "places where we had breweries and people," according to Koch.
So far, so good. With 150 businesses financed to the tune of $1.5 million in total, Brewing the American Dream has a 95-percent repayment rate.
For Koch, it's all very personal. And it's more than just a check. For him, much of the real value is in the mentoring.
"When I started out, there was a lot of stuff I didn't know how to do. I'd gotten a Harvard MBA and had worked as a management consultant, but I didn't know how to print a label or do many of the practical things that often cause small businesses to fail if they aren't done right."
Koch needed money to realize his vision for a new kind of American brewing. But he also needed nuts-and-bolts business advice. In fact, that need led him to create Brewing the American Dream in the first place.
The epiphany, Koch said, came from a community service day that the Boston Beer Company and its executives participated in.
"We all went out and spent a day cleaning out a community center and getting it painted," he recalled. "Everyone was feeling good."
Everyone except Koch — because he didn't think they'd added value. "We spent $10,000 worth of management time to do $2,000 worth of painting. And we didn't even do it that well."
Koch wanted to do more. And he wanted to make better use of his company and its management's unique experience — its knowledge base, its intellectual capital.
"Despite 28 years of business, we're still a small business and we still think like a small business," he said.
So the microlending program was leveraged with a second element: coaching and counseling that small businesses typically don't have access to. Over time, this led to "speed coaching" sessions of the sort that Brewing the American Dream offered recently in L.A. Aspiring entrepreneurs get quick, 20-minutes sit-downs with a representative of Brewing the American Dream.
Koch likened it to speed dating and said it's this innovation that's been most effective for the program.
"Companies are nonchalant about charitable activities," Koch said. "They don't hold them to the same standards as the business."
This offends Koch's entrepeneurial zeal ‚ his desire to make even small amounts of money have a big impact. His company, for example, makes up only one percent of the U.S. beer market. But if you ask anyone who has observed the vast changes in the way that America drinks beer over the past thirty years, you'll understand that Sam Adams has had an impact that far outweighs its market share.
Koch is now translating that into the microlending framework. And in this area, excellent advice is what really sets Brewing the American Dream apart. "if you're going to do something philanthropic," he said, "you need to make $1 do $5 of work."
And he wants $1 million to do that work, starting this year.
Sam Adams comes from the East, but when it comes to small business, Koch was quick to point how how ideal the Los Angeles area is for the national rollout of the program. After all, the region is second only to the New York metropolitan region for small-business activity, according the the Census Bureau.
"L.A. has tons of very small businesses that are currently underserved, as well as a very active, energetic community. There's a lot of food activity. And artisanal food and craft brewing are the sweet spots."
So far, Brewing the American Dream has made loans to a bicycle-powered ice-cream maker (not making this up) in Downtown L.A. called Peddler's Creamery, and also a coffee shop, Lord Windsor Roasters.
"But I won't be surprised if we eventually have a craft brewer," Koch said.
You have to give it to the man. He's come a long way in 28 years. But he hasn't forgotten how it all began.