Five years on, a regional CDFI — or Community Development Financial Institution — has over $3 million in lending capital and a portfolio of 12 loans.
Alana Peterson is the interim director of Spruce Root, Inc., a CDFI founded by Sealaska five years ago.
The non-profit lending organization works mainly with “underserved” communities in Southeast Alaska — anywhere that is not Juneau, Ketchikan, or Sitka.
During a recent presentation to the Sitka Chamber of Commerce (4-4-18), Peterson said that most of the work of a CDFI happens before any money changes hands.
We really work with our clients. Unlike a traditional financial institution that might just take an application for a loan and put it through their system and process and come back with a response, we sit down with a client and figure out where they’re at and what they need. They might think they come in needing a loan and we’ll do some assessment about how ready they are for that. Because our target market is underserved communities in Southeast that do not have access to traditional capital sources, we find that they’re usually not quite ready for a loan. So we do that front-end work with them to get them ready, which for each person looks different.
Peterson said that there are hundreds of Community Development Financial Institutions in the country — most are credit unions. Spruce Root began as Haa Aani Community Development, and is a non-profit loan fund. The organization launched the Paths-to-Prosperity competition to stimulate entrepreneurship in Southeast, and many of its current loans are held by former contest winners.
Peterson explained that Spruce Root is not necessarily competition for commercial banks and lenders. Rather, it’s objective is to create better future customers for those services.
So what’s different about Spruce Root is that we typically, because of higher risk, have a higher interest rate than the bank. We start our interest rate at prime plus 4. And that’s to mitigate some of that risk. And then the way we talk about it to get a loan bankable, so if at some point in the loan they can refinance with a bank for a lower interest rate, that to us is a success. So we’re that bridge for an entrepreneur who for whatever reason can’t get capital through traditional means, to get them a good track record. So ideally after a year or two they’re performing, they’re making their payments on time. It’s all great, then we can move that loan over into a bank. What also makes it exciting is that because of all that front end work we do with them to get them ready for a loan, they are typically less risky of a loan than what most financial institutions take.
Peterson said that Spruce Root now has six employees, two of whom are based in Sitka. A lifelong Sitkan, she returned five years ago after earning her Masters Degree and was given the assignment of launching Spruce Root — and she even made an appearance at the Chamber of Commerce to announce her intentions. “It was just an idea at the time,” Peterson said. “So it’s pretty exciting to be at this point.”