Meet Your Deployment Goals for 2014 & Beyond!

Facilitated by:Jason Friedman, Principal &Barbara Eckblad, Associate

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The Friedman Associates Team Approach

We grow organizations thoughtfully for sustainability.

We help you maximize your impact now for long-term results.

Friedman Associates

Mission: inspire nonprofit leaders to achieve

their vision for the entrepreneurs and

communities they serve - and demonstrate

the results that lead to increased funding and

long-term success.

Our Value-Added: Build Strong and Sustainable CDFIs

Develop, Assess and Improve Loan Fund Operations and Management

Improve Effectiveness and Impact of Business Development Services

Develop Key Performance Indicators and Systems to Demonstrate Impact

Strategic Planning

Board Development

Preparation of SBA, CDFI and HHS applications

Jason Friedman, Principal

• 30 years in the microfinance and small business CDFI industry.

• Consults with the federal and state governments; foundations; national and state associations; and nonprofits to design and develop programs to create equal access to capital in distressed communities.

Barbara Eckblad

• Core expertise: scaling loan programs; portfolio management; aligning of staff, products and systems; new product development/expansion; earned income strategies; loan operations systems; technical assistance deployment; building collaborations.

• Director of Lending for Wisconsin Women's Business Initiative Corp. where she oversaw all aspects of the loan fund and grew the loan portfolio by 67% over 3 years and decreased delinquency rates to below-industry standards.

• Small business ownership experience, including building an innovative commercial and residential real estate firm from start-up to largest market share, eventually transitioning the firm to employee ownership.

Building a loan fund is like building a house. Quality matters….

Key Questions for Today

1. Is our lending process efficient? Is it structured to go to scale?

2. Does our technical assistance really support our clients?

3. Is our underwriting keeping pace with changes we see in the market?

4. Do we know the risk areas in our loan portfolio? Are we paying attention to them?

5. Is our collections process getting us the results we need?

6. Are we pro-active or re-active in managing our grants?

What Does it Take to Build an Efficient Lending Process?

Staff structure and responsibilities

• How clear are staff job responsibilities?

• Tension between front line folks and back office/ops folks?

• Structures for regular communication

• Vignette: Staff book club!

Staff structure and responsibilities

• Is there an alignment of staff skill sets to job responsibilities?

• The loan application process should move from task to task efficiently with no “circle-backs” or “back-and-fills” as an ED I know likes to call them.

Institutional Capacity

• Is there full capacity for key positions?

• With growth comes the question of capacity

• Marry your growth plan to your strategic plan

• Vignette: what can you do with a .5 FTE?

Loan fund policies and procedures

• Are there clearly defined and enforced policies and procedures?

• When is the last time you updated/clarified PPMs?

• It won’t get done without these things……

• Have systems/software/grants changed?

• If you are thinking of being CARS rated you will need this done!

As for the Loan Review Committee…

• We have seen Loan Review Committees where the Underwriter votes.

• We’ve also seen Loan Review Committees where the ED and/or the Director of Lending votes.

• I have a strong opinion that neither of these is appropriate to a shop that has good governance rules and clear lines of authority and accountability.

Is Your Collections Process Getting The Results You Want and Need?

• Is collections still on the lenders’ desks?

• Is there a clear procedure for delinquencies?

• Do you have a policy for the sequencing of letters/calls?

• Do you know when to send to “legal”?

• Do you employ pro-bono legal help?

Augment Portfolio Risk Management

• Do you have a portfolio quality review process that allows senior management and the Board of Directors to adequately manage the risk present in the portfolio?

• Analytical tools to monitor identified risk areas in the portfolio.

• What reports do they review and how often?

• Do they track areas you know to be risk areas in the portfolio?

Loan Loss Reserve Policies

• Do you have a written policy?

• A solid LLR policy reserves against risk, not simply delinquencies

• Do underwriting guidelines align with risk profiles of loans?

• The “old days” are over.

Develop a Robust Technical Assistance Program

• Solid, well-deployed and implemented TA is your best risk mitigation strategy in tandem with solid underwriting guidelines.

• Does your TA program align to your organizational goals for supporting entrepreneurs?

• Does your post-closing TA program support the portfolio? Performance?

• How do you know?

Develop a Robust Technical Assistance Program

• Are lenders still primarily responsible for post-closing TA?

• Do you have good systems for capturing all the TA hours provided to your clients?

• Is it a marketing tool to tell entrepreneurs about educational opportunities – ONLY?

• What skills do TA folks need; what skills do your folks have?

Grants Management System

• My question to our clients is this: Is your grants management system re-active or pro-active?

• A complete Grants Management System starts before a grant application is ever written.

• Input from program staff before an application is written to determine scope and deliverables.

Grants Management System

• Education of program staff on deliverables

• Responsibilities/accountability

• How deliverables will be tracked/reported

• How the accounting staff will report out the financials

• Calendaring of reports

• Tracking and feedback to front-line staff on status

What organizational capacities and skills do the best microlenders and CDFIs represent?

Loan Fund Staff

• Determine the financial viability of a small business loan request.

• Underwriter’s 4 Questions

• Credit Analysis

• Qualitative Analysis

• Read and understand income statements, balance sheets, and cash flow statements.

• Understand the components of problem loan management.

Organizational Capacity

• Loan Fund Policies and Procedures

• Underwriting Guidelines

• Loan Fund Software

• CRM

• Outreach Strategy

• Technical Assistance

• Portfolio & Risk Managementtt

Time for some remodeling?

Loan Fund Assessment

• Complete review of practices, policies and procedures, and systems. Marketing and Outreach Strategy Staff Skills and Responsibilities Lending Policies and Procedures Product & Underwriting Guidelines Analytical Model & Credit Memo Portfolio Risk Management Delinquency Management System Post-Loan Technical Assistance Client Impact Tracking Capitalization Plan

• Interviews, site-visit and in-depth findings, recommendations, and action plan.

More investors require CDFIs to:

Produce positive financial returns

Produce data that demonstrate long-term impacts

Become more sophisticated in data collection and impact reporting

Become CARSTM-rated

What Is CARSTM?

The CDFI Assessment and Rating System is the industry’s independent, third-party rating of impact performance and financial strength.

A CARS™ assessment includes past performance, current financial position, and risk factors in the future. Ratings are based on five years of historical performance.

With CARS™, investors have enhanced transparency, experience greater efficiency, and make smarter investments. Leading community development finance institutions CDFIs are rated.

Disclaimer

• Friedman Associates has no affiliation with CARS™ Inc.

• Advisory services are provided to CDFIs without consultation with or benefit to CARS™ Inc.

• Our reference to the CARS® brand does not imply endorsement of our services by CARS™ Inc.

• CDFIs that are CARS rated receive two performance ratings:

financial strength

impact performance

• CARS measures the extent to which a CDFI is having the impact it sets out to accomplish, including the institution’s capacity to measure impact, and use those measures to improve performance.

Financial Strength and Performance

Creditworthiness: CAMEL Analysis

Capitalization

Asset Quality

Management

Earnings

Liquidity

Management: 25% of Score

Strategy

Governance

Management and staffing

Infrastructure and

Management information systems

• Alignment of strategy and operations

• Effective use of financial resources

• Tracking of outputs that show effectiveness

• Tracking of outcomes or impacts that show effectiveness

CARS™ Ratings and ScaleImpact Performance

What is Prep My CDFI?

• A process to prepare you for CARS™

• We assess your readiness for the rating process.

• We identify the gaps and weaknesses.

• We advise and help you on how to fill ‘em!

• We prepare you for the CARS™ site visit.

• We put you in the best shape to get the rating you deserve!

Let’s Take Your Questions!

Contact

Jason Friedman, PrincipalFriedman Associates319-341-3556jasonj@friedmanassociates.netwww.friedmanassociates.net