Korean immigrant John Kim worked in New York City restaurants for 30 years before opening three large delicatessens that employ more than 100 workers. But Kim doesn’t bank with the major financial institutions that are his Manhattan neighbors. His lender is Noah Bank, which caters to Korean-American entrepreneurs and has four branches in Pennsylvania, New York, and New Jersey. “Whatever we need, they work with us. We couldn’t have done it without them,” says Kim’s wife, Maria.
Noah Bank, with assets of $228 million, is tiny compared with megabanks like JPMorgan Chase (JPM) and Citigroup (C). Yet in 2011, its first year of operations, Noah topped every other bank in the Small Business Administration’s New York district in SBA-guaranteed 7(a) loans, lending more than $88 million to 68 entrepreneurs, according to data from the agency. Most of its loans are to small, immigrant-owned ventures, says Doug Smith, the bank’s chief credit officer.
At least five of the top 25 SBA lenders nationally are banks with deep roots in immigrant communities, including Noah. Especially since larger banks have backed off small business loans following the financial crisis of 2008, these smaller lenders court immigrant entrepreneurs by looking beyond credit scores and cash-flow projections.
Small lenders in immigrant enclaves require most employees to be bilingual, and they understand how culture influences borrowers’ financial priorities and business sensibilities. Noah’s chief executive officer, Edward Shin, establishes personal relationships with entrepreneurs, visiting their companies and getting to know them. “In loan committee [meetings], Mr. Shin will ask, ‘He’s got a brother who’s married to a doctor, right?’ We’re looking for character and professionalism and family success rates,” Smith says.
Lending decisions that may look questionable on paper may make sense with closer scrutiny, says Samuel Ahne, a Korean-American attorney whose Manhattan business law practice serves many entrepreneurs. Banks catering to immigrant communities “may look like they are more liberal in lending, but that’s because they know the inside story” of their clients’ businesses, Ahne says. “They know the mother and father work there and there are a lot of people who will be willing to pay off a loan if something happens.”
Lenders catering to immigrant entrepreneurs may struggle to reach clients who are distrustful of or unfamiliar with U.S. financial institutions, says Ahne. “In Korea, if you don’t pay your loan, it becomes a criminal matter,” he says. “Your credit history controls your life. If you make a mistake, it follows you forever.” That cultural difference puts the onus on banks to do extensive customer education not often seen at mainstream U.S. banks.
While some immigrant-focused lenders, including Cathay Bank (CATY) and East-West Bank (EWBC), have assets in the tens of billions, small community banks often thrive in SBA lending. “We’re very big on hand-holding and teaching our clients,” says Jesse Torres, CEO of Pan American Bank, with $38 million in assets. It was founded in 1964 by Romana Acosta Bañuelos, owner of Ramona’s Mexican Food Products and the first Latina to serve as U.S. Treasurer, under President Richard Nixon.
Pan American also offers financial and computer literacy classes at its headquarters in East Los Angeles. Torres, who grew up in the area, estimates that 40 percent of people in the surrounding neighborhood have limited access to financial services.
Small business owners who approach him have often operated on a cash basis for years and don’t have the financial records to qualify for loans at larger banks. “We break bread with them and look at their application in a manner that larger banks are not able to,” Torres says. “If they honestly are not ready for financing, we pass them over to a nonprofit that helps them with their financial statements.”
Nonprofits and professionals like attorneys and loan brokers in immigrant communities steer clients to smaller banks that can meet their needs, says business consultant Francisco De Vivo, owner of FAJ Consulting in Los Angeles. Many of his clients believe that banks are strictly for the wealthy and well-connected, he says, because in many countries, “your last name has to be right in order for you to get a loan.” As a result, some immigrant-owned businesses reach the limit of how much they can grow without financing. “I find people doing more than $1 million a year in revenues who have never had a loan,” De Vivo says. “They’re doing it all on cash flow.”
That’s what happened to Juan Ramirez, an immigrant from Jalisco, Mexico, who has owned seafood restaurant El Rinconcito Del Mar in East Los Angeles for 25 years. The restaurant was bursting at the seams a decade ago, when De Vivo helped Ramirez get a $700,000 loan from Americas United Bank in Glendale, Calif., which caters to Hispanic business owners. The money allowed him to move into a location five times the size of his original space. “I’ve never really tried to do any major transactions with mainstream banks,” Ramirez says, “but I know they’re more strict.”