Using GIS to Determine Business Loan Eligibility

Scott Eckersall

Los Angeles Community Development Bank (LACDB) manages loans given in federally designated enterprise zones and other low-income areas of Los Angeles. To qualify for such loans, businesses must meet several requirements, many of which are based on location. GIS provides an easy way for LACDB to rapidly automate eligibility determination. The GIS loan eligibility application for LACDB was developed in Esri ArcView, using Avenue. Automated reports are generated in ArcView and in Microsoft Excel.

Background

President Clinton
"We cannot repair the American community and restore the American family until we provide the structure, the value, the discipline and the reward that work gives."

Vice President Gore
"The greatest challenge to our economic strength is here at home where too many of our inner cities are distressed. That is what we intend to change. I believe we can do it."

Secretary Cisneros "Los Angeles' Community Development Bank can serve as a model of innovation and creativity for the rest of the nation. It can create new partnerships among all members of the community to rebuild our neighborhoods."

Assistant Secretary Andrew Cuomo "In order to truly create communities of opportunity, we must invest in the people who live in those communities. The best investment we can make is to provide quality jobs for residents."

Mayor Richard J. Riordan "The Los Angeles Community Development Bank will provide a real economic boost to targeted communities, putting working capital into the hands of business owners to create quality jobs for Angelenos."

April 29, 1992. Large-scale riots tore through the City of Angels, leaving most wondering what happened, where they would go to work in the morning, where they would buy milk, and how long it would be before they would see their community back the way it was. Five years later, many burned-out shells of buildings remain, but the monumental task of rebuilding Los Angeles has been quietly moving ahead with the help of new federal, state and local programs aimed at pumping funds into riot-torn areas and other blighted communities.

In December, 1994 the Clinton Administration announced the Empowerment Zone/Enterprise Community (EZ/EC) Initiative, earmarking nearly $4 Billion to 105 blighted communities in 42 states. Such funds signaled a new partnership between Washington and America's communities -- a partnership that began to recognize the importance of a bottom-up revitalization process where people could seize opportunities for themselves. Rather than imposing restrictive federal mandates on America's communities, this effort recognized that local residents know best how to solve their neighborhood's problems. And it began to reward communities that bring together many local partners -- residents, business people, state and local government, nonprofit institutions -- to make these solutions a reality.

The Los Angeles Community Development Bank is one vehicle for distributing EZ/EC funding to startup businesses and those looking to grow an established business. The common denominator is the location of the business. For the EZ/EC Initiative is focused on revitalizing areas that rely on local businesses as service providers and employers.

 

About the Bank

MISSION
The mission of the Los Angeles Community Development Bank (LACDB) is to promote a positive investment environment and sustainable jobs for residents and others within the Los Angeles Supplemental Empowerment Zone. The LACDB, working in partnership with community institutions, businesses and civic leaders, provides non-traditional loans, venture capital, technical assistance and the connections that successfully attract, start and expand business opportunities.

HISTORY
As part of an expansion of the federal Empowerment Zone and Enterprises Community Program, Los Angeles was selected as the site of a unique and experimental community development bank. The Los Angeles region was granted a Supplemental Empowerment Zone, making it eligible for special economic development funding from the Department of Housing and Urban Development (HUD)
In 1995, HUD began working in close partnership with the City and County of Los Angeles, community lenders, and a handful of commercial banks to create the LACDB. Numerous economic development groups in the zone area participated in the early cooperative planning process. By January 1996, arrangements were finalized with HUD to obtain access to $1 million in working capital to assist with start-up operations for the LACDB.

ZONE COMMUNITY
The zone encompasses a geographical area 19 square miles in size and includes communities such as Pacoima, Boyle Heights, the East Downtown Corridor, the Historic Corridor, Central Avenue, the Slauson Industrial Corridor, the Broadway District, Watts, and Firestone and Willowbrook. The LACDB is guided by representatives of the communities that it serves, with the goal of providing financial backing to community-based business enterprises that in turn provide the quality employment opportunities essential to the rejuvenation of these neighborhoods.

BORROWER PROFILE
The bank makes loans to new or growing business within the zone. The bank also makes loans through intermediaries, such as established community lending programs, to finance job-creating businesses in the area. In addition, the LACDB partners with commercial banks as a co-lender, putting together non-traditional loan packages of multiple lenders or loan guarantors to bring near-bankable loans up to standards required by commercial banks.

LOAN PROGRAMS
The LACDB operates a variety of programs to assist new and existing businesses, including the following:

FUNDING
The LACDB is capitalized with $430 million in HUD-approved economic development assistance funds. Capital comes from a combination of $115 million in city and county Economic Development Initiative (EDI) grants and $315 million in HUD loan guarantees. In addition to federal money, commercial banks have committed to lend up to $210 million for LACDB-financed projects.

LOAN ELIGIBILITY
Any individual, organization or company interested in doing business in the zone, and who meets the lending standards and criteria of the LACDB, as well as HUD program requirements, is eligible to receive LACDB financing. The bank does not reserve loans for minority-owned businesses only; there are no ethnic restrictions to eligibility.

Like a commercial bank, the LACDB must guard against loan defaults if it is to meet its own financial obligations and recycle funds from repaid loans into the community. Thus, the LACDB lends money only to businesses that have the capacity, collateral and character to repay their loans, although its lending criteria is more flexible than that of commercial banks.

For instance, the LACDB may consider loan applicants that haven't been in business as long, or that have a shorter history of showing a profit, or that have higher levels of existing debt or a credit record that isn't as strong as commercial banks typically would require. In fact, its loans often may be to applicants that have been turned down previously by commercial banks or other lenders, such as the Small Business Administration.

FINANCIAL INTERMEDIARIES
The LACDB works with existing community-based economic development groups to help identify projects and businesses that fit LACDB criteria to receive financial assistance. These groups serve as financial intermediaries and are a direct link between the community and the bank. Financial intermediaries either serve as lending agents for the LACDB or as loan packages and have a contractual relationship with the bank. The LACDB Board of Directors is currently working with HUD and the city and county to define who is eligible to participate as a financial intermediary, what their role will be and how their activities will be monitored.

 

Loan Eligibility Determination

The LACDB uses a number of factors to determine whether a business is eligible for loans under the EZ/EC Initiative. First and foremost, the business must lie within an Empowerment Zone or Enterprise Community. A business can also qualify if it is within a 1-mile buffer of an Empowerment Zone and 51% or more of its empolyees reside within the Empowerment Zone. Businesses can also qualify even if they are not within the Empowerment Zone or the 1-mile buffer: if they are in a low-income census tract or block group. To summarize, LACDB provides loans to businesses meeting any one of the following criteria:

Before LACDB began using GIS to automate this process, loan officers were using several marked-up map books and printouts of census data to determine loan eligibility. Each time a business called LACDB, the loan officer had to sift through multiple map books and data printouts, a process that could not be easily repeated or documented, and could take an hour or more. Aside from queries from specific busineeses, LACDB occasionally receives calls from various politicians about the number and amount of loans made in his district. This required the loan officer to look up specific addresses in yet another set of map books with political overlays, another time-consuming process.

 

Enter GIS

LACDB hired Psomas to develop a GIS application to automate the loan eligibility process. Psomas is a Civil Engineering and Surveying consulting firm with 20+ years of GIS planning, implementation, applications, and data conversion experience. This application was designed to be simple to use, yet be powerful enough to greatly speed up the process of determining the location of a business and its relation to the underlying Empowerment Zones, Enterprise Communities, and other demographic data. The LACDB does not and should not need GIS professionals for this task. It is simply one piece of the loan eligibility puzzle meant to be carried out by experienced loan officers.

ArcView was chosen for the project because it is a relatively easy-to-use and easily-programmable GIS software package. It can be used to create simple custom applications, yet be used by the power users to create custom maps and carry out special analysis. Some alternatives considered were a desktop application built in Visual Basic and MapObjects, and an Intranet-based MapObjects IMS approach. ArcView was chosen because all core functionality is already included. With a MapObjects or MOIMS solution, all functionality would need to be built from scratch.

 

The Application

The application itself is a wizard that steps the user through the entire process. The user is prompted for details about the business, a few "yes/no" questions are asked, and the reports are generated. Most of ArcView's user interface was hidden, so the user would not be overwhelmed. The interface was only removed for this application, so the full functionality of ArcView is still visible when run outside the application.

 

To begin, the loan officer enters the address and pertinent information about the business. The zip code may be left blank if it is not know. Most information other than the address is simply shown on the reports, and not used in the eligibility determination process.

 

A list of relevant addresses appears. This list was generated by geocoding the address over a Los Angeles County street centerline data set. The resulting candidate list is accessed through Avenue. The user chooses one of these addresses.

 

The chosen address is again geocoded as a single match. The map shows empowerment zones in light blue and the 1-mile buffer in dark blue. This particular address lies within the Empowerment Zone. This point is used to overlay the following data sets:

 

The results of the search are displayed in the Business Program Eligibility Report. It is an ArcView layout that shows a map of the business location and all pertinent data. It is this report that provides the paper trail necessary to return later and answer questions about how eligibility was determined, as well as how many loans were made in a certain political jurisdiction.

 

If the business happens to be inside the one-mile buffer, the loan officer has the option to enter employee addresses one-by-one or into an Excel file. The Program Objectives Status Report shows these addresses, while ArcView geocodes each address and outputs all zones and jurisdictions to the report via DDE.

All geographic information pertaining to a business is also obtained and shown for each employee.

Totals and percentages are shown for all columns, so the loan officer can see at-a-glance whether or not 51% or more of the employees reside withint an Empowerment Zone.

 

Results

LACDB has simplified the process of determining business loan eligibility in the following ways:

The inner workings of the application are quite simple. There is no advanced spatial analysis going on; it is simply geocoding a point and overlaying that point with several polygon themes. Yet this simplicity is precisely what LACDB was seeking. Even a simple process like geocoding a point can reduce a 2-hour process to one that only takes a few minutes. The real power in using GIS is the sheer speed with which calculations are processed. Also, each loan officer is now producing exactly the same report, and business eligibility can be duplicated if necessary. There is also the ability to access a centrailzed set of data. No longer are there multiple and potentially out-of-date map books floating around the office.

Overall, the Community Development Bank has been quite pleased with the time savings afforded by using this application to quickly screen prospective business loan applicants. Psomas continues to work with LACDB to seek ways to automate this and other processes further.

 

References

 

More Information

Scott Eckersall
Manager of Product Development
Digital Map Products