Bay Area Small Business Lender Focuses on Quality Jobs – Next City
The Equity Factor

Bay Area Small Business Lender Focuses on Quality Jobs

(Credit: Proyecto Diaz)

For Fernando Diaz, coffee is about more than a good buzz, or good conversation, or earning a living. It’s about family.

“We’re at least a four-generation coffee-producing family,” he says. They may go back even further, but there are no written records earlier than that for his family’s farm in Oaxaca, Mexico, where Diaz’s family still grows coffee beans.

In mid-2013, he took 20 pounds of his grandfather’s raw beans, roasted them at home, and started selling the first cups of Proyecto Diaz coffee on the sidewalks of 24th Street in San Francisco’s Mission District. He rotated locations, in front of three popular bookstores.

“There’s a customer base here that appreciates where it’s coming from and also somebody who is culturally connected, linguistically connected to the farming communities,” says Diaz.

Unfortunately the city health department didn’t appreciate it. They asked Diaz to shut down street sales. A friend connected Diaz to another coffee roaster, who let Diaz use his coffee roasting machine during off hours. He shifted to wholesale operations, and there are now around 25 locations that sell Proyecto Diaz coffee.

Diaz is now looking for a roasting and warehouse space to call his own. To fund the expansion, he raised $32,490 on Kickstarter and obtained a $50,000 loan from Pacific Community Ventures, a San Francisco-based CDFI (community development financial institution) that focuses on creating quality jobs — ones that pay a living wage, and provide healthcare, retirement and paid leave.

“We look for business owners who are aligned with our values and mission,” says Bob Porter, managing director of PCV’s Loan Fund.

According to the Small Business Administration, small businesses are already a key part of the California economy, employing half of the state’s workforce, or 6.5 million workers. Small businesses created 271,515 net new California jobs in 2012, with the biggest gain in the smallest firm size category of one to four employees. But it’s never a guarantee that any new job is going to come with a living wage or other benefits.

“A small business might not be able to afford to do a profit-sharing plan or benefits today, but a good business is thinking long term about what do employees need,” says Porter.

PCV is one of a wave of CDFIs that are trying to be more intentional about asking small business borrowers what their plans are for workers as they grow.

“The applications come in, mostly online, then in our first phone interview we ask about number of employees, what are they getting paid, are they getting benefits,” says Porter. “Then we ask again a year later to see how far they’ve come.”

PCV also recently tweaked its loan program, expanding its eligibility criteria and lowering its loan threshold from a $50,000 minimum to $10,000. About 20 percent of applications coming in were asking for less than $50,000 even though PCV’s website said their minimum was $50,000. Some of those businesses were turning to online lenders, says Porter, and while there are some reputable ones out there, there are so many that charge predatory rates.

Proyecto Diaz was one of the first borrowers approved under PCV’s new criteria. Things are still at ground level; Diaz isn’t taking a salary yet, and lives with his dad while he’s getting the business going. Two other partners work with him on the business, as yet unpaid. He does pay a contractor limited hours to do deliveries on Thursdays.

“I would love to give him more hours,” says Diaz. “He’s basically the face of the company now.”

With the added scale from using his own roaster and storage space, Diaz plans to start by carving out a full-time salary for himself and part-time salaries for his two partners, to be able to spend more time growing the business. From that point, as he continues to expand distribution to more locations, Diaz expects to begin hiring from the Bay Area Latino community, which still encounters difficulty moving beyond seasonal work in the agricultural sector, or other low-level service industry jobs.

Of course, Diaz is open to hiring anyone, but bringing the Latino community into every part of the coffee roasting sector is part of his vision, from roasting to marketing to management. He wants his company to be a springboard.

“There are people in the community interested in developing skills,” he says. “They can work here, make a career here, but if they want to leave here, I want them to leave with a base of hard skills and soft skills.”

To help increase the availability of quality jobs, PCV looks for lending opportunities like Proyecto Diaz that are going to put a business on a growth path by adding new machinery or other production capacity. Then it matches the business with a national network of more than 400 small business advisers, from a wide array of sectors. Of the businesses they’ve worked with so far, 70 percent last beyond five years and eventually pay living wages and provide benefits.

“We’re patient. A good business is a growing business,” Porter says.

Another crucial change: PCV has started reporting to credit bureaus, so that its small business lenders can build credit and more easily access larger loans from big banks later on.

Diaz anticipates eventually reaching the limits of what his grandfather can grow on the family farm in Oaxaca, especially as they do not ever plan to use pesticides or herbicides. (“They call it permaculture or sustainable, but for him it’s just common sense. It’s been shade grown for decades,” he says)

To grow beyond that, Diaz hopes that Proyecto Diaz can work itself out as a model for others with family in Latin America to copy, almost like a roasting franchise, one family farm at a time. Coffee is a $48 billion market in the U.S. alone. What if more of those earnings stayed with the families that grow coffee?

“There’s a lot of Latin American coffee farmers, and a lot of Latin American people in the States who have a connection back at home,” Diaz says. “We’re developing a model right now.”

The Equity Factor is made possible with the support of the Surdna Foundation.

Oscar is a Next City 2015-2016 equitable cities fellow. A New York City-based journalist with a background in global development and social enterprise, he has written about impact investing, microfinance, fair trade, entrepreneurship and more for publications such as Fast Company and NextBillion.net. He has a B.A. in Economics from Villanova University.

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