Charged Up! podcast: Helping low-income entrepreneurs get credit

Episode 48 with Just founder Steve Wanta

Charged Up! with Jenny Hoff

 



Basing loan-worthiness on more than just payment histories and credit scores, but rather trust within your community? You may have heard of microloans for entrepreneurs in developing countries, but Steve Wanta wants to bring that concept to America, helping low-income entrepreneurs start businesses that could change their lives and the lives of their families.

With his organization, Just, Wanta and his team are not only finding financial assistance in the form of microloans for low-income entrepreneurs, but also helping them develop business strategies, stronger ties to their communities and a support network as they embark on taking control of their financial lives. 

So let’s get Charged Up! about credit for microbusinesses.

Transcript: 

Jenny Hoff: Steve, thanks so much for joining me today. 

Steve Wanta: My pleasure. Thanks for having me. 

Hoff: Let’s first talk about your background. How did you get involved and inspired to help low-income entrepreneurs succeed in business?

Wanta: Really, the origin starts with my time in the Peace Corps. I was a Peace Corps volunteer in Guatemala. When I finished in 2005, I was at the right place at the right time and Whole Foods Market had just started their foundation Whole Planet, and I was hired to be the fixer and bounced back and forth between Guatemala and Costa Rica where Whole Planet Foundation had partnered with Grameen Bank, and John Mackey met Muhammad Yunus two years before he won the Nobel Peace Prize and they talked about how they could collaborate to support micro entrepreneurs in communities where Whole Foods sourced product. From there, they set out to replicate the Grameen Bank in those two countries, which ultimately meant 10 Bangladeshis were airdropped into Central America. 

Hoff: Wow. 

Wanta: Yes. So they didn’t speak Spanish. They knew how to give small loans to some of the world’s poorest people and get that money back but there was an important piece of support that was missing so I was hired to be that support, that guy on the ground. So, I did that for 10 years. The foundation grew both the money I was able to raise and also our programmatic philosophy which was rooted in those first few years in Central America. After 10 years, I left to launch Just, the organization that I oversee today.

Hoff: I love that Just helps low-income entrepreneurs in the United States, correct? Because usually when I hear of microloans, I do hear of in Africa or Central America, in different places but you focus on U.S. entrepreneurs. Can you tell me a little bit about Just and its philosophy and what it does? 

Wanta: Sure. Just invests in hardworking low-income entrepreneurs to create a more financially resilient America. We offer capital, coaching and community designed to help people make more money but we also see it’s important to build better financial habits that can potentially help people spend less or spend more wisely so that at the end of the day our higher purpose is to help people save more money. We actually say our highest purpose is to help people live with less stress and more joy. 

Hoff: Nice. How does somebody qualify? What income bracket do they need to be in? What qualifies them to be able to apply for a microloan from your company and receive that coaching which is invaluable as far as teaching them all the tools they need to really make their business efficient and successful? How do they qualify? What kind of traits are you looking for? 

Wanta: As much as we offer credit, we talk about our real product being trust. This system, for decades, has been applied around the world. We have reimagined that for the United States, both unique opportunities and challenges facing our low-income communities. So, through that, to qualify, you have to be trusted by someone that’s already in our community. So, we’ve gone through to reimagine social capital that’s critical to microfinance around the world. We’ve done that by creating a leadership layer within our entrepreneurs. So, we put entrepreneurs that are servant-leaders by nature through an eight-week leadership training program, where we give them access to unique tools and unique ways of seeing the world designed to help our leaders become lifelong learners as well as comfortable facilitating conversations within small peer groups. 

Hoff: OK. So, they go through a training program. I know that one of your core goals is that they also give back to their community. But as far as helping the entrepreneurs get their businesses off the ground, make sure that they’re getting the financing that they needed, make sure that they’re practicing good money management skills, you look at instead of a credit report from somebody which is what a lot of loans do for a lot of these people, they might be considered nonprime borrowers - so, people that basically banks would not lend money to. You guys base your trust on them on a different system. Even if they have very bad credit scores, if there is somebody within the community of your company that recommends them, that’s where you base your trust, correct?

Wanta: Absolutely. 

Hoff: So, then what does that do? Walk me through the process. 

Wanta: Sure. I think it’s really important to take a step back for a second. What is fundamentally challenged in the United States is the narrative that low income entrepreneurs are less than. So, our system today keeps people out of accessing resources that they need and capital is just one of them. So, you have to start from the first belief that people are inherently capable. If you do that, then you can start to ask the questions, how could the system be designed so they could be successful versus how do we mitigate risk? When we welcome someone to the community, we create intentional friction. So, we do that by having very simple process that they have to complete. And if they do, they’re demonstrating that they are showing up and they’re demonstrating that they’re trusted by at least two other people. And then from there, we create opportunities for them at a small group level to have support and accountability. So, each entrepreneur within Just meets on a weekly basis with their small support group that could be as small as 3 and as large as 10. We then quarterly, monthly gather all of our community to connect with one another as a space to be inspired by what is possible. So, all of these little things start to add up to a more resilient community, a hopefully more successful entrepreneur that’s saving more money. 

I think the thing that I uncovered by doing this work after being a funder for a decade is that there are really three categories of reasons why people won’t repay you in the system. Their business fails. They have an emergency. Or, they’re gaming the system. There are bad intentions. So, what were really clear on with our entrepreneurs is that no one can game the system. We have to protect one another. If we can protect one another, we’ve got a fighting chance. We’ve eliminated a third of the risk, then the other things that we do around coaching are designed to help people have, if only incrementally, better businesses as well the emergencies. We talk a lot about savings. The importance of creating your own safety net as a way to be proactive in mitigating that third area of potential risk. 

Hoff: Give me the profile of a typical entrepreneur that would join your community as far as their income goes, what kind of business are they starting, how big are these businesses. Give me a profile. Their credit history if you have access to it. What would be the type of person that would join your community? 

Wanta: Currently, we are exclusively in Central Texas. We are focused on being intentionally small right now so we can test and learn to build a scalable solution that has the client’s interest, the impact at the individual level first and foremost. So currently we serve exclusively Spanish-speaking women. Our average client has three children. Forty percent of those clients are single mothers. The average family monthly income is $3,200 a month. Really, what we see for out entrepreneurs, they range from buying and selling things within their community. Maybe selling things at the flea market to those that have food businesses, oftentimes, people in the beauty industry. And then you start to see people that do have a higher capacity, maybe a family business that has a couple of employees. The common thread between all of our clients is they don’t have access to credit designed for their success. Whether they can access that at all or they wouldn’t qualify or they have accessed predatory payday lenders in the past as a way of getting through tough patches. 

Hoff: OK. So ,they’re basically not in the credit market. They’re not getting loans. The banks wouldn’t consider them or they don’t have access to those kinds of loans for businesses.

Wanta: Absolutely. 

Hoff: So, then you guys do these microloans. How much of a loan would you guys initially give one of these entrepreneurs and where do you get that money from and then how is it repaid? 

Wanta: Starting again from our core product which is trust, that first loan that we give to new clients that have been invited by one of our leaders is $750. They pay that back in three months. It’s a very short-term loan designed to test trust, test their ability to manage that credit so it ends up being $60 weekly repayment for 13 weeks. So, we understand that small frequent repayments are better suited for our clients to help them manage cash flow. Also, it speaks to the discipline that we want to see created within our community. Since this is a money show, it’s important to be specific and talk about numbers. So, we charge $15 of interest on that $750 over the 13 weeks. It really is, from business term, we would consider that a loss leader. It’s a great way to build trust and we have 99.9 percent repayment and we’ve got 98 percent of our clients come back for their second loan. 

Hoff: So, it’s a minimal risk loan that basically is there to establish credit per se. so it’s not something that’s going to the credit bureaus but it’s your own little credit bureau in a sense where you can see how they’re able to repay if they can make those weekly payments on time, if they’re trustworthy in that sense. 

Wanta: Just to be clear, because of our age, we can’t right now, we haven’t been able to yet, but we will report to the credit bureaus. 

Hoff: OK. So eventually, this will actually also help them build a credit profile that they can use in the future when they need bigger loans for their business. 

Wanta: Absolutely. 

Hoff: OK. So, you start with the $750 loan. That’s going to take them a little bit, but obviously it’s not going to be a huge boost to their company. And then they get incrementally bigger loans as they prove their trustworthiness? 

Wanta: Correct. We will lend someone up to $5,000 in increments of $500 or $1,000. Until $5,000, it’s all trust. It’s all their ability to show up, have other people that trust them. After $5,000, we will look at cash flow. We will analyze people’s ability to pay because we talk about we offer credit but we hate that. This is an investment and we want to make sure people have the capacity to manage those investments. 

Hoff: For people who want to invest, let’s say, in Just and they want to be loan providers, do they get interest back? What is the incentive for them or is that more of a social entrepreneurship, kind of more social capital they get back? 

Wanta: No. Absolutely. We want to create systemic change. And the only way we can do that is by developing an economically viable model. Microfinance really is the forbearer to the modern impact investing that we talk about, that oftentimes people are drawn to. So, we have already borrowed money from family offices and we’re paying interest on that money. It’s a spread that we can manage. The theory is that we’ll get big enough where that spread will cover all of our cost. To date, we haven’t built a very easy way for people and the general public to be a contributor to some really cool things out there. The Calvert Foundation has a program called Yours to Own, I believe. It allows people to contribute in small increments, as little as $20 with a return of 1 percent to local community development projects. 

Hoff: Which is cool. That’s even better than you’re getting at the bank right now, as far as interest goes. 

Wanta: Yes, totally. 

Hoff: So, if it’s sitting in the bank, you might as well go contribute it to something that you can get a return and it also helps the community. 

Wanta: Yes. So, we’re in the process of becoming what is known as this Community Development Financial Institution - CDFI. There’s a group called “MyCnote.com” that’s taking this crowdsource, this peer support model and essentially making a very same argument. You’re not getting any money of savings in your bank account, so why not put it to work with CDFIs. So, there’s so many cool things that are coming out today that are marrying our business and social interests. So, hopefully we can see more of that. 

Hoff: Right. Because it’s not the kind of interest that a traditional lender would get back. They would charge a much higher interest if it was a risky business but it’s more of an interest that an individual would get from their banks. It’s a win-win situation where you can offer low interest loans to people who really need it, and the people who contribute to those loans can get more interest than they would get if it was sitting in the bank. And so, there’s a lot of companies out there you say that facilitate this process, the people, if they wanted to invest in this could get involved in? 

Wanta: Yes. There’s a few now in different sectors. I think one is called Fundrise which invest in real estate. Another, MyCNote is what I mentioned before which is focused on community development financial institutions. So yes, I would hope to see more and more. The question is, the devil is always in the details. As a programmatic guy from a foundation, I always wonder when I look underneath the hood and see how it all really works. 

Hoff: Right. Exactly. At the end of the day. These are for-profit entrepreneurs that you guys support. These are not guys starting nonprofits. 

Wanta: Absolutely not. They are really, I think, the image of someone hustling on the side, a side job or a side company in addition to their part-time work. Many single moms that need to make a little bit more money while taking care of their children. It’s a profile of clients that are really resilient. They really are capable but there’s a lot of stuff working against them. So, this access to a little bit of capital and some coaching and probably most importantly, a community of like-minded peers is -- 

Hoff: Sure. Keep them motivated. Yes. 

Wanta: Yes. 

Hoff: Absolutely. I love that idea. I worked with a social entrepreneur organization for a while which was similar in a sense where they look at people who are contributing social value to the community but through for profit companies, and then they would contribute some money in as far as consulting from business consulting which is very valuable to people who don’t have a business background. Who are some of the more interesting entrepreneurs you guys have supported or that you’ve seen? 

Wanta: There’s two that I always refer to. I think they are beautiful stories because they demonstrate the potential progress. Maddie, she started a piñata business. It didn’t go so well with her first loan but she was able to repay her loan. She learned from the experience. Then she took her second loan and then she bought party supplies, tables, chairs and she paid rent - that went a little bit better. And then her third loan, she borrowed $3,000. She could have borrowed $3,500 if she wanted but instead she took less. She bought a sewing machine and she took her own lessons on how to use so that she could sew tablecloths as part of her party business. She’s seeing the capital as a new door that’s opening and she’s able to incrementally add to her business. It’s not being viewed as this debt that she has to pay off so she can be free. She’s really seeing it as a catalyst for her future growth. And then another client that I think is so great, Reina. Single mom. Three kids. She buys and sells handbags. She runs around Austin and selling these handbags. Through our leadership program, she realized her need to have greater control of her money and her inventory. She made that decision all on her own. And through that, she challenged herself to save every $5 bill that came across her hands. So, within one month, she was able to scroll away $900 in $5 bills. 

Hoff: Wow. That made a big difference. 

Wanta: Yes. And then that story which, I think, is the powerful part of any sort of community is she’s able to share her tips and tricks with this community of people that are wanting to do the same. So we’re creating an aspirational environment where people get to share and contribute to helping other people make those sorts of changes. 

Hoff: Absolutely. And so, when you guys do your coaching and you guys provide some tips on how to better manage money, how to budget, what are those tips that you give? What is something that you would say maybe to an entrepreneur not in Central Texas? A low-income entrepreneur or somebody who’s working a side hustle, trying to make a little bit of extra money. What are the tips that you really give these entrepreneurs in order to be most efficient with their resources to make it successful?

Wanta: We really see financial education and literacy as behavior. The first step to changing a behavior or building a habit is awareness. What are we doing today? How is our past influencing our future? We have a few different exercises which are really simple and they are designed to generate greater personal awareness around your money. So, this most simple one that we do with all of our entrepreneurs is have them take a card, a 3-by-5 card and for a week, write down everything they buy. It’s very different. I would challenge you to do this, Jenny. 

Hoff: OK. 

Wanta: Write down everything you bought on a piece of paper and a pencil. It’s very different from having Mint or something other track your expenses automatically through your phone. Sure, you can look back at it but there is an emotional decision when you buy something, especially if you know you have to write it down. Everything we do, we always go through it first as a team at Just, so my experience writing down everything for a week, I realize I was spending so much money on coffee for all these coffee meetings that I had and it wasn’t one of shame that I shouldn’t be spending so much on coffee, was this now this new awareness. It was much easier for me to decide to make coffee at home first versus I think some of these money management blogs will tell you just eliminate your Starbucks latte and you’ll save thousands of dollars a year. But we would say if that brings you joy, why deprive yourself of joy? From there, that less stress, more joy that helps inform us. So, through all of these experiences that we talk to with our clients, we have them to have a mentality of an investor, which means, for us, choice. And if you spend a lot of money going out to eat with your family, you have a choice. If you decide to go out to dinner, we want you to see that as an investment in your family.

Hoff: Yes. Absolutely. So, it’s changing your mindset so that there is value to every dollar that you’re spending. How could being an entrepreneur change the life of somebody in a low-income situation?

Wanta: Well, I think that there’s something really special about the entrepreneur regardless of their status in life, whether they’re running a large company or a woman that’s buying and selling stuff at a flea market. There is this willingness to take a risk. There is this willingness to change, this desire to change. This desire to grow and believing that you’re capable. So, for us, that is why the filter of focusing on entrepreneurs is so important because we see them as this foothold into communities so that as they change and grow and evolve and improve, they’ll start to be community leaders that may affect their family or may affect others that are seeing them be more financially secure. We know that change has to come from inside out. Entrepreneurs are predisposed to that change. We believe if we can create a network of trust and role models, we can have the potential to do something pretty cool. 

Hoff: Very cool. What are three things that somebody listening to this right now who’s considering starting their own gig should consider as they get started? 

Wanta: For every person, that journey will be different. I’ve had a big guy give me a piece of advice and it was never take anyone’s advice. It was a healthy dose of irony there but, I think, is really important if you’re going to do something, understand why you want to do it, really look at that why; realize you can start incrementally too; and third, don’t be afraid to take a leap. 

Hoff: All right. And finally, what gets you charged up about helping struggling entrepreneurs learn the ropes and get a leg up in making their goals happen? 

Wanta: I get charged up by the excitement people have when they’ve been trusted seemingly for the first time. So, I get even more excited about doing that as many times as possible. 

Hoff: Very cool. Very cool. I know for a lot of people who have been through that before, who have been single parents, who have been struggling, who keep getting denied for credit cards or getting denied for loans, and they feel like they’re in a hole that they can’t get out of, I’m sure that is a very fulfilling feeling for them too, to finally have somebody say, “Hey, I’m going to give you a chance because I believe you can do it.” 

Wanta: Yes. And what we say is that poverty is a human problem that requires a human solution. 

Hoff: Absolutely. Absolutely. Great interview. Thank you so much for talking to us. Very inspirational. I think that a lot of people should either be inspired to start something on their own and see if there is help out there or to get involved in helping create more of these kinds of organizations and organizations like yours so that more people can get access to money and to loans, so they can make their entrepreneurial dreams come true. Thank you so much for joining me today.

Wanta: My pleasure. Thanks for having me.

See related: Charged Up! podcast: Becoming a successful entrepreneur


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Updated: 12-15-2017