The Nonprofit That Gives Broke Entrepreneurs a Chance

To revitalize inner-city neighborhoods, Minnesota’s Neighborhood Development Center backs aspiring business owners who already live there.

An instructor from the Neighborhood Development Center holds an orientation class for prospective small-business owners at the Anoka County Library just outside St. Paul, MN  
National Journal
Sophie Quinton
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Sophie Quinton
May 15, 2014, 9:02 a.m.

When Hai­y­en Vang and her hus­band, Neeson, de­cided to open a cloth­ing store, they were bey­ond broke. At age 22, they were GED-hold­ers with one Wal-Mart job between them, a tod­dler at home, and a baby on the way. They had bad cred­it, and were barely mak­ing pay­ments on an as­bes­tos-rid­den house on the north side of Min­neapol­is.

There was no way they would have qual­i­fied for a small-busi­ness loan from a ma­jor bank. But they found a part­ner in the Neigh­bor­hood De­vel­op­ment Cen­ter, a non­profit that has been tak­ing risks on low-wealth en­tre­pren­eurs in the Twin Cit­ies since 1993. Through en­tre­pren­eur­ship train­ing, small-busi­ness loans, and real-es­tate pro­jects, NDC helps loc­als cre­ate jobs for them­selves and oth­ers — and re­vital­ize their own neigh­bor­hoods.

“NDC just saw a po­ten­tial,” Hai­y­en Vang says. “Even though we had bad cred­it, we were young, they still gave us a chance.” Ten years after en­rolling in an NDC en­tre­pren­eur­ship course, she and her hus­band own a chain of six dis­count cloth­ing stores, em­ploy about 26 people, and are plan­ning to fran­chise na­tion­ally. The Clear­ance Rack is one of about 500 NDC-as­sisted busi­nesses cur­rently op­er­at­ing in the Twin Cit­ies area.

The Vangs are both chil­dren of South­east Asi­an refugees. Al­though Hai­y­en was born in Vi­et­nam, she pro­nounces “Min­nesota” with the soft “o” com­mon in the up­per Mid­w­est and pro­jects a very Amer­ic­an op­tim­ism. She’s the kind of per­son who, when un­em­ployed and vis­ibly preg­nant, de­cides to start work­ing on a busi­ness plan. “It had al­ways been a dream of ours, and even our par­ents” to own a busi­ness, she says.

In most com­munit­ies, es­pe­cially low-in­come neigh­bor­hoods, people of­ten run in­form­al busi­nesses to make money on the side. That might mean cut­ting hair in their liv­ing room or fix­ing neigh­bors’ cars. “There is just this huge un­tapped re­source,” says Mi­hailo Tem­ali, founder and chief ex­ec­ut­ive of­ficer of NDC.

It can be in­cred­ibly dif­fi­cult for low-wealth en­tre­pren­eurs to start a form­al busi­ness. Most im­port­antly, they need cap­it­al. But when people don’t have any as­sets, they can’t in­vest in their busi­ness idea them­selves and can’t qual­i­fy for bank loans, either. Re­search cited by the Small Busi­ness Ad­min­is­tra­tion’s Of­fice of Ad­vocacy also sug­gests that minor­ity busi­ness own­ers are more likely to be denied cred­it than whites, even after con­trolling for cred­it scores, per­son­al wealth, and busi­ness rev­en­ues.

Would-be en­tre­pren­eurs who don’t have much edu­ca­tion, don’t have any small busi­ness own­ers in their fam­ily or friend groups, or are new to the United States can also be held back be­cause they have no idea where to be­gin. Cul­tur­al and lan­guage bar­ri­ers can make it more dif­fi­cult to ask for help.

NDC ad­dresses all these chal­lenges, start­ing with edu­ca­tion. Part­ner or­gan­iz­a­tions — usu­ally groups that serve a par­tic­u­lar neigh­bor­hood or eth­nic com­munity — host classes and re­cruit stu­dents. NDC-trained in­struct­ors teach the courses, which last 20 weeks, cost low-in­come stu­dents $100, and are cur­rently offered in five lan­guages.

So far, NDC has trained more than 4,400 people. Al­most all stu­dents earn much less than the area’s me­di­an in­come, and most have either a high school or as­so­ci­ate’s de­gree. Eighty-four per­cent of alumni are non­white.

Wendy Hines, the trained ac­count­ant who taught Hai­y­en’s class, walks stu­dents through the nuts and bolts of start­ing a busi­ness. She cov­ers all the lo­gist­ics, from pick­ing a loc­a­tion to ap­ply­ing for a fed­er­al tax-iden­ti­fic­a­tion num­ber. She also dis­penses ad­vice: Try not to quit your day job un­til your new busi­ness is prof­it­able. Only hire fam­ily and friends you’ll be able to man­age as em­ploy­ees.

About one in five stu­dents who com­plete NDC’s train­ing de­cide to take the next step. “A lot of people say they want to start a busi­ness, but they don’t un­der­stand the work that’s in­volved,” Hines says. And not all alumni who do start a busi­ness are still op­er­at­ing a dec­ade later.

But alumni who do want to pro­ceed can also ap­ply to NDC for a small busi­ness loan. NDC’s lend­ing team looks care­fully at each ap­plic­ant’s fin­ances and busi­ness plan, and also uses former in­struct­ors as char­ac­ter ref­er­ences. As Hai­y­en’s in­struct­or, Hines could tell her col­leagues that Hai­y­en had worked hard in class, that she was com­mit­ted to her idea, and that she and her hus­band had years of re­tail ex­per­i­ence between them.

An NDC loan al­lowed the Vangs to open their first store near the south Min­neapol­is neigh­bor­hood where Hai­y­en grew up. Their ini­tial plan was to of­fer a 3-for-$10 deal on cloth­ing for the whole fam­ily. Hai­y­en filled the shelves with over­stock items. Neeson worked the overnight shift at Wal-Mart so he could work in the store dur­ing the day. Of­ten, the Vang’s young chil­dren would spend the day in the store with them.

The Vangs soon real­ized that they’d set prices far too low, and that they were stock­ing too many one-off items. So they evolved. They now charge $10 or less per item, and only of­fer wo­men’s cloth­ing, shoes, and ac­cessor­ies. When they needed ad­vice, they’d call the small-busi­ness con­sult­ants at NDC.

Ten years later, The Clear­ance Rack serves cus­tom­ers all over the city — Afric­an-Amer­ic­an and His­pan­ic wo­men in one neigh­bor­hood, Ni­geri­an and Liberi­an im­mig­rants in an­oth­er, Hmong wo­men in a third. “Every single one of our store­fronts was va­cant for years be­fore we set up,” Hai­y­en says, even a loc­a­tion in­side a mall. The Vangs have been able to pur­chase a much nicer house in a much nicer neigh­bor­hood.

Lend­ing to bor­row­ers who have noth­ing but a plan to set up shop in a low-in­come neigh­bor­hood sounds like mad­ness. “You couldn’t really cre­ate a high­er-risk port­fo­lio,” Tem­ali says. But NDC’s de­fault rate is just 5 per­cent, be­cause the or­gan­iz­a­tion sur­rounds en­tre­pren­eurs with sup­port from day one.

NDC cal­cu­lates that every new busi­ness it helps launch even­tu­ally puts $100,000 back in­to the loc­al eco­nomy each year, through pay­ing rent, prop­erty taxes, and busi­ness ex­penses. As well as en­cour­aging en­tre­pren­eurs to set up shop loc­ally, NDC also in­vests in real-es­tate pro­jects that turn blighted, land­mark build­ings in­to safe spaces for small busi­nesses to op­er­ate.

“NDC as­sisted us, but then at the same time, we helped ourselves,” Hai­y­en says. She sees fran­chising the busi­ness as a way to pass on the op­por­tun­ity of busi­ness own­er­ship to oth­er en­tre­pren­eurs like her. “It’s just amaz­ing how the cycle just re­peats. And it gets big­ger and bet­ter every time,” she says.

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