Banking On The Work Ethic

By the end of 2005, Gutierrez and his team had raised about $1 million from a core of founding angel investors, each of whom put up between $75,000 to $100,000. But in getting there, the team experienced its share of disappointments. The keenest: A hedge fund investor was planning to put up $1 million. Based on the strength of that investor’s commitment, additional “angels” were prepared to invest an additional $300,000. But when the hedge fund investor backed out, the others promptly followed him. “A big lesson I learned was that it would always take more than three or four meetings before I was able to convince an angel investor,” says Gutierrez. Another lesson: Show progress at every meeting. “It was important to go to each meeting able to say “Last time, I said we’d be able to do these three things. We did those three things, and two additional ones, too. Over the next few months we’ll be able to do these next three things.’ ”

Building a Better Score Card

Gutierrez learned immediately that investors want to see fast and positive results, even when backing established business ventures. His was a start-up venture treading the untried waters of micro-lending in the U.S. The young CEO knew that a key to Progreso Financiero’s success was proving that their lending hypothesis, based on “moral collateral”, is as “bankable” as hard dollars and cents collateral. Proof depended on low losses and high repayments rates. Gutierrez developed a scoring model able to take into account candidates lacking traditional credit histories. As soon as he had secured sufficient investment, he set up Progreso Financiero lending kiosks in Hispanic/ethnic grocery stores and pharmacies. Gutierrez recalls that the first store to accept a kiosk took considerable convincing. A potential borrower works directly with a representative at one of the kiosks to fill out a questionnaire. Progreso requires that applicants be at least 18 years old and have verifiable incomes (pay stub proof, for example) of at least $1,000 a month. Important criteria also include whether applicants reliably pay utility, rent and other bills. During the application process representatives make sure that a customer can actually afford the loans. The company also works with customers to ensure repayment. Typically, borrowers make 16 to 25 small bi-weekly payments of equal amounts, and must do so in person. Payment dates are usually scheduled for when they receive their paychecks. “We had no idea whether our new scoring algorithm would work,” Gutierrez remembers. “We pressed ahead, brought it all to market as fast as we could, then sat back and held our breath.” The fact that “moral collateral” proved a successful loan repayment predictor is a source of deep satisfaction to the young CEO. Progreso customers enjoy fringe benefits, too. They’re able to build credit histories, which makes them eligible to secure loans from traditional lending firms. Even so, many customers return to Progreso as repeat borrowers.