In April 2020, in the face of the unprecedented challenges brought on by the pandemic, ICA Fund took action to support Bay Area entrepreneurs. As an organization, our mission is to close the gender and racial wealth gaps through mentoring and investing in great businesses. The slow-moving and inequitable distribution of pandemic funds for businesses was an opportunity for us to make a difference, fast. We launched the Rapid Response Loan Fund (RRLF) and made our first 0% interest loan by April 16, before many of the federal relief funds were available. To ensure the capital could be accessed by founders who needed it most, we performed no background checks and did not review credit scores. Instead, we lent to founders in our extended network, who had demonstrated resilience and trustworthiness. We deployed $1.5M across 32 companies, providing a lifeline for these businesses at a critical juncture. At ICA Fund, we know first hand what entrepreneurs can accomplish. Still, we were surprised at the impressive resilience of the companies and strong repayment rate across the fund.
Now, 3.5 years after the initial loan deployment, we’re looking back at the success of the RRLF program, shedding light on the pivotal role of flexible, founder-friendly capital plays in helping businesses not just sustain, but grow, and create good jobs in their communities.
Exceeding expectations in trust-based lending
In 2021, as the one year grace period concluded, a steady stream of monthly payments began to flow in. When we initiated the fund, we had reserved 50% of each loan as a loss estimate in our financial statements, but our initial expectations were quickly surpassed. As of Q2 2023, we have already received either converted or received repayments on 70% of the total loan fund amount. To date, only 10% have been written off due to discontinued businesses. Three companies decided to repay the total loan balance early even though there was no requirement or request for them to do so. Several of the companies showed such a strong recovery that we decided to make an equity investment in them, and convert the existing loans into equity as part of the investment. These conversions make up another 23% of initial loans deployed.
Innovative approach and community impact
The first few weeks of the pandemic caused abrupt, and dramatic cash flow issues for many businesses. By maintaining 0% interest rates, waiving fees, and deferring principal payments for a year, we eased the financial burden on the businesses. Straying from conventional lending norms, we applied our innovative approach to investing and applied it to debt: forgoing personal guarantees, collateral, background checks, and credit scores, which is typically required for deploying debt capital. We placed trust in the resilience and character of each entrepreneur, backed up by reviewing their operating history, pre-COVID performance, and ability to adapt to an unpredictable environment. We further de-risked the loans by lending within our network, either companies we had advised previously or that we met through the entrepreneur ecosystem. Many of the companies we lent to would have not been able to access conventional loans, and these businesses could have shuttered during this crisis period, removing a community serving business and good jobs from the local economy.
Instead these businesses went on to sustain, and in many cases, grow through the pandemic. The success of this loan fund demonstrates a key thesis for ICA Fund: small businesses want to grow and create good jobs, and if we get them capital, they will make great things happen.
Rapid Response Loan Fund success stories
Courtsmith, an athletic brand specializing in youth basketball uniforms, was blindsided by the pandemic's initial waves. Manufacturing disruptions and sports cancellations threatened their existence. ICA’s RRLF loan kept them solvent and gave them the time to implement their recovery plan. Since 2020, they have doubled their revenue each year and exceeded $1M in annual revenue in 2022. In 2023, they are opening additional retail locations in SoCal and continuing their growth trajectory to becoming a nationally recognized athletic brand.
Delane’s Natural Nail Care
Delane’s Natural Nail Care faced a significant setback as lockdowns halted their operations. After receiving only $4,500 from PPP, they were left contemplating personal loans to stay afloat. The patient capital from the RRLF program proved to be a game-changer, ensuring the business's survival without imposing personal risk. Today, their revenue stands 45% higher than pre-COVID levels. In addition to their in-spa regular and medical pedicure services, DNNC is proud to continue to provide foot care to elders at their homes both for treatment and fall prevention. Delane Sims, owner of DNNC states, "The value of this ICA loan can not be measured in dollars alone, the people we get to help is priceless."
McWoods Distribution Company
McWoods Distribution Company, a supplier to educational institutions, saw their revenue plummet 80% due to the pandemic’s impact on procurement and inventory management. The RRLF loan empowered them to restructure their operations, ensuring a stable inventory supply, amidst challenging pandemic-related purchasing requirements. In a time of adversity, McWoods not only maintained their business but thrived.
Rapid Response Loan Fund: Overview
$1.5M deployed to 32 companies
Terms: 0% interest loans, No payment for 1 year, 4–6 year maturity
Empowering local economies through flexible capital
Success stories like these show the importance of flexible, founder-friendly capital in keeping local businesses in our communities. In a small business financing landscape where many local businesses are deemed “too risky,” trust-based lending and investing — paired with mentorship and advising — ensures these businesses don’t fall through the cracks. What's remarkable about this project is that, during a time of extreme uncertainty, these businesses performed amazingly well — thanks in part to that lifeline of emergency capital. Founders want to sustain and grow their businesses, serve their communities, and create good jobs. At ICA Fund we are dedicated to ensuring they have the resources, support, and capital they need to achieve this.
ICA Fund accelerate great businesses through mentoring and investments to close the racial and gender wealth gaps. To learn more about impact investing practice and meet founders in our community, sign-up for the monthly ICA Newsletter.