About Lend for America

Lend for Americawas founded in October 2009 to drive forward a national movement — college students across the country starting microfinance institutions to spur economic development in their campus communities.

Throughout urban America, the working poor struggle to make ends meet. Many have started small businesses as a way to take control over their financial lives, working as cooks, cleaners and handymen to provide extra income for their families. The problem is that many of these entrepreneurs lack the tools to build a successful business. No one has taught them the right way to manage cash flow, to price products or to create a business plan. Nor do they have access to the financing that could help them expand their businesses.

Meanwhile, thousands of college students hunger for a substantive way to make a difference in their communities. They want to be part of something that calls not only for manual labor, but for intelligence and analytic ability as well. They want to lead a movement in which profitability and social responsibility go hand-in hand.

Microfinance is that movement, and college students are uniquely positioned to deliver it to America’s low-income entrepreneurs. The recent financial crisis has created new challenges for U.S. microenterprise organizations struggling with issues of sustainability and scale. With grant and donor dollars curtailed in this environment, the search for innovative business models that lower the cost of service delivery and require lower levels of donor financing, is more imperative than ever before.

Lend for America supports the student-led MFI movement through a national platform that provides training, networking, funding, and research. In the last year, we reached over 500 students across 32 states through our programs, which include a year-long fellowship program, annual conference, and on-site, intensive technical assistance. We were featured on CNN, researched by the Aspen Institute, funded by Capital One, and we won an innovation award from Ashoka. There are now more than 15 groups that belong to Lend for America that extend nationwide, and we get calls every other week from students at other schools who want to join and start new organizations.

Watch the documentary below about the Community Empowerment Fund, a Lend for America member organization started in Chapel Hill, NC:





Using this Guide

Lend for America (LFA) compiled this resource for students to have an always available reference during the first three years of start-up. The material and resources in this kit have been written and created by student leaders and LFA staff. This guide is for emerging campus based organizations to determine whether their community can support a microfinance initiative and outlines best practices for getting started with offering microfinance products and services. Several additional resources on microenterprise development and student leadership are referenced in the last few sections. We encourage you to rely on these resources to avoid common mistakes.

Steps to Start Up

To start, follow steps we identified below. This will help to document ideas and resources that can be leveraged as you are building a new organization. Additionally, it is important as you begin fundraising and raising visibility around your products and services that you demonstrate real effort in assessing need and demand for this new organization. Download this PDF of steps to follow while starting up a Campus MFI.

Step 1: Is microfinance right for your community?

What you need: 2 to 5 people and $50 or less

The first thing to do before starting is to figure out if there is a need for what you would like to start in the community. This step is not difficult or expensive, but it is important to learn about your campus community and what services already exist for your potential target market.

Host a focus group, ask small business owners to fill out a questionnaire, and set up meetings with local nonprofits. Begin to narrow your target market and learn who your ‘ideal client’ is - see the Chapter on Marketing for an in-depth guide on completing this step. Completing this step will lay the groundwork for building credibility within the community you will be working with. It will also help you to craft a compelling vision to describe your organization’s niche to funders, advisors, and staff.

Do it yourself:

Sample questions for business owners (focus on small scale businesses such as food carts, landscaping, cleaning services, entrepreneurs who are venders at farmers markets, etc):
  1. How did you get started with your small business?
  2. What are some challenges you face with growing your business?
  3. What community groups are you involved with in the area?
  4. Have you ever applied for a loan for your small business? If yes, how was that experience? If not, why?
  5. Have you ever attended a business training course? If so, what was it like and was it useful?
  6. Are there topics or themes you’d like to learn about to further develop your small business?

Sample questions for nonprofit service providers:
  1. What resources are available to the community to address issues of ? (predatory lending, lack of access to capital, access to affordable housing, etc)
  2. What are some barriers community members face to accessing these resources?
  3. What is your most significant challenge as a service provider in this community?

Tips:
  1. Keep in mind the difference between asking questions in a curious, empathetic manner and treating community members like specimens in a science experiment. Leave your clipboard at home.
  2. The dialogue should feel natural. When you stumble upon interesting information, dig deeper, and continue with questions that pertain to that topic.
  3. Please refer to Marketing for Micro 101, an Aspen FIELD publication with additional background information on determining your target market. (http://campusmfi.org/files/Marketing-Handbook.pdf)
  4. State your reason for asking these questions: “I'm exploring starting a campus organization that will focus on XX so I'm here to learn from community members”.


Step 2: Determine Which products and services to offer


What you need: 2 to 5 people and $0

Based on your community outreach completed in step 1, what products and services should your campus MFI offer? Here are some ideas for types of financial services other campus MFIs offer:

a) Microloans under $5,000 for businesses
b) Kiva Zip Trustee: Offer technical assistance to help business owners access loans
c) Credit Builder loans
d) Citizenship Loans
e) Consumer savings products
f) Training classes for business owners and entrepreneurs
g) One on one financial coaching for business owners
h) One on one financial coaching for individuals

Frequently Asked Questions about Start-uP

  1. Where did you find your seed money?
  2. Was getting fundraising first or getting clients first a priority?
  3. What other challenges did you face?

Intersect Fund responses:
1) We got a $1,000 grant from the foundation of a small community bank headquartered in New Brunswick.

2) Getting clients was the first priority, as the folks we talked to about raising money weren't taking us seriously without them.

3) Main challenges were recruiting students willing to do the hard work involved, learning about the NB community, its needs, and channels to reach them, and gaining the confidence and learning the material necessary to deliver valuable business development services.


Elmseed Enterprise Fund responses:
We started with a $20,000 grant from the Yale Entrepreneurial Society. While I can't speak on behalf of the founders, based on the size of the grant I would assume that after receiving it they were then focused on developing the business model and getting clients. We've faced numerous challenges through the years. We've tried group-lending, membership-based, integrated consulting and loan, and are now completely distinguishing between consulting and loan clients. Other challenges include information management/transfer, staff turnover, and loan delinquency (to an extent - our repayment is still 86%).


NewFIELD_logo.jpg

Marketing for Micro 101:

Drawing lessons from around the country
By Luz Gomez

"The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself."
~Peter F. Drucker

This is not your typical marketing how-to guide but rather a synopsis of important elements to consider as students embark on offering microenterprise services in their local communities. This publication offers an array of marketing experiences and some lessons drawn from microenterprise organizations across the country. It also introduces important marketing concepts such as defining a target market, the implications on product/services design, and the incorporation of evaluation. The hope is that students will reflect on the lessons and devise their own strategies to serve low-to-moderate income small businesses in their local communities.

Reprinted with permission from the Aspen Institute FIELD Program

FIELDStudentMktHandbook




Products and Services

Before deciding which products and services you wish to offer, consider what you have already uncovered by observing and getting to know your community. Evaluate your objectives and consider these questions, which will lay a foundation for the products and services you could offer.
  • What is the problem you are trying to solve? Are you working to foster entrepreneurship in disadvantaged communities? Does your mission center around poverty alleviation more broadly?
  • Who is in your target market?
  • What is the need in the community that you can meet, given your available resources?

Lending

Loan Product Delivery

TRAININg Classes and workshops

Credit & Credit Building

Product and Service Pricing






Chapter 3a: Loan Products

Business Loans


Small or micro businesses in the US make up more than 80% of all US business according to the Association for Enterprise Opportunity (AEO). Many microenterprises are served by local or national banks to access checking accounts, however, access to a credit line is not so easy for small businesses. Several businesses are indeed, ‘micro’ and need less than $10,000 to get started, to keep operating, or to expand. Most banks provide business loans but don’t offer loans under $50,000 – some banks won’t offer loans below $100,000. Microloans are known in the US as small business loans for up to $50K. The Small Business Administration (SBA), an agency of the Treasury Department, supports microlending through grants and loans to SBA Microloan Intermediaries, nonprofit organizations that offer microloans. The SBA reports the average microloan in the US to be about $13,000.

Microloans are used for working capital, to buy inventory, furniture, and equipment. Terms, interest rates, and fees vary according to the size of the loan, planned use of the funds, requirements and costs of the lender, and needs of the entrepreneur. Lenders set their own lending and credit requirements, however, frequently lenders require some type of collateral as well as the personal guarantee of the business owner.

Student-led organizations have offered microloans to entrepreneurs between $100 and $10,000. Each organization sets its own terms and has its own requirements. See below for examples of microloan products student-led organizations offer.

Organization
Intersect Fund
Capital Good Fund
Elmseed Enterprise Fund
Amount
$400-10,000
$500-5000
$2000-4000
Interest Rate
15% + 5% fee
15%
10%
Collateral
Secured
Unsecured
Unsecured
Terms
6-18 months
12-18 months
12 months
Credit Building
Yes
Yes
No

Consumer LOANS

Microenterprise development serves to help entrepreneurs grow their businesses. Microlending, however, is not limited to business development. Several lending products are created for consumers who are not necessarily entrepreneurs. Not all microlenders offer loans solely for entrepreneurial ventures. Lower-income Americans have wide-ranging credit needs— such as buying a computer, applying for United States citizenship, and personal emergencies —that microlenders can meet. Additionally, sometimes the best first step for an entrepreneur to access a business loan is to work on his personal financial performance to build his own credit.

Consumer loans are regulated differently than business loans in some states and require additional legal considerations. See the Chapter on Legal to read about some of these legal considerations. The benefits of consumer lending, however, are significant. Consumer loans put you in touch with a wider range of organizations and people. In addition, certain loan products can become revenue streams.

Lastly, these types of loans provide an entry point for other products and services. In other words, someone might start out with a citizenship loan then, after paying it off, take a business class or business loan. The more entry points you have the more relationships you can build with clients.

Credit Builder Loans

Credit Builder loans are small consumer loans (approx $300-2000) that can help a client increase her credit score. These ‘step’ loans help build a positive credit relationship with a community lender. Reporting positive payments to the credit bureaus is one technique to help a client increase her credit score and practice making on-time payments. Positive repayment history over 6 months has been shown to improve a client’s score 50-100 points. The success of this technique greatly depends on the client’s previous credit experiences (how much debt, late payments, open accounts, etc) and it is important to remember building credit requires a customized approach for each client.

The Intersect Fund offers a credit builder loan of $600 that helps the client build credit by opening 3 accounts. After a client is approved for this loan, she gets 3 accounts opened. First, a $400 deposit is made to her checking account. This is an installment loan that gets reported to the credit bureaus and that the client pays back to the Intersect Fund. The $200 is an additional installment loan that the client pays back to the Intersect Fund, however, the amount is used to pay the deposit for a Capital One secured credit card that the Intersect Fund opens for the client. The client now has 3 new accounts reflected on her credit report.

About the Credit Builder Loan: Interest Rate: $120 Flat Fee; Term: 12 months; Monthly Payment: $60; Collateral: Unsecured

Citizenship Loan

When the Capital Good Fund was undergoing its research phase, they heard from a lot of community groups—and members—that a significant need among immigrants is financing the roughly $875 cost of applying for US citizenship. Capital Good Fund’s mission is broad enough that this kind of loan product made sense. The Citizenship Loan covers the cost of becoming a US citizen for legal residents of Rhode Island. As citizens, borrowers can participate in the democratic process and push for change at the ballot box. Citizens also gain access to more social services and can petition family members to come to the US. The Capital Good Fund requires no collateral and no minimum credit score from our borrowers. Lending decisions are based on character and ability to repay. Borrowers pay back the loan in twelve installments; the repayment of this loan also helps build a borrower’s credit score.

About the Citizenship Loan: Amount: $875; Fixed Interest Rate: 15%; Loan Term: 1 Year; Credit Building: Yes

Employment Loan

The Community Empowerment Fund(CEF) provides no-interest loans of up to $300 for persons in need of employment or self-employment assistance in the greater Triangle area. CEF loans are meant to directly assist borrowers in acquiring or expanding employment opportunities. This includes, but is not limited to, loans for the purchase of goods, trainings, start-up funds, equipment, tools, uniforms, and transportation costs. Loans are given on the basis of the application process, which includes the following written application and a personal interview. Priority is given to applications which include referrals from social service agencies within the greater Triangle area. Upon approval, a flexible repayment schedule will be worked out according to the client’s financial situation.

Upon entering into a loan with CEF, all borrowers also agree to enter a program. CEF’s program is meant to better enable all borrowers to repay their loan by equipping members with the tools and opportunities needed to succeed. Programmatic requirements include:
  • Group meetings: Borrowers will be paired with other members of the program and required to attend weekly group meetings. Repayments will be made during this scheduled meeting time, and all borrowers in the group will be able to use this time to address any issues with their loan officer and to network with each other.
  • Workshops: To financially empower borrowers beyond the terms of their loan, borrowers will be required to attend financial literacy trainings. Depending on a borrower’s skill set and stated needs, additional workshops may be required (i.e. vocational trainings, computer literacy).
  • Savings program: CEF emphasizes the importance of personal and group savings throughout the loan term. Borrowers will be required to save a percentage of their income throughout the loan term, and will make deposits to their personal savings accounts along with scheduled loan repayments. To ensure that the savings account can become a tool to transitioning out of homelessness, borrowers will have limited access to their personal savings accounts until their loan is fully repaid.

In addition, in order to participate in the program, CEF requires the borrower to deposit a fixed amount of their own funds into savings before the loan is dispersed. This amount will be matched by CEF.

Rehabilitation: In the case that a borrower has a history of substance abuse, mental illness, or alcoholism, CEF will consult with the relevant service provider(s).

NOTE: For all of these requirements, CEF loan officers will work with borrowers on an individual basis to determine appropriate and manageable levels of each requirement.

Additional ideas for consumer loan products:
  • loans that help ex-offenders pay off fines so that they can reinstate their drivers license
  • loans that enable lower–income individuals to invest in energy-efficiency, for instance by covering the purchase and installation of a programmable thermostat
  • alternative payday or emergency loans

Group Lending

A lending circle is a group of individuals who come together to receive a group loan. Lending circles are organized in many different ways and are popular in countries all over the world. The classic group lending model was pioneered by Muhammed Yunus in Bangladesh and is currently being used in the United States by Grameen America. In this model, each member of a lending circle receives a small loan to start or expand a small business. No collateral is required of any member of the lending circle because the group model encourages members to provide peer support to one another. Each borrower is individually responsible for his or her own loan, and Grameen believes the group model provides a social network to promote financial responsibility which leads to higher repayment rates. More information about Gramen's model is available on their website here.

Another group lending model is being deployed by the Mission Asset Fund in San Francisco. Their method has formalized common savings circles and requires each individual to contribute a small amount each month. The collective amount is ‘lent’ to one of the group members. Each month, every member continues to contribute the same amount and another member receives the total until each member has had a chance to receive the loan. The idea is by relying on trust created naturally through community relationships everyone can benefit. There is often a group leader who collects everyone’s contributions on time, keeps them in a safe place, distributes payments, and keeps track of who receives the next distribution. Additionally, Mission Asset Fund reports these loans to the credit bureaus to help their borrowers build credit. Read more about their model on their website here.

Individual versus Peer Lending


Advantages to Peer Lending:
  • Efficiency: Because group lending allows one loan officer to serve many people at one time, it can be a cost-effective delivery model. However, a lot of up-front work has to be done to set up the groups, handle logistics, explain the program to people, recruit clients, and train people in the group model.

  • Social Collateral: Because the poor often lack traditional collateral for securing a loan, group lending creates “social collateral” to ensure high repayment rates. Though group members are not responsible for each other’s loans, there are repercussions if one group member misses a payment. Upon group formation, the group can select the two members that most urgently need the loan; those two members then propose their loan to the group and, if the group approved the loan, the group leader then makes a proposal to the MFI. Once those two members receive their loan, they must make two consecutive loan repayments before anyone else in the group gets a loan; if they miss a payment, no one else can get a loan until they are on time. Once everyone in the group has received a loan, the performance of the other group members affects the extent to which each borrower’s loan ceiling—the maximum amount of money they can borrow—increases in subsequent loan cycles. Creating social collateral, especially in the United States, can be very challenging. It is essential to create consistent rules up-front around attendance and clear criteria for taking out a loan. Even then, loan officers must be vigilant to avoid a weakening of observance of the rules which can lead to poor group attendance, late payments and, eventually, loan defaults.

  • Network of Peer Support: The weekly meetings with the borrowers are an incredible chance to get to know the clients on a deep level and provide far more support than an individual borrower would get. In addition, the borrowers often support one another and develop a tight knit community of people looking to better their lives. Making sure that the weekly meetings are about more than just collecting loan repayments requires that you have a curriculum, staff trained to implement the curriculum and clients that feel it is worth making the trip to the group meeting in order to learn from the weekly lesson.

  • “Outsourcing” your underwriting: One of the most beautiful aspects of group lending is that it allows you to outsource your underwriting to the group members themselves. That is, you rely on the dynamics and rules of the group to ensure that the group will not approve a loan that the borrower will not be able to repay. Of course, the MFI has ultimate say as to whether or not the loan is approved, but because the group does a lot of the initial groundwork the process becomes much more simple for the MFI. This only works well when the dynamics of the group are well-established, the rules are clear and consistently followed, and all participants understand the nature of the group commitment and intend to live up to it.

Disadvantages to Peer Lending:
  • Nuances: Many people have said that group lending cannot work in the United States because we have a more individualized culture. While this is debatable given the diversity in American cities, it is definitely true that group lending is nuanced and only works when done right. In other words, the dynamics within the group, the incentives and just about every other aspect of the group structure must be right.

  • Commitment: Because the group meets once per week, every week throughout the life of the loan, student-led MFIs may struggle to find a loan officer that can attend the group meeting every week of the year. The group structure can break down easily and lead to defaults.

  • Culture: Many people are resistant to the idea of joining a group. In order to overcome this, you have to be very good at explaining the nature of the program and, most importantly, find the right people for the program. We have found that the “right people” are any group of individuals that have a shared, common goal—such as getting out of poverty—or are working on a shared issue—such as learning English or getting off of drugs. Another great way of overcoming the resistance to group lending is to form the groups during a mandatory business-training course during which potential group members get to know one another and their business ideas while also learning more about how to run a business.

The logistics of group lending can, simply put, become a nightmare. Group meetings can easily degenerate into a series of phone calls seeking to discern the whereabouts of missing members. It can be hard for the group members to take a bus, walk or drive to a group meeting in the middle of the day when so much else it going on in their lives and so many things come up--illness, events, emergencies, job interviews, etc.

Individual Lending: Individual lending resembles the kind of lending that banks do, with the obvious difference that the requirements of microlenders are much more flexible. Borrowers go through an individual application process and make repayments individually.

Advantages to Individual Lending:
  • “Light-Touch”: Once the loan is issued, you usually only need to be in touch with the client once a month to see how they are doing and to remind them about their loan payment. What’s more, loan repayments can be handled via an Automated Clearing House (ACH) withdrawal from the borrower’s bank account, making the repayment process much easier.

  • Familiar: If the goal is to empower borrowers to eventually take out bank loans, then individual lending will familiarize them with the process.

  • Easy to explain: Unlike group lending, which is unique, it is easy to explain and market individual loan products to potential clients, funders, etc.

Disadvantages to Individual Lending:
  • Harder to underwrite: the challenge with underwriting individual loans is that it takes a long time to get to know someone that just walks off the street and asks for a loan. And no matter how much time you spend looking at credit reports, budgets, makeshift income statements, there is still always the possibility that the borrower won't repay the loan.

  • No peer support: There is no doubt that individual loans can change a borrower’s life, but nothing is as impactful as the borrower community that group lending creates.

Loan Delivery

Consumer Saving Products

Individual Development Accounts

An Individual Development Account (IDA) is a matched savings account that enables low-income American families to save, build assets, and enter the financial mainstream. IDAs supplement the savings of low-income households with matching funds drawn from a variety of private and public sources. IDAs are set up to help individuals planning to save for home buying, education, or starting a business. Additionally, some IDA programs offer matched savings for retirement, computers, home repairs, and other goals. After the individual reaches agreed upon savings goals, the savings are matched 1 to 1 or 1 to 2 by the IDA provider.
There are many different kinds of IDA programs. Terms for the matched savings often depend on where the funds are from – government backed IDA programs have specific requirements that are less flexible than privately funded programs. IDA programs can be as short as a few months to five years. Generally, participants are allowed to withdraw money as soon as they have reached their savings goal, but each program requirements and terms are different.

Here is an example of a regular IDA:
Betty wants to save to go back to school to get her teaching certificate. She attends a financial education class at a nearby nonprofit and works with a staff member to set up an IDA that will be matched 1 to 1. She plans to save $500. She deposits $50 every month into her checking account with her local credit union and her IDA program deposits a $50 match into a separate account. Betty meets with her IDA program sponsor monthly to receive one-on-one financial coaching and a report of how much she has saved so far (her savings + match + interest). After 10 months she has contributed $500 of her own savings, and her IDA program rewards her success with access to the match account, an additional $500 plus accumulated interest.

Another kind of IDA program is a credit builder IDA. This type of IDA couples an IDA program with a credit builder loan to achieve 2 goals at once: consumer gets advantage of matched savings and builds credit with a credit builder loan.

Here is an example of a Credit Builder IDA:
Dave has a low credit score and wants to take advantage of a matched savings program. Dave receives a credit builder loan for $500 from a local credit union. The credit union deposits the full amount of the loan into a new savings account that Dave cannot withdraw from. Each month, Dave pays back the loan. The credit union reports Dave’s on-time payments to the credit bureaus, which help him to increase his score. After 12 months, Dave has repaid the loan and withdraws the $500 savings.

Community Empowerment Fund Safe Savings Accounts


CEF Safe Savings Accounts make saving easy. Through intentional budgeting and savings they work with clients to help set goals and stick to them. Participants who graduate from CEF’s Opportunity Circles and meet their savings goal receive a match of 10% of their savings. The Match can be used for a housing deposit, a car, school tuition, or extra savings.

Chapter 3c: Training

Trainings, workshops, consulting and/or coaching sesssions are recommended to complement lending products at any microfinance organization. Trainings prepare clients to manage a business, build their credit, or find a job. They are also helpful to introduce clients to your organization and the other services and products you have to offer.
There is a wide range of opportunities to host trainings for
your target market. What kind of services to provide depends greatly on what your clients need and what other services already exist. Student-led groups offer entrepreneur and small business development training, workforce development training (assistance applying for jobs, resume writing workshops), and financial coaching.

Classroom-based Business Training

Goal of business training

A good business training program achieves two objectives: building a strong rapport with clients through personal empowerment and teaching them basic business skills.

Business training is a risk-free and inexpensive way of getting to know clients. You can determine their goals, their needs and their business acumen. You can help them run a more efficient business and assess their creditworthiness. Best of all, the close instructor-client relationship — if favorable — fosters valuable referrals.

Training also fills a knowledge gap that exists among too many low-income entrepreneurs: math and money management.

Lend for America members have worked with hundreds of very talented clients in the past few years. They are excellent cooks, jewelry makers, consultants, glass blowers and landscapers. But an alarmingly small amount know how much their products and services cost them. Even fewer can calculate their profit margin. Once a small business owner masters concepts like these, she contributes more to her household income and approaches her business more confidently. Number crunching shouldn’t be the only topic a training course covers, but the instructors and clients should realize it’s the most important. If you can host a training session that builds goodwill among your clients and teaches them how to run their businesses confidently and efficiently, you will enhance your group’s reputation and strengthen your local economy.

How long should it be?

It depends. Lend for America members have conducted classes as short as three weeks and as long as ten weeks (class held once per week). Some groups to less, and some do much more.

The Seattle-based group Washington Community Alliance for Self Help offers a five-month-long course on financial management for low-income entrepreneurs. They start with personal finance and have credit counselors on hand to help clients with debt. They slowly move to business training and eventually prepare clients to file their Schedule C tax returns.

If you can pull off something like that, great. But as long as there’s time enough to build a rapport with clients and to teach accounting, profit margins, and cash flow management, the course is long enough.

Which clients

According to The Intersect Fund, some of the best clients are those with “barely existing” businesses. They have already developed their product or service and have made some sales, but they need help. They need to know how to find more customers, manage cash flow, and figure out whether they are actually earning a profit. This type of person can use your help the most.

The other client type you’ll encounter is the “dreamer.” He or she wants to start a business but doesn’t know what kind. Or, worse yet, they want to start a difficult, capital intensive business but lack funding or experience.

These clients often have well paying but unsatisfying full-time jobs. Their entrepreneurial aspiration is admirable, but their stable situations sap them of the urgency and drive they would need to pull it off.

When you work with owners of barely existing businesses, though, you’ll notice that the money entering and leaving their bank accounts grounds them in reality. They benefit much more from business training.

Who can teach?

A good trainer must:
  • Be outgoing and confident enough to build a strong rapport with clients
  • Understand basic business math
  • Know and subscribe to your organization’s mission
  • Be able to talk about the other services you offer

The good trainer may not be a business school student, but she’s a little obsessed with small businesses: she reads business magazines and books about marketing, and she quizzes local merchants on how sales have been the previous month. She’s into entrepreneurship and eager to share her enthusiasm. She has excellent interpersonal skills and the confidence to manage group dynamics in a classroom.

Fees

Every business training program should charge a fee. It doesn’t have to be much, but it should be significant. Lend for America members charge fees ranging from $15 to $250 for their courses. Fees vary based on the length of the course and sometimes different clients pay different amounts for the same course based on their income level.
Price equals value no matter where on the socioeconomic spectrum you fall. You’re providing a valuable service in your training — one that likely costs a lot more than $100 per client when you factor in the time spent preparing and delivering the training. Conveying the value to clients means having a great course and connecting it with a dollar value.

Training programs that are offered for free have often had problems with spotty course attendance and unengaged clients. Paying clients take your course more seriously — and it forces your instructors to do the same.

What to teach

As long as your training curriculum meets the two vital objectives — building client rapport and teaching business math — it has done its job. The details of your curriculum are secondary.

Some campus-based training programs use curricula like Core Four or the Barefoot MBA. Others compile the best sections from a number of curricula into one they feel works for their clients.

The Intersect Fund arranges its program into the following sections:

• Week 1: Business plan format and mission statements
• Week 2: Finding your customers and pricing your products
• Week 3: Number crunching: cost of goods sold and profit margins
• Week 4: Cash flow management and understanding credit
• Week 5: Registering your business and buying insurance
• Week 6: Marketing and Promotion
• Week 7: An entrepreneurial board game simulation
• Week 8: Social responsibility & compiling your business plan
• Week 9: (optional) Hands-on with Quickbooks

You’ll notice that while the curriculum spends a lot of time on number crunching, it cushions the math with softer topics like marketing and mission statements. The Intersect Fund peppers their course with case studies from familiar companies and assigns homework to help clients grasp the concepts. After each class, the clients’ assignment is to write a section of their business plans. By week eight, they can compile these sections into a cohesive document.

Finding clients

Partnering with local community institutions is the best client-recruitment method for new business training programs.

Try to host your classes in church basements, vocational schools, local banks or libraries. The leaders of these institutions will be glad to have you, and they will help with promotion. And coming to a familiar place will help new clients trust you.

After you have hosted several classes, word of mouth will be your best recruitment source — yet another reason to build a great rapport with your clients.

Call and response

Lectures bore clients and exhaust instructors. Here are several ways to make your training lively and interactive:
  • Employ case studies and have clients discuss them
  • Encourage group work, and have group leaders present to the class
  • Solicit clients’ opinions and facilitate discussion
  • Pepper your discussion of profit margins with simple math questions

These will make your clients more comfortable and your course concepts more relatable. Too much discussion can take you off track, but there’s a balance to be struck between too much conversation and a one-sided class.

One-on-one Technical Assistance

The guidelines below from Elmseed Enterprise Fund’s staff manual are helpful for one on one consulting for entrepreneurs.

1. Listen

It is important to hear what your client has to say both to build a strong relationship and to allow you to give the best advice. Being honest, respectful, and patient with your client is crucial to establishing trust and a positive learning environment. In most cases, the client is the expert in their industry!
Listen to learn about how their business operates before you start making suggestions. Be flexible and responsive to the strengths and weaknesses of your client—figure out what your client excels at and what they need to work on by listening and observing, and then begin to think about how to address these issues.

2. Identify Client Needs

The most important thing you do as a consultant is to figure out what part of your client’s business needs improvement. This happens both by asking questions and by actively observing and listening.

The first thing you need to do is break down your client’s current or planned business. Figure out exactly what good or service it provides, its costs, revenue streams, and market niche. Only once you have this information can you start thinking about the best way to help your client. You’re strongly encouraged to go over the points on page 5 of this document in the “In-Depth Business Analysis” section.

In addition to what determining what the business needs, you also need to work with your client to set business goals. Does the client expect the business to be a complete source of income, or just a little money on the side? Is their dream to open multiple branches of their store or simply to improve the profit margin? Knowing what your client hopes to get out of the business and what role you play in that is crucial. Focus on developing a business plan with your client. This entails thinking through all the components of a business plan and working with your clients to develop an executive summary, cash flow documents, a marketing plan, etc. It is also helpful to provide sample business plans for your client to look through.

Once the business plan is completed, it’s up to you and your client to identify consulting projects that tackle the weak spots of the business. Prioritize! Don’t just jump into a consulting project because it gives you something to do—think carefully about what is most important for the business at this time.

3. Communicate

It is important that both parties know what is going on during and between meetings. As a consultant, you need to adjust your style to your client’s background—including home and family life, culture, education, and business experience. Make sure to set specific deadlines for deliverables—on both sides. Just as you should establish the expectation that clients complete assignments on time, it is important that you complete consulting projects by the date you have discussed with your client.

Be proactive! Don’t just think about your client during the hour or so you have together at consulting meetings. If you see an article that relates to your client’s industry, pass it along. Actively pursue consulting projects—let your client know if you think of something you could help with. And contact your client outside of your meetings—ask if they prefer to communicate via email, phone, or in person between meetings, and then stay in touch.

Ask your client about your consulting style and get feedback—are they happy with what you’ve been doing for them? What and how could you improve?

4. Get help

The inherent difficultly in consulting is that in general you will have less business experience than your clients. If something feels beyond your ability or you are bogged down by too many projects, don’t be afraid to ask for help. Communicate with other staff members. The easiest resource is to reach out to other consultants, departments, or other Lend for America members. See if anyone has ever tackled a similar business problem or has knowledge in that field. The bi-weekly client services departmental meetings are a good time to consult with other staff members regarding a particular issue or difficulty – just make sure to inform the Client Services Directors that you plan to bring something up so that it can be added to the agenda.

Tap into local networks. If something a client asks for exceeds the scope of the services you offer, it’s your job to connect them to an expert in the local community. There are tons of resources out there — from business schools to Small Business Development Centers —that can both professionally assist our clients and help us solidify community relationships.

5. Be Thorough

What makes one-on-one TA useful is that you can provide business advice tailored to a client’s specific needs. When you tackle a problem for a client, do it thoroughly by producing a document explaining possible solutions that gives details specifically related to your client and his or her business. It is not enough to simply research different forms of incorporation, for example—a good consulting report details the application of this information to your client’s business.

When you meet with your client, have an agenda prepared so that neither of you waste your time. Be sure to also set short-term goals at every meeting with your client to ensure that he or she is constantly progressing.

6. Consult, Don't Become A Business Partner

It’s easy to have trouble determining the appropriate level of assistance you should provide for your client—you want to help as much as possible, but without becoming a business partner. FIELD gives an example that helps you begin to see where to draw this line:

Case One: Consultant George
George opens the session asking questions of Sally, the owner of a fine arts
store. He starts by asking what the client has done since the last visit, and about
the progress made. George and Sally next look over financial records, and the
consultant asks questions and makes suggestions about additional columns
needed to reflect the hours she and her brother (her business partner) were
spending as employees of the business. As the business is not yet breaking even,
Sally and her brother are not yet paying for themselves, and also not accounting
for their time. George suggests steps to be taken before the next meeting.
These include adding an estimated salary for Sally and her brother on the cash-
flow sheet and more precisely estimating the time it takes to complete a fine art
piece.

George also suggests that Sally and her brother both come to the next session in
order to jointly consider how better to estimate the amount of labor her brother
invests in each work of art, and to discuss what changes might be made in the
business to move it to profitability. George lets the client set the time for the
next visit and decide whether she will, indeed, bring her brother to the
appointment.

Case Two: Consultant Kelly
Kelly opens the session by asking how business is going. The client, Peter, has a
successful pizza shop downtown. Peter feels that business is going well, and that
all he needs now is just to be spending his time at the store. Then Peter adds that
he is looking for someone to help him with his bookkeeping. Kelly suggests a
couple of options (including her own father). She says that she will be on the
look-out for bookkeepers and will let Peter know when she finds one. Kelly
then suggests that Peter could really use some new pizza stones for the parlor,
and suggests that she go searching for some, and call Peter with the details and
price of the stones when she finds them.

7. Keep Learning

Strive to keep improving yourself as a consultant. Do research: find out more about your client’s industry through trade publications, chamber of commerce statistics, and the internet. Pay attention to newspaper articles about regional and national economic trends. Keep up-to-date about local business organizations. Stay on top of relevant technologies. Whenever you find something useful, pass it on to your client!

8. Keep Records

Lend for America members historically have had problems with institutional memory, so keeping good records on all client interaction makes consulting easier and prepares us for the day when you graduate and someone else has to take over! Always log conversations (whether in person, through email, or over the phone) with your client, and note the projects and deadlines you have established with your client. This is crucial to improving communication within Elmseed and making sure we have up-to-date information on all clients.

Capital Good Fund’s Financial Coaching

This is a one-on-one class to be given over the course of one year with a CGF Fellow. Over three 1.5-hour sessions plus four optional meetings, the client is taught the basics of personal finance such as banking, saving, borrowing, credit, debt, and taxes. Entrepreneurship, health, and the environment are also covered. The class is required for most clients before they can borrow, but is also open to non-borrowing clients as well. This class is an integral part of CGF’s success. The sessions cost $150 total, and are paid in 12 monthly installments of $12.50. Each payment is reported to the credit bureaus to raise our clients’ credit scores. It is a win-win for clients. They learn about finances while simultaneously improving their credit histories.



[1] Elmseed Staff Manual



Chapter 4: Legal


Legal Structure

Existing Models
Student-led microfinance initiatives nationwide have evolved with different organizational models. Some groups are based on campus and only offer training programs whereas other groups have formed independent nonprofit 501(c)3 corporations that manage microloan funds. We have split the varying models into the following categories described below. See different student led models Lend for America is tracking here.

501 (c) 3 Nonprofit Organization:

Based off-campus and run independent of the university. Nonprofit structure (board, staff and volunteers) determines product and service delivery, fundraising, operations, and management.

Advantages: This model allows students the greatest flexibility to lead the direction of your initiative and make decisions with partners and advisers. The nonprofit structure is based on a board of directors that manage the direction and activities of nonprofit staff. In addition to having autonomy, as a young nonprofit leader and social entrepreneur, you can access a wealth of resources within your university and globally. There is a lot of support available online for free to guide you. Moreover, the more you build relationships with mentors and seek their advice, the better decisions you will make.

Disadvantages: It is a lot of responsibility and a ton of work. Starting a new organization is a lot of responsibility. To maintain nonprofit status with the IRS, an annual filing is required. Fundraising, legal requirements, accounting, board development, decision-making falls entirely on your team’s shoulders. Starting a nonprofit organization, for anyone, is not easy – no matter how many people help, how much money you have, or how passionate you are. Students face additional challenges since their schedule doesn’t allow full-time commitment. Additionally, students generally lack professional experience and have struggled to build credibility. There is also paperwork to file, processes to implement, and it generally takes 6 months to get nonprofit status from the IRS.

Examples: Intersect Fund, Elmseed Enterprise Fund, Capital Good Fund, Community Empowerment Fund, Hilltop Microfinance Initiative, Forza Financial, Social Entrepreneurs of Grinnell

University club + Fiscal Sponsor:

Based on campus and work in partnership with university and often another partner off-campus such as a local bank, credit union, or nonprofit organization.

Advantages: This model allows your group to take advantage of the university’s support in addition to the infrastructure of a local partner. With this support, you avoid responsibility for complying with legal requirements and time spent setting up infrastructure to host products and services you want to offer. If these partnerships can be arranged on favorable terms, you can focus your efforts on recruiting clients and student staff as well as developing products and services.

Disadvantages: The downside of this model is having to comply with other organizations’ terms. If you fundraise on your own, the money goes through other organizations’ hands and will likely have various requirements such as processing fees attached. Furthermore, the decision-making power is ultimately shared among the parties involved in the arrangement. Each arrangement is unique and some groups have found this model favorable to their objectives. Upon setting up this relationship, it is important to clarify expectations and terms before deciding to use this model.

Several organizations have started as University clubs and eventually formed 501(c)(3) nonprofits, due to the limitation of this model.

Academic:

Based on campus and led primarily by faculty at university

Advantages: With this model the support of the university can be leveraged to benefit your organization’s visibility, fundraising potential, and growth on campus. Additionally, you may have opportunities to take advantage of professors’ expertise, physical resources on campus to host trainings, and recruiting student volunteers.

Disadvantages: The major disadvantage is when your group is embedded into the university, the decision-making process is also embedded into the university. Therefore, your group’s ideas may face delays and rejection by university bureaucracy. In particular, LFA has seen student groups that are interested in lending face challenges with their university legal and risk management departments. When students want to begin accessing cash to manage transactions with clients, universities become concerned.

Examples: Bentley Microfinance Initiative, University of Notre Dame, St. Cloud State University

You should rely on information your team collects before getting started to determine what kind of organization is the best fit for offering your products and services.

Applying for 501(c)(3) Corporation

Organizations must incorporate and apply to receive tax-exempt status with the Internal Revenue Service (IRS). Below is a short version of the legal stuff you need to know. Check out full instructions from the experts at irs.gov (http://www.irs.gov/charities/article/0,,id=96109,00.html) and see this IRS publication for more info.

Full disclosure: we are not legal advisors or experts and do not provide legal advice. LFA has examples of each of the documents listed below available for LFA members. Contact us (info@lendforamerica.org) if you'd like to learn more about membership.

Steps to attaining and keeping 501 c 3 status:

1. Incorporate at the state level
First, file articles of incorporation with your state, generally with the Secretary of State office. These are like your organization’s constitution and include your organization’s purpose and other general info about your nonprofit. To complete this step you also need to create bylaws, which are the rules of how the nonprofit is governed. Additionally, you typically need to pay a filing fee, and appoint a board of directors with at least 3 members. It will help if you have a pro bono lawyer to do this for you (it will be very simple for them to do, they've done this hundreds of times), but it is not impossible to do it on your own. Usually the instructions are online on the department of state's web site. Be sure to think long-term about who you put on your board to make sure they do not become road blocks as your business model evolves.

2. Apply for 501(c)(3) tax-exempt status at the federal level
To apply, you need to file the Form 1023 with the IRS and you should complete this step soon after incorporating with your state. Form 1023 is a fairly lengthy form that requires narratives and financial projections to justify the tax-exempt status. After you submit this form, the IRS may come back to you with additional questions before granting you status. On average this process takes between 6-9 months, but some Lend for America members have seen shorter turnaround times. Here are a few of the important steps of the process:
  • Apply online for an Employer Identification Number (EIN). This is a nine-digit number the IRS assigns to identify employers, sole proprietors, corporations, partnerships, nonprofits, government agencies, and other business entities. Fill out the Form SS-4 online here (http://www.irs.gov/businesses/small/article/0,,id=102767,00.html) to receive an EIN number immediately.
  • Finalize your mission statement
  • Board members: The form 1023 asks you to identify the organization’s officers and directors.
  • Organize and prepare financials: the Form 1023 asks for your revenues and expenses for the current tax year and if you’ve been in existence, the 3 prior tax years. Additionally, you’ll need a current balance sheet. If you don’t have any financial history, the IRS will ask you to project your income and expenses for the next 3 years.
  • Pay the $400 fee. It costs $400 to register as a new organization if you anticipate your gross revenue being under $10K per year. Fee form clarifies the applicable fees http://www.irs.gov/pub/irs-pdf/f8718.pdf.

3. File the Form 990
As a 501(c)3 nonprofit corporation, you are required to file the Form 990 on an annual basis. The form reports on your actual revenue and expenses for the year, major donors and grantees, staff salaries, and program activities. You can update your current officers and directors in your annual 990 filing.

The deadline to file depends on your fiscal year dates. The IRS requires nonprofits to make their 990 available for public inspection. Posting it to your website is even better from a transparency standpoint, rather than just saying it is available upon request. Make sure to leave out the Schedule B, which you are not required to make available to the public. More information on the Form 990 is available on Guidestar here: http://www2.guidestar.org/rxg/help/faqs/form-990/index.aspx.

Most campus MFIs will qualify to submit the Form 990EZ if annual gross receipts are less than $200,000 for the fiscal year and total assets are less than $500,000. The 990EZ form is shorter and easier to complete. You can see the form online here:
http://www.irs.gov/pub/irs-pdf/f990ez.pdf.


Lending Laws by State

Regulation on interest rate limits and whether a lender needs a lending license differs state by state. You can look up the lending laws in your state at this website: http://www.loanback.com/category/usury-laws-by-state/



[1] http://www.citmedialaw.org/legal-guide/application-501c3-tax-exemption



Building a Fan Base

A guide to raising money and recognition
Fundraising may be the least fun part of running a campus-based microfinance group, or any nonprofit, for that matter. But it deserves attention: first, we need money to operate. Second, winning gifts from a large donor base confirms that we are doing something worthwhile. Giving money feels good. Getting money feels good. Asking for it can be tough, but it’s well worth the trouble. You may even find you like it.

A Lesson from the Intersect Fund

Before launching the Intersect Fund, my co-founder and I made one fateful fundraising bid. Then-college juniors, we had scored a meeting with the Corporate Contributions Director of a Fortune 100 company headquartered in our town.

Our hopes were high. After all, our student-run microfinance idea was a good one and this company had a lot of money. What could go wrong? We expected to walk away with a $25,000 commitment.

Instead, we received a jarring crash course in fundraising.

The contributions director liked our idea in theory, but had a tough time believing we kids could carry it out. He wanted to know which community leaders we had spoken with (no one, admittedly), how many clients we’d recruited (none yet) and how we planned to raise all the money we needed. (Apparently, “a big check from you” was the wrong answer.)

Hindsight revealed to us our main mistake: we sought funds for an idea. Not for an established organization, for real clients, or for a strong community coalition. Our youth didn’t help, but it was our lack of community credibility really sunk us.

We spent the next several months meeting community stakeholders, recruiting clients and building a strong organization. Since receiving our first grant in late 2008, we have raised or earned nearly $400,000, some of it from the corporation that rejected our first pitch.

Five Components of a Fundraising Machine

Here’s what you’ll need as you begin seeking fundraising dollars:

  • Evangelism: You should to be so excited about your clients and your work that you tell everyone about them. Friends, relatives, strangers on the bus, everyone. No need to hog the conversation, but once you mention the project, people will want to know more. Be forthcoming with details and have some success stories in mind. Make sure your staff and volunteers do the same.

  • A Good Board of Directors: The ideal board contains key community stakeholders. That is, deans from your college, executives from local corporations, and people with community-level experience in your area. Your directors’ jobs are to give you good advice, donate money, and spread the word about your group to their wealthy or influential friends and colleagues.

  • A Clear Message: Make sure you can describe your group in a simple sentence. We say we’re a “nonprofit that helps people start businesses.” That’s usually enough to get people asking questions. Follow with details about what you do and a basic story of how your programs make a difference in people’s lives.

  • Satisfied Clients: This may seem counterintuitive: how do you serve clients if you haven’t yet raised any money? Well, it turns out church basements and student volunteers are free. Start teaching a business training class and building relationships with the aspiring entrepreneurs who show up. They will become your success stories and your motivation for raising money.

  • A Sensible Theory of Change: Okay, you disburse microloans and offer business training courses. But why? How does that help? What’s your vision for your community or the world? A theory of change explains how your products and services help your clients, and how, in a larger sense, helps to make the world a better place.

For example: Business training and microloans strengthen small businesses, help low-income individuals generate more income, enlivens the inner city economic environment, gives people a stake in their communities, creates role models, creates jobs, and ultimately results in more tax revenue, better cities and a better future in which upward social mobility is a real option for low-income individuals. It’s a mouthful, but that’s the impact we believe our programs will eventually have. What are you working for?

7 Start-up Funding sources

  • You — Be prepared to contribute some money into your group when you’re starting out. You shouldn’t always be the organization’s main benefactor, and it shouldn’t drag you into debt, but expect to spend a little on printing fliers, renting a P.O. Box, and rewarding your volunteers with the occasional pizza party.

  • Friends and Family — If you and your staff have developed a compelling story and share it whenever you can, it’s likely your excitement has spread. Odds are your parents or relatives would be glad to support you on some level. Every little bit helps. The thought of seeking money from friends may make you cringe. But keep in mind: you’re seeking funds for your clients and your group, not for yourself. And, contrary to what you might think, gift requests flatter their recipients. Even if your friend doesn’t donate, he’ll feel glad you thought of him.

  • Your clients — Your clients may not donate to your cause yet, but they should pay their fair share. Many student-run microbusiness groups follow the same flawed logic: “What right do we college students have to charge clients for our services? Besides, won’t fees repel people who struggle with day-to-day expenses?” This attitude helps no one. Clients — no matter how poor — value only those services for which they pay. Collecting fees for your programs will force you to maintain their quality, and fees will provide a valuable income source. Further, foundations like to see that you’re earning at least some of your income.

  • Local Accounting and Law Firms — Professional firms grow deep local roots. Their principals care about helping the community they call home, and are thrilled to hear of programs that foster self-sufficiency. Meeting with local accountants and lawyers is well worth the effort. Even if monetary gifts are not forthcoming, donations of time and advice are invaluable. Think of how nice it will be to have a professional helping with your 501c3 registration and nonprofit incorporation. And think of how much a discount on a good financial audit will save you — both now and down the line.

  • Business Plan Competitions — Every school seems to host one of these, and several foundations have followed suit. You’d think every college student with the next Big Idea for software or social change (i.e., every college student) would race to enter. But it turns out the daunting task of actually writing the business plan deters many would-be contestant. If you can get yours written — and you should, since you’re teaching clients to do the same — you will already have a better chance than you think. The Intersect Fund has won $75,000 from business plan competitions. In our first, which we entered as undergrads, we prevailed in the final round against five MBA-backed for-profit companies.

  • Your School — You should already be hitting your school up for the obvious freebies: printing, postage, meeting space and — of course — student labor. But keep in mind: professors and deans have university money to offer. Get to know them. They may offer funds in exchange for research opportunities, or for your help teaching a Social Entrepreneurship Course, or for consulting with their students on how to start similar groups. Also, universities replace big-ticket items like computers, projectors and scanners every few years. Find out whom to speak with about acquiring some of these valuable hand- me-down electronics.

  • Local Bank Foundations — Like the accounting and law firms we mentioned, local banks tend have strong roots in their respective communities. In-fact, small banks’ local stewardship is (they think) their chief competitive advantage over the likes of Bank of America and Wells Fargo. These small banks’ top executives will likely meet with you to talk about your group. Like every bank, the small ones have foundations that disburse small grants to community groups. If you make a good enough impression on the bank’s leaders, you may even win a grant without having yet obtained nonprofit status.

Quick Grant-Winning Tips

Foundations can help support your organization for years. Keep in mind though, even the small, regional ones read hundreds of proposal each year. Here are some tips to distinguish your proposal from the rest in the heap:

  • Keep it Short — If the directions include a five-page limit, keep it to five pages. The overworked grant officer reading your proposal awards no extra points for verbosity.

  • Write in Layman’s Terms — Demonstrate your program’s merit by writing about success stories, positive outcomes and a solid theory of change. Explain your reader about how microfinance can help your community. It’s tempting to include minutiae about your loan mechanics, but try to avoid mundane details. Try to educate your reader without boring her.

  • Know your funder — Foundations have specific funding priorities. For example, some focus solely on education, others on community development, and others on healthcare. Most fund efforts in several issue areas, a list of which they display online. Make sure your proposal fits. If you’re unsure, call or e-mail the relevant grant officer. In-fact, you should do this anyway: speaking with the person who will read your proposal can give you a strong sense of what he’s looking for.

  • Remember the attachments — Foundations tend to seek several supplementary documents, often including your program’s budget, your organization’s budget, a list of your board of directors, a financial review or audit, and (almost always) your IRS-issued letter indicating your 501c3 nonprofit status.

Tackle these right away: budgets take time to create, and financial review or audit can be costly and time-consuming to obtain. If you lack 501c3 status, you’ll likely need a “fiscal sponsor,” i.e. another nonprofit who will essentially let you use their tax-exempt status to apply for the grant. If you win the grant, the foundation will send the money to your fiscal sponsor, which will send it to you. Keep in mind, fiscal sponsors has differing fee structures and may ask for a small percentage of the grant.

Five ways to keep the money coming

  • Thank and Bank — Write a thank-you note as soon as the check arrives, and mail it out before depositing the money, ideally within 72 hours. Your benefactor just gave you a generous gift. Show her you appreciate it by thanking her promptly. Some nonprofits send e-mail thank-you notes. We prefer snail mail because it takes more effort. It pays to personalize your thank-you notes. Include information about all the great non-monetary gifts the donor has already given, i.e. advice, moral support, etc. Joe Shure from The Intersect Fund says, "This makes an impact: I'll sometimes be thanked for my thank-you note."

  • Send “Touch” letters — These are periodic letters to update your donors about the progress you have made since you received their gift. Include client outcome numbers if you can, and always talk about specific clients. Donors — and everyone else, for that matter — relate to personal stories.

  • Send Grant Reports — Foundations will ask for reports, often one year after they have disbursed your grant, that include information on how many clients you have served, what you have accomplished, etc. Be sure to send these in time to apply for a new grant, and it doesn’t hurt to send a report even if none is required. Foundations are more likely to give in the future if they have a clear idea of what you’re doing with their money.

  • Ask for more — Keep sending your individual donors “ask” letters. Not every month, but in intervals that you feel are appropriate. More letters will yield more donations. Talk about the progress you have made and your vision for the future. With foundations, it’s slightly different: some welcome proposals from the same organizations year after year while others resist repeat funding. Your pre-proposal research into a given foundation will have revealed its preference.

Spreading the Word

Start Small — A story in your school’s student newspaper is a great start. Then, move on to University sponsored media outlets like newsletters and stories on the website. School PR departments like to see students involved with their community, so they will likely welcome your coverage request.

Make Friends with Reporters — See which reporters cover small business issues in your local media outlets and get in touch with them. Compliment them on their stories. Make yourself available to talk about the small business landscape or the struggles of low-income entrepreneurs. If reporters see you as a valuable source, they will be more likely to write about you in the future.

Case in point: For months, we have bugged a local business editor to include our programs in his events calendar. He obliges each time, and he recently asked us to write a biweekly column in his newspaper.

Build a great Website — Make sure a first-time visitor can learn what you do, donate to your cause, and read about your clients. A good first impression pays off.

Fundraising Resources

  1. The Foundation Center
    • The Foundation Directory Online is a powerful database with over 100,000 grantmakers and recent grants that is easily searchable.
    • The Center's libraries are located in New York, Atlanta, Cleveland, San Francisco, and Washington, DC. Several public and university libraries provide access to the online directory for free and other foundation center resources.
  2. Grantspace
    • Hosted by The Foundation Center, Grantspace offers another searchable database with answers to thousands of FAQs, example grant proposals, letters of inquiry, etc.
    • Grantspace lists the Foundation Center's classroom training courses. Some are for free and others for a fee.


NewFIELD_logo.jpg

Data that Works

By Tamra Thetford

“Everybody gets so much information all day long that they lose their common sense.”
-Gertrude Stein

This guide serves as a way to help you think through the key pieces involved in collecting, storing and using your data. Each chapter tackles a topic along the spectrum of collection to use, highlights the most important things to keep in mind when tackling the topic and presents examples to give you a tangible place to start. This guide is targeted to student-led microenterprise programs that are generally young organizations with relatively minimal data tools and needs.

Reprinted with permission from The Aspen Institute FIELD Program

Data That Works

Organization Development

A sustainable nonprofit is an organization with reliable infrastructure, high achieving programs, low turnover, and consistent documentation. Achieving sustainability requires creating a long term vision that prioritizes long term growth over short term gains.

The student-led microfinance model is naturally cost-effective since it relies primarily on a staff of volunteers. This allows for grant dollars to go further. It also creates additional challenges with leadership turnover, institutional memory, and scale.

Building a team

“Great vision with mediocre people still produces mediocre results.” –Jim Collins

Getting the right people on the right seats on the bus is one of the most challenging pieces of building any organization. No organization can create positive social change without a solid team of dedicated individuals. This article does a great job of articulating the value of taking time to build a time. Additionally, student-led MFIs face the unique challenge of starting with volunteers. Moreover, the volunteers are, by virtue of being students, usually most available from September to December and January to May. And even during the school year, student staffers must juggle school, work and other personal commitments. At the same time, student-led MFIs have the advantage of extremely low start-up costs and the ability to leverage university resources for funding, ideas and connections. Don’t get overwhelmed with the challenges. Here are tips for getting started with building a team:
  • Find a couple of key people to join you as leaders of the new initiative.
  • Seek out an underclassman to join you: It is helpful to bring a younger leader into the start up organization early to ease the burden of turnover.
  • Recruit student staff and volunteers: Be clear about the positions you are looking to fill. Detail the responsibilities and time commitment involved, as well as the skills you expect the person to have.
  • Consider hiring volunteers within the community to work with you.
  • Do not be afraid to be selective when recruiting. Host a proper interview, call references, and ask probing questions to get to know candidates. Remember that one high performing team member will produce the equivalent of five low performing team members and take up much less of your time.
  • There is no shortage of university students eager to take what they are learning in the classroom and apply it in meaningful ways in the local community. The challenge, however, is getting the word out about your organization so busy students can hear about the opportunities they would have working with you. Use mass marketing (like listservs – some ideas below) and target specific individuals.

Recruitment Ideas

  • Public Service Office: Most universities have an office dedicated to public service, volunteerism, community service, etc. These offices are there to create opportunities for students to serve people in the local community. By partnering with these centers, it is possible to gain access to the pool of volunteers that are already active with community service. In addition, these offices will post staff descriptions on listserve that they maintain.

  • University-sponsored email listing: Many universities have a daily email that outlines events, opportunities and other important information that the university and sometimes surrounding community should know about. Posting a staff description in this email listserve is an effective way of getting the word out.

  • Presenting to classes dealing with related topics: Any courses dealing with social entrepreneurship, economics, business, social service or local issues are ideal for giving presentations. Speak to the professors of several courses, or even the chair/ department head of, say, the economics department and, provided that you are clear in what you are requesting, they are more than likely going to be willing to give you some time to present to their students.

  • Student Clubs/Organizations: Many student clubs and organizations are devoted to issues that are closely related to microfinance. For instance, there might be clubs that focus on entrepreneurship, poverty or women, all of which have members that are likely to be interested in the work of your organization.

Andy Posner, as co-founder and now Executive Director of Capital Good Fund: my lack of experience in business, economics and finance have not proven to be impediments to the growth of the organization. If anything, coming from a unique background—Spanish and Environmental Studies—has allowed me to try new things that I might not have had I “known more” about the field. More important than the educational background you have is an understanding of the impact microfinance can have and a desire to offer a social service in a way that is truly impactful for the client and sustainable for the organization.

Turnover and Commitment

Turnover in leadership — the people guiding the team — can leave holes for an organization (especially a start-up) that cause organizations to reinvent the wheel, relearn, and spend time going backwards instead of progressing. The more you place importance on building an institution without holes that is sustainable, the more effective your organization will be. This is especially important for maintaining relationships with your university and with the community. Check out these sustainable leadership tips from Ashoka’s Youth Venture.

To be successful, every member of the team will need to understand the nature of the commitment necessary. Starting an organization requires hundreds of hours of work fundraising, networking, developing partnerships, researching, strategic planning, and learning. Invariably, some members of the team will drop out over time as the workload becomes too great or other commitments take precedence; however, the more the initial team understands what is involved in starting the organization, the more you will be able to focus on the task at hand.

In many ways, the groundwork for starting an organization is similar to taking a very challenging course. The differences, however, are important to note. First, there are no set times during which you will work on this initiative. Often, your schedule will be dictated by the availability of community members to meet with you. Second, the goal of the organization is to serve people who truly need your services. As such, the commitment you are making is serious: it’s one thing to not follow through on a class assignment, but another entirely to not follow through on a service that can change a person’s life. Be very clear with each team member about the seriousness of the work you are undertaking, and be careful not to raise expectations in the community that you cannot live up to.

Staffing and Management

Managing staff is always an uphill climb, even for professionals with decades of experience. Running a start-up is an opportunity to practice being a good manager. Regardless of the type of hierarchy or staffing structure your team decides to implement, management skills are useful for working individually, with peers, or with your board. There are lots of resources to learn management tools that you can implement on a daily basis - in staff meetings, making strategic decisions, and simply working to get things done.

Clarifying roles and responsibilities for all staff and volunteers is a top priority. Elmseed Enterprise Fund's staff is organized into Departments: Client Services, Public Relations, Strategy, Development and Finance. Each Department has a Director, who, along with the Executive Director, makes up the Executive Board of Elmseed. Additionally, Elmseed has a Board of Directors made up of a diverse group of professionals. See the Elmseed Staff Structure.pdf here.

Another example of student-led staff structure is the Community Empowerment Fund which has a central admin team of over 15 people who cover core functions of making the organization work (ie fundraising, measuring impact, paying the bills/finances, etc). Then there are hub-like teams of over 8 people in each hub directed by a 'team leader,' someone who has been with the organization for at least a semester to help carry over institutional memory. See the whole structure here: CEF Org Structure.pdf. Check out this visual:

CMA_Org_Structure-1.jpg

For more downloadable resources and advice on nonprofit management visit The Management Center.

Hiring Your First Employee

Before you hire your first employee, there are some important pieces of information that you need to know. The following two sections go over some basic steps in the hiring process as well as discuss certain requirements that employers need to fulfill when managing employees.

Creating a Job Description

Job descriptions help you to define what you’re looking for in a candidate when hiring. An effective job description describes the main objective of a job, its essential and nonessential functions and responsibilities, skills and knowledge base required for the job, and working conditions specific to the job.

Before starting the job description, you should identify and define the essential functions of the job. In other words, define exactly what the employee is responsible for. To identify whether something is an essential function, ask yourself what would happen if you took that component out of the job. Would the job be rendered useless? If that component is necessary to the job, then it is an essential function.

In your job description, you should:
  • Provide a brief job identification and position summary (why does this job exist?)
  • List the essential functions and duties expected of an employee
  • Outline the skill set and knowledge required
  • Mention any educational or background experience requirements
  • Describe any physical aspects of the job (bending, lifting)
  • Describe any environmental demands (will employees need to out in the field?)

Interviewing Candidates

You will want to interview all candidates so that you have the opportunity to get to know them face-to-face. Here are some basic dos and don'ts of interviewing:
  • Don't ask questions that go towards “Protected Class Status” (which include race, religion, gender, origin, ancestry, sexual preference, disability)
  • Don't ask about family medical history
  • Don't ask about family planning (i.e. Are you planning on having children in the future? etc.)
  • Do ask anything that has to do with the job description, the background necessary for the job, needed experience and skills set, or the essential functions required for the job

Writing an Offer Letter

Once you decide on a candidate that you’d like to hire, prepare an offer letter. An offer letter is an essential document and should be written carefully and thoughtfully.

Key elements of an offer letter include:
  • A clear statement of at-will employment status (at-will employment status means that the employee is being hired for no definite period of time and that either party may end the employment at any time for any reason so long as it’s not an unlawful reason)
  • Wage rate or salary amount
  • Indication of schedule/hours
  • Payroll cycle (weekly, biweekly) and regular payday
  • Can include some information about employment policies and practices regarding wages, sick leave, vacation days, etc., but you can also say that the employee will be provided with an employee handbook containing this information at their new employee orientation
  • Can attach a job description
  • Clearly specify if the offer is contingent for any reason (background check, substance testing, physical exam)

Managing Your Employees

Wages and Hours
There are two forms of paid wages: hourly and salary. Stemming from these two forms of paid wages are two types employees, exempt or nonexempt.

Exempt employees are salaried employees who must meet three primary criteria: salary level, salary basis, and duties. Exempt employees must be paid a minimum salary rate as per federal or state law and are paid the same amount week in and week out regardless of their quantity or quality of work. Finally, exempt employees are classified by the duties they perform. The main classifications include Administrative and Professional exemption.

In each classification, the employee’s primary or principal duty must meet certain requirements. The primary duty of an employee with administrative exemption is the performance of office or non-manual work that is directly related to the management and business operations of the employer. The primary duty of an employee with professional exemption is the performance of work requiring advanced education, often requiring a 4-year education.

Nonexempt employees are employees not eligible for classification as exempt. They must be paid on an hourly basis and paid at premium rates for overtime pay.

Payroll and Payment
You want to decide whether you want a weekly or biweekly payroll. However, before you start thinking about who will run the books for you, you need to a timekeeping system. A timekeeping system is an essential part of recordkeeping for your organization, and such systems include a timesheet or a time clock for employees to use when punching in or out of work. Many employers will outsource their payroll management to companies, which is generally recommended due to time and cost efficiency.

Record Keeping Requirements
Each state has specific requirements of records that employers must keep for each of their employees. Such records include wage and hour records and personal files.

Information regarding wages and hours that an employer must record include:
  • Name
  • Address
  • Salary, weekly amount paid (for exempt salary employees)
  • In/out records (for hourly employees) (must record every time an employee clocks in and leaves, even for lunch breaks!)

Personal files contain all documents and information used when considering an employee for employment, promotion, disciplinary action, termination, etc. These files include documents such as job descriptions, offer letter, employee’s written acceptance, disciplinary records, and employee evaluations. Note that you should keep medical records separate from personal files, and access to medical files should be only on a need-to-know basis.

Obtaining an Employer ID Number and Unemployment Insurance Registration
When you consider hiring a new employee or once you hire a new employee, in addition to applying for a Federal Tax ID number, you need to register a report with your state’s Department of Taxation and Department of Labor. You need to register for a state employer ID number for the withholding of income taxes and register with the state’s Department of Labor for state unemployment agency purposes.

Employment Eligibility – Form I-9
Form I-9 is used to verify the identity and employment authorization of all individuals hired for employment in the US. All employers must complete Form I-9 for each individual hired (both citizens and noncitizens) for federal compliance with immigration laws. Both the employer and employee must complete the form. After your employee has provided you with documents to evidence their identity and employment authorization, you should inspect that the form has been properly filled out and that their documents fulfill the necessary requirements. Be sure to re-verify your employee’s work authorization if any of these identification documents have an expiration date.

State New Hire Reporting
You are required to report any new hires or rehires to the state. Reports must contain the following: employee’s name, address, date of birth, social security number, date of hire, employer’s name and address, and Federal Tax ID number.

Insurance Coverage
Make sure that you meet your insurance obligation. States have different requirements regarding Workers’ Compensation Coverage, so you should check with your state’s Department of Labor website. However, in general, all employers must have workers’ compensation coverage.

In regard to all of these forms and regulations, it’s important to check with your state’s Department of Labor website for the most up to date information.

Building a board

A board of directors can bring your organization many benefits including professional expertise, knowledge and fundraising resources, and credibility. Boards can also cause big headaches if you have the wrong people or the group is not led or managed well. There are endless strategies for board development and management and we encourage you to find them and read them. We stress the importance of investing in the development of a strong board of directors. Good governance is a critical piece of building a strong nonprofit organization. Here are a few resources we have found useful:
  1. Nonprofit Leadership Center
  2. National Council of Nonprofits
  3. Free Management Library
  4. Bridgespan Group Guide: Nonprofit Board Recruitment Strategies>

Craft a clear message

The best way to clarify to yourself, your team, and other stakeholders what you plan to accomplish is to write down your purpose and objectives. Consider writing a mission statement that addresses what your team wants to get done and identify why the organization exists. The words don’t have to be perfect yet (you will create a marketing strategy and messaging document later) and you don’t have to have a 5-year timeline mapped out, but taking the time to be clear about your purpose will be very helpful as you are speaking with funders, staff members, constituents, partner organizations, and other collaborators.
Some resources to help you craft your mission statement:
  1. How to Write a Mission Statement
  2. Social Business Plan Mission Statement

It is also crucial to be able to explain clearly and concisely what you are doing in 30 seconds or less. If you run into Muhammed Yunus in an elevator, how would you describe your work? All organization leaders need an elevator pitch to tell family, friends, strangers in elevators about their work to build partnerships, raise awareness, and raise money.
Some resources to put together an elevator pitch:
  1. Watch great pitches posted on TechCrunch. Refresh the page every few minutes.
  2. Ten ways to improve your pitch here.
  3. Creating a Pitch Deck.

Information systems

Invest in reliable management information systems and use them. Turnover isn’t just a problem for student-led organizations – it’s a challenge every business has to deal with. From the beginning, document everything in a system that is web-based. Record phone calls, emails, meetings, contact information – take notes and keep them online where other current and future staff can access them. There are several options available to manage information sharing that vary in functionality, cost and required staff time. Here are some options used frequently by student-led organizations:

Software
Cost
Features
Use
Highrise
$24/mo
5 Gb of storage; 5 users; 5000 contacts
Client management; funder relationships management
Dropbox
$9.95/mo
50 Gb of storage
Document sharing
Quickbooks
$12.95/mo
Create invoices, pay bills, manage expenses, create financial statements
Accounting

When you are busy, it is difficult to take time to reflect on how ideas are evolving and your organization is growing. Over the course of the first few months of start-up, you will overcome many challenges and learn lots of lessons. Force yourself and your team to write down what is happening – document staff meetings, correspondene with clients, staffing concerns, questions you encounter, communication with funder and university liasons. Prioritize time to debrief with clients and staff and write down lessons learned.

Common mistakes when starting up

1. Poor initial research
2. Lack of commitment from leadership
3. Failure to keep good records
4. Misjudging time requirements – ‘running a nonprofit is not a hobby’
5. Lack of clear, consistent objectives

Appendix & Resources


Resources from Chapters

Chapter 1: Get Started

Chapter 2: Marketing

Chapter 3: Products & Services

Chapter 4: Legal

Chapter 5: Fundraising
  • Fundraising Pipeline Template.xls
  • The Foundation Center
    1. The Foundation Directory Online is a powerful database with over 100,000 grantmakers and recent grants that is easily searchable.
    2. The Center's libraries are located in New York, Atlanta, Cleveland, San Francisco, and Washington, DC. Several public and university libraries provide access to the online directory for free and other foundation center resources.
  • Grantspace
    1. Hosted by The Foundation Center, Grantspace offers another searchable database with answers to thousands of FAQs, example grant proposals, letters of inquiry, etc.
    2. Grantspace lists the Foundation Center's classroom training courses. Some are for free and others for a fee.
  • Ahern Communications
    1. Excellent example case statements, useful advice, and fundraising appeal letters. Free and online.

Chapter 6: Social Impact

Chapter 7: Organization Development




CMA CONFERENCE 2011

Campus Microfinance Alliance Conference 2011