Ask Alice — she'll say character is collateral
Being retired for 16 years hasn't stopped Alice Dittman from having her name on fresh loans all over Nebraska.
In 2011, while she was still on the board of directors for Cornhusker Bank in Lincoln, she spotted a need the bank couldn't fill. So she did something few others would do. She put up $1 million of her own money to start a microlending program.
"I spent over 60 years working in banking and I am never tired of it," said Dittman, 86. "This is probably the riskiest type of credit you can do. It is hard to make the overhead and hard to make a profit at 5.5% interest."
Her initiative, called Alice's Integrity Loan Fund, has an emphasis on the character of applicants and requires no collateral. The loans go up to $5,000 and have an average interest rate of 5% annually with a three-year term. If the loan is repaid as agreed, a second loan for $10,000 can be made.
There is also an education component, which requires borrowers to learn how to write a business plan.
Since the fund's inception, 83 loans have been made, mostly to women and minorities, for enterprises like salons, a T-shirt printing shop, cleaning businesses and a grocery store.
The loans have been made through two local nonprofits that focus on helping entrepreneurs, Community Development Resources and the Center for Rural Affairs. The center operates the Rural Enterprise Assistance Project, which offers several loan programs, including Dittman's, across 12 counties.
"We have very little in the way of defaults," said Dorris Miller, who oversaw the fund when it was administered through Community Development Resources. The default rate on the $269,000 that her organization loaned out is 3.8%; on the $137,000 that REAP loaned out, it is 0%.
"Part of that is people in the state of Nebraska have a tendency not to walk away from debts," Miller said.
Approval for loans relies on some nontraditional criteria — such as an assessment of character — instead of focusing solely on credit score and collateral.
"With our clientele 75% are low to moderate income, trying to make their lives better by starting a business or doing something on the side," said Monica Braun, director of the Women's Business Center for REAP. "Being able to make a loan without collateral is critical to people starting a business. Or, if they have used their collateral and need that boost for inventory, this gives them that pop to move the business forward."
The qualifying criteria include capacity to repay, commitment to success, and capital. But REAP's loan review committee puts the greatest emphasis on character. To help determine character, Dittman said she encourages the lenders to look at community activities, such as volunteer work, church involvement and participation in civic organizations.
Dittman — who doesn't expect the fund to use up the initial $1 million for several more years — started out in the industry by working at Cornhusker, her father's bank, in 1953. She went on to start two banks of her own, but later became president of Cornhusker and grew it from $8 million of assets to $200 million during her tenure.
Today that bank, which is still primarily family owned, has $500 million of assets and is a unit of Cornhusker Growth Corp. in Lincoln. Her son, John, is chairman of the board.
The bank participates in her microlending fund by servicing the first 100 loans for free, which helps the lenders keep the loans affordable for borrowers and earns the bank credit under the Community Reinvestment Act.
Dittman had several firsts in her banking career, including being the first woman to serve as the president of the Nebraska Bankers Association back in 1993. "She is aware of the glass ceilings people reach, especially in banking," Miller said. "She is aware of what people face in life."
Though the fund targets women and minorities, it makes loans to everyone, Miller added. A total of 48 loans have gone to women and 24 to minorities.
Dittman said there is one big drawback to the fund, from her perspective.
"The least favorite thing to me personally about that tax-deductible contribution I made is that I am not able to talk to the recipients and help them with advice," she said, noting the Internal Revenue Service has rules that prohibit her from being directly involved in the loans.