It was June 7, payday at Reclaim-Possibility, a 22-bed home in South Los Angeles for men released from jail and prison who might otherwise be homeless.
Once again, owner Kalain Hadley had to tell his 10 employees that they might not get paid.
Refund checks owed first by his funding agency, Amity Foundation, had not arrived.
“It's really not a pleasant conversation,” he said.
With ongoing costs and unstable payments, nonprofit owner Kalain Hadley said he felt he had no choice but to turn to predatory lenders. Above, a list of tasks at one of his halfway houses.
(Dania Maxwell / Los Angeles Times)
Like many nonprofit providers with government contracts, Hadley is in perpetual arrears due to a complicated reimbursement plan that ties up payment for 60 to 90 days after billing for services.
Bills based on their count, which varies from week to week, go to their two nonprofit funding agencies, Amity and HealthRIGHT 360, and then to the Los Angeles County Department of Probation and the Department of Corrections. and California Rehabilitation. The payment goes back to the agencies and then reaches Reclaim-Possibility, sometimes before payday, often not.
With constant rent, salary and utility costs but fluctuating payments based on the number of clients he has at any given time, Hadley felt he had no choice but to turn to predatory lenders.
“They give you $30,000. You pay $43,000 with daily payments, which ends up being really crazy,” Hadley said.
As homeless-related services have skyrocketed in recent years, that funding delay has become a huge drain on the multi-billion-dollar homelessness system affecting hundreds of hands-on providers like Reclaim-Possibility and also to larger organizations.
Testifying before the Los Angeles County Board of Supervisors about the crisis last month, John Maceri, executive director of People Concern, said his $85 million operation must carry $8 million in debt to cover the delay. from invoice to reimbursement. Money allocated to services is converted into interest.
Kalain Hadley, left, works in his office Tuesday while a resident exercises at one of two halfway houses Hadley operates for men leaving prison.
(Dania Maxwell / Los Angeles Times)
To alleviate that problem, supervisors on Tuesday gave the green light to county staff to provide quarterly cash advances of Measure H homeless sales tax revenue to the Los Angeles Homeless Services Authority which you can send as cash advances to your contractors. LAHSA would then reconcile the invoices.
But that influx of up-front cash won't reach Hadley, whose refunds come through the criminal justice system.
Now, an alternative plan is emerging outside the government to extend a lifeline to Hadley and other hands-on providers like him. It is a project of the Future Communities Institute, a specialized nonprofit that bills itself as an “action tank” that seeks solutions to complex challenges by bringing together academia, government, technology, and philanthropy to test and launch new strategies.
Justin Szlasa, director of homelessness initiatives at Future Communities, is promoting a targeted solution to get money directly to small providers like Hadley when they need it.
It is modeled after factoring, the ancient business practice in which a company sells its accounts receivable (what it is owed but not yet paid) at a discount to have cash on hand.
“Almost every industry has some kind of bridge financing like this that helps smooth things out and makes everything run smoother,” says tech entrepreneur Justin Szlasa, right with Kalain Hadley. “And it's time for the nonprofit sector, particularly homeless services, to have that in Los Angeles.”
(Dania Maxwell / Los Angeles Times)
“Almost every industry has some kind of bridge financing like this that helps smooth things out and makes things run better,” Szlasa said. “And it's about time the nonprofit sector, particularly homeless services, had that in Los Angeles.”
A film producer and tech entrepreneur, Szlasa worked for several years as a volunteer, board member, and then executive transition director for SELAH Neighborhood Homeless Coalition before devoting himself full-time to homelessness at Future Communities, which is fiscally sponsored by the Edward Charles Foundation.
Tasked with working on the funding gap problem, he found inspiration in New York.
“I looked for other solutions to this problem and found the Fund for New York City, which has been working on this for the last few decades,” Szlasa said.
Funded by philanthropy and the City of New York, FCNY has provided more than $1.65 billion in interest-free bridge loans since its inception in 1976, recycling money as loans are repaid.
Szlasa is seeking funding from the government and philanthropic donors to create a working capital fund. Unlike factoring, which involves the sale of assets, the fund would provide interest-free loans that are repaid when repayments are made.
It has set a modest goal of raising about $650,000 to cover installation and a year of operations to prove the concept and work out operational details.
“We want to get things going and show that operationally this is going to work,” he said. So that “we can make loans. We can provide relief. We can get the money back. And we can put that infrastructure in place to provide capacity.”
The cost of a year of operations would be about $450,000, including staff and one-time work to draft contracts and set up loan servicing tools.
“We think the minimum capital needed to prove this will work is $200,000,” Szlasa said. “That is to be able to make a loan of $50 thousand. I can get a refund and that can start working.”
Kalain Hadley, left, is a former lifer who earned bachelor's and master's degrees. During his sentencing, he had an epiphany: “If I didn't make some changes, I'd be walking around in those 1,000 square feet my entire life.”
(Dania Maxwell / Los Angeles Times)
A similar concept is already being tested through a fund created by the Conrad N. Hilton Foundation to help the organizations it supports. The Nonprofit Financial Fund, a community-oriented financial institution that manages the program, has so far provided 17 loans averaging $480,000. Those loans, to organizations with budgets between $2 million and $50 million, do not bear interest, but are more similar to conventional loans in the time it takes to get the money out, said Annie Chang, vice president of community engagement.
Szlasa aims for a more agile process that allows getting money in no more than three days, especially for smaller organizations.
“Those groups that have the least ability to access a line of credit, like the Kalain of the world,” he said. “That's the goal to initially help those groups that are really struggling in that way.”
Time is of the essence for Hadley, 59, a three-time lifer who turned his life around during 25 years in prison, earning a bachelor's degree before amendments to the law paved the way for his release in 2014. .
“During the life sentence, I had an epiphany: If I didn't make some changes, I would be walking around in those 1,000 square feet my entire life,” he said.
Since then, she earned a master's degree in social work and worked in outreach and counseling for several Los Angeles-area agencies before deciding to start her own business.
His timing couldn't have been worse. It opened the first of its two halfway houses in January 2020, just before the pandemic cut off clients for several months. He didn't receive his first refund check until October. To stay afloat, he invested his retirement funds and loans from his family. And then he turned to payday lenders.
He's been in a hole ever since, and twice recently has come up short on payday.
On the 7th the crisis passed. The bank transfer from Amity Foundation finally reached his bank account at 3 p.m.
“I ran to the bank, made a withdrawal and paid my employees,” he said.
But food and utility bills were piling up, and lenders were texting him daily with offers.
“I almost had one yesterday,” he said recently. “I am in the process of paying for one that I received in February or March. Just because the terms are so ridiculous, I resisted yesterday.”
