accion chicagoaccion chicago chicago, il we have audited the accompanying financial statements of...

Accion Chicago

FINANCIAL STATEMENTS

For the Years EndedDecember 31, 2014 and 2013

Accion Chicago

Annual Financial ReportDecember 31, 2014 and 2013

Table of Contents

Independent Auditor’s Report ..........................................................................................................1 - 2

Financial Statements

Statement of Financial Position..................................................................................................3 - 4

Statement of Activities ....................................................................................................................5

Statement of Functional Expenses...................................................................................................6

Statement of Cash Flows ............................................................................................................7 - 8

Notes to Financial Statements ........................................................................................................9 - 26

Desmond &Ahern, Ltd.CERTIFIED PUBLIC ACCOUNTANTS & CONSULTANTS

Independent Auditor’s Report

To the Board of Directors ofAccion ChicagoChicago, IL

We have audited the accompanying financial statements of Accion Chicago (a nonprofit organization), which comprise the statement of financial position as of December 31, 2014 and 2013, and the related statements of activities, functional expenses, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

10827 S. WESTERN AVENUE, CHICAGO, IL 60643-3206 • PHONE 773-779-4720 • FAX 773-779-8310www.desmondcpa.com

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Accion Chicago as of December 31, 2014 and 2013, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

May 11, 2015Chicago, IL

2

ACCION CHICAGO

STATEMENT OF FINANCIAL POSITION

December 31, 2014 and 2013

2014 2013Assets

Current Assets

Cash and cash equivalents

Unrestricted 1,830,206$ 978,684$

Designated for loan loss reserve 45,900 67,034

Restricted 2,589,655 1,078,272 Total cash and cash equivalents 4,465,761 2,123,990

Government receivables, net 394,248 969,017

Pledges receivable 216,324 214,218

Loans receivable, less allowance for loan losses 2,112,614 1,989,669

Other receivable - 1,000

Accrued interest 25,539 19,770

Prepaid expenses and deposits 15,868 12,394

Total current assets 7,230,354 5,330,058

Property and equipment, less accumulated

depreciation and amortization 87,927 104,843

Other Assets

Loans receivable, less current portion 1,166,019 1,057,598

Security deposit 59,884 59,884

Total Assets 8,544,184$ 6,552,383$

See independent auditor's report and notes to financial statements.

3

ACCION CHICAGO

STATEMENT OF FINANCIAL POSITION (CONT.)

December 31, 2014 and 2013

2014 2013

Liabilities and Net Assets

Current Liabilities

Notes payable - current 273,693$ 414,227$

Accounts payable 310,228 137,755

Accrued payroll and related costs 243,775 266,895

Accrued interest 10,762 13,250

Refundable advances 1,889,352 -

Funds held for others 286,275 -

Total current liabilities 3,014,085 832,127

Long-Term Liabilities

Notes payable, less current portion 1,701,072 1,691,413

Total liabilities 4,715,157 2,523,540

Net Assets

Unrestricted 2,060,132 333,709

Temporarily restricted 1,768,895 3,695,134

Total net assets 3,829,027 4,028,843

Total Liabilities and Net Assets 8,544,184$ 6,552,383$


4

ACCION CHICAGO

STATEMENT OF ACTIVITIES

For the Years Ended December 31, 2014 and 2013

Temporarily Temporarily

Unrestricted Restricted Total Unrestricted Restricted Total

Public Support and Revenue

Public Support Contributions - corporations, foundations

and individuals 1,097,854$ 112,500$ 1,210,354$ 901,381 37,500$ 938,881$

Institute sponsorship 290,400 - 290,400 125,000 - 125,000

Imputed interest contribution - 2,500 2,500 - 40,500 40,500

Donated services 15,165 - 15,165 52,961 - 52,961

In-kind donations capitalized - - - 5,000 - 5,000

1,403,419 115,000 1,518,419 1,084,342 78,000 1,162,342

Governmental Agencies

Small Business Administration 80,339 - 80,339 69,287 - 69,287

U.S. Dept of the Treasury (CDFI) 847,000 - 847,000 - - -

City of Chicago, Department of Business

Affairs and Consumer Protection - 67,729 67,729 327,167 - 327,167

Illinois Department of Commerce and

Economic Opportunity - - - 376,874 538,706 915,580

Other - - - 3,001 - 3,001

927,339 67,729 995,068 776,329 538,706 1,315,035

Special Events

Contributions 142,317 - 142,317 51,365 - 51,365

Ticket sales 11,400 - 11,400 8,899 - 8,899

Less direct benefit to donors (19,700) - (19,700) (16,238) - (16,238)

134,017 - 134,017 44,026 - 44,026

Other Revenues

Loan interest 264,945 103,525 368,470 218,186 93,903 312,089

Administrative loan fees 157,779 42,353 200,132 78,383 30,242 108,625

Late payment charges 11,932 - 11,932 12,323 - 12,323

Investment income 183 256 439 814 - 814

Participation income 246,403 - 246,403 21,123 - 21,123

Miscellaneous 356 - 356 15,538 - 15,538

Net assets released from restrictions 2,255,102 (2,255,102) - 639,949 (639,949) -

Total other revenues 2,936,700 (2,108,968) 827,732 986,316 (515,804) 470,512

Total Public Support and Revenue 5,401,475 (1,926,239) 3,475,236 2,891,013 100,902 2,991,915

Expenses

Program services 2,399,143 - 2,399,143 2,093,552 - 2,093,552

Management and general 563,244 - 563,244 424,292 - 424,292

Fundraising 471,001 - 471,001 366,909 - 366,909

Total Expenses 3,433,388 - 3,433,388 2,884,753 - 2,884,753

Change in Net Assets Before

Uncollectible Grant 1,968,087 (1,926,239) 41,848 6,260 100,902 107,162

Loss in uncollectible grant (241,664) - (241,664) - - -

Change in Net Assets 1,726,423 (1,926,239) (199,816) 6,260 100,902 107,162

Net Assets, Beginning of Year 333,709 3,695,134 4,028,843 327,449 3,594,232 3,921,681

Net Assets, End of Year 2,060,132$ 1,768,895$ 3,829,027$ 333,709$ 3,695,134$ 4,028,843$

2014 2013

See independent auditor's report and notes to financial statements.5

ACCION CHICAGO

STATEMENT OF FUNCTIONAL EXPENSES


Program Administrative Fundraising Total Program Administrative Fundraising Total

Functional Expenses

Salaries and wages 1,182,497$ 343,590$ 247,220$ 1,773,307$ 991,662$ 266,657$ 253,713$ 1,512,032$

Payroll taxes and fringe benefits 234,374 66,917 54,103 355,394 169,432 45,560 43,348 258,340

Credit and collection 216,304 - - 216,304 196,592 - - 196,592

Interest 33,861 - - 33,861 38,355 - - 38,355

Inputed interest through below

market rate loans 89,662 - - 89,662 80,516 - - 80,516

Provision for loan loss 175,102 - - 175,102 205,500 - - 205,500

Occupancy 93,612 27,201 19,571 140,384 82,172 22,097 21,023 125,292

Professional fees and consultants 229,958 49,335 11,844 291,137 131,320 22,107 5,030 158,457

Donated services - - 15,165 15,165 52,961 - - 52,961

Telephone 14,030 4,580 2,655 21,265 10,339 2,780 2,645 15,764

Insurance 1,254 5,284 262 6,800 8,354 7,116 2,137 17,607

Equipment rental and maintenance 12,066 4,098 2,583 18,747 9,768 2,626 2,499 14,893

Supplies 16,886 3,884 5,021 25,791 8,534 2,240 2,183 12,957

Marketing 14,469 261 40,918 55,648 26,518 7,131 6,784 40,433

Event expense - - 39,417 39,417 - - 6,690 6,690

Travel 19,528 22,084 6,820 48,432 20,307 5,461 5,195 30,963

Training 20,551 17,015 6,135 43,701 18,687 5,025 4,781 28,493

Information technology 11,854 3,546 9,033 24,433 15,165 4,133 3,879 23,177

Dues and subscriptions 6,791 1,572 4,353 12,716 4,226 1,136 1,081 6,443

Depreciation and amortization 26,080 7,579 5,452 39,111 20,269 5,450 5,186 30,905

Bad debt - - - - - 24,000 - 24,000

Miscellaneous 264 6,298 449 7,011 2,875 773 735 4,383

Total Expenses 2,399,143$ 563,244$ 471,001$ 3,433,388$ 2,093,552$ 424,292$ 366,909$ 2,884,753$

2014 2013

See independent auditor's report and notes to financial statements.6

ACCION CHICAGO

STATEMENT OF CASH FLOWS


2014 2013

Cash Flows from Operating Activities

Change in net assets (199,816)$ 107,162$

Adjustments to reconcile change in net assets to net cash

provided (used) in operating activities

Depreciation and amortization 39,111 30,905

Loss in uncollectible grant 241,664 -

Bad debt expense - 24,000

Loans charged-off (227,048) (197,743)

Provision for loan losses 175,102 205,500

Contribution revenue on below market interest loans (2,500) (40,500)

Interest expense on below market interest loans 89,662 80,516

Change in assets - decrease (increase)

Government receivables 333,105 (177,716)

Pledges receivable (2,106) (106,640)

Other receivables 1,000 (550)

Accrued interest receivable (5,769) (6,755)

Prepaid expenses (3,474) 3,009

Security deposit - 2,116

Change in liabilities - increase (decrease)



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Refundable advance 1,889,352 (186,667)

Funds held for others 286,275 -

Accrued payroll and related costs (23,120) 83,832

Accrued interest (2,488) 2,207

Net cash provided (used) by operating activities 2,761,423 (135,863)

Cash Flows from Investing Activities

Increase in notes receivable, net of principal repayments (226,216) (668,499)

Recoveries on charged-off loans 46,796 26,359

Purchase of property and equipment (22,195) (46,160)

Net cash used by investing activities (201,615) (688,300)


7

ACCION CHICAGO

STATEMENT OF CASH FLOWS


2014 2013

Cash Flows from Financing Activities

Principal repayment of notes payable (218,037)$ (128,684)$

Proceeds from notes payable - 200,000

Net cash (used) provided by financing activities (218,037) 71,316

Net increase (decrease) in cash and cash equivalents 2,341,771 (752,847)

Cash and cash equivalents, beginning of year 2,123,990 2,876,837

Cash and cash equivalents, end of year 4,465,761$ 2,123,990$

Supplemental Disclosure of Cash Flow InformationInterest paid 36,349$ 45,110$


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8

ACCION CHICAGONOTES TO FINANCIAL STATEMENTSDecember 31, 2014 and 2013

Note 1 – Nature of Operations and Summary of Significant Accounting Policies

OrganizationAccion Chicago (the Organization) provides credit and other valued assistance services to small business owners that do not have access to traditional sources of financing. By encouraging the economic self-reliance of micro-entrepreneurs throughout Illinois and Northwest Indiana, the Organization strives to help small business owners increase their incomes, create new jobs and strengthen their communities. The majority of businesses receiving credit and other technical assistance services are located in regions of low to moderate income levels.

Accion Chicago is committed to its mission of providing access to credit and technical assistance formicro-entrepreneurs. The Organization continues to solicit operating grants from new sources and maintains a line of credit for liquidity. The Organization strives to be self-reliant for training the lending staff and facilitating underwriting decisions. The Organization has been successful in its ability to refinance debt and extend maturities while converting certain debts to Equity EquivalentDebt (see Note 9 – Equity Equivalent Debt). Management continues to pursue profitable operations.

Income Tax StatusThe Organization was granted an exemption from federal income taxes by the Internal Revenue Service pursuant to the provisions of Internal Revenue Code Section 501(c)(3). The Organization qualifies for the charitable contribution deduction under Section 170(b)(1)(A)(vi) and has been classified as an organization that is not a private foundation under Section 509(a)(1). The tax exempt purpose of the Organization and the nature in which it operates is described above. Management believes the Organization continues to operate in compliance with its tax exempt purpose.

Accion Chicago annual informational returns filed with the federal and state governments are generally subject to examination by the Internal Revenue Service for three years after filing. Thus, returns for 2011 through 2014 remain open.

Basis of AccountingThe accounts and financial statements are maintained on the accrual basis of accounting and accordingly, reflect all significant receivables and payables.

Basis of PresentationThe Organization reports information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted net assets, as required by Generally Accepted Accounting Principles (GAAP).

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Note 1 – Nature of Operations and Summary of Significant Accounting Policies (cont.)

Use of EstimatesThe preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Significant estimates used in the preparation of these financial statements include the allowance for losses, discontinuance of accrual of interest on loans when certain conditions are met, and allocations of general, administrative and other expenses to individual program activities. Actual results could differ from those estimates.

Cash and Cash EquivalentsCash consists of bank deposits in federally insured accounts. At December 31, 2014 and 2013, the cash accounts exceeded federally insured limits by $3,833,400 and $1,797,000, respectively.

For purposes of the Statement of Cash Flows, the Organization considers all highly liquid debt instruments, if any, purchased with an original maturity of one year or less to be cash equivalents.

Loans ReceivableLoans receivable are stated at their unpaid principal balance, less an allowance for loan losses. Interest on loans receivable is recognized over the term of the loan and is generally calculated using the simple-interest method on principal amounts outstanding. A substantial portion of the loan portfolio consists of loans made to entrepreneurs in the Chicagoland area. The ability of borrowers to repay these loans may be dependent upon the general economic conditions in their local community as well as in the general Chicagoland area.

The Organization discontinues the recording of interest when a loan becomes greater than ninety days past due. Accrual of interest is resumed upon the collection of past due amounts. Past due or delinquent status of loans is determined by the paid-through date according to the prescribed loan terms. In all cases, loans may be placed on nonaccrual status at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charge-off status is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to current accrual status. Loans are returned to accrual status when all principal and interest payment amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan LossesThe allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when a loan is delinquent more than 180 days, or management believes the collectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

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The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as information becomes available.

The Organization’s allowance for loan losses is that amount considered adequate to absorb probable losses in the portfolio based on management’s evaluations of the size and current risk characteristics of the loan portfolio. Such evaluations consider prior loss experience, the risk rating distribution of the portfolios, the impact of current internal and external influences on credit loss and the levels of nonperforming loans.

General allowances are established for loans that can be grouped into pools based on similar characteristics. In this process, general allowance factors are based on an analysis of historical charge-off experience and expected losses given default derived from the Organization’s internal risk rating process. These factors are developed and applied to the portfolio in terms of loan type. The qualitative factors associated with the allowances are subjective and require a high degree of management judgment. These factors include the credit quality statistics, recent economic uncertainty, and losses incurred from recent events.

Under certain circumstances, the Organization will provide borrowers relief through loan restructuring. A restructuring of debt constitutes a troubled debt restructuring (TDR) if the Organization, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. TDR concessions can include reduction of interest rates, extension of maturity dates, forgiveness of principal and/or interest due, or acceptance of other assets in full or partial satisfaction of the debt. The Organization considers all aspects of the restructuring to determine whether it has granted a concession to the borrower. An insignificant delay in payment resulting from a restructuring is not deemed to be a concession and would not be considered to be a TDR.

The Organization has concluded that the impairment impact of troubled debt restructurings on its loan portfolio (generally lower balance loans having original maturities of 60 months or less) is insignificant to the financial statements. As such these impairments are not individually tracked but rather are adequately included in the loss allowance provided on a pooled basis for the loan portfolio.

The Organization maintains general valuation allowances for homogeneous portfolio segments. These portfolio segments and their risk characteristics are described as follows:

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Microenterprise: Loans between $500 and $50,000 made to small business in Accion Chicago’s service area. These loans represent term, balloon, start-up, and credit builder loans, which are primarily unsecured. Economic trends, local unemployment rates, and other key economic indicators are closely related to the credit quality of these loans.

Restructured: Loans originated as Microenterprise loans that had some level of difficulty and have subsequently had payment terms adjusted in order to facilitate repayment. As such, they represent greater risk than microenterprise loans.

Property and EquipmentProperty and equipment are stated at cost, if purchased, or fair market value, if received by donation. Depreciation and amortization are provided on the straight-line method, over the estimated useful lives of the assets, generally 3 to 5 years. Expenditures for property and equipment in excess of $500 are generally capitalized.

Equity Equivalent DebtThe Equity Equivalent Debt, or EQ2, is a capital product for community development financial institutions and their investors. This special debt investment allows organizations like Accion Chicago to strengthen their capital structure and increase lending and investing in economically disadvantaged communities. It is a long-term subordinated loan, offered by regulated financial institutions to fulfill their investment requirements by meeting the credit needs of the communities in which they do business. Like permanent capital, EQ2 enhances the Organization’s lending flexibility and increases its debt capacity by protecting senior lenders from losses. Unlike permanent capital, it must eventually be repaid. To qualify as an EQ2, the obligation is not secured, is fully subordinated, essentially cannot have accelerated repayment, carries an interest rate not tied to income received by the Organization, and has a rolling term and, therefore, a relatively indeterminate maturity. Such debt totaled $1,596,222 and $1,607,785 at December 31, 2014 and 2013, respectively. See Note 9 for detail of this Equity Equivalent Debt.

Pledges ReceivablePledges receivable are recorded in the year the pledge is made and conditions, if any, are met. If considered necessary, an allowance for uncollectible pledges receivable would be determined based on specific pledges and experience. No allowance was deemed necessary as of December 31, 2014 and 2013.

Revenue RecognitionAll contributions, including promises to give, are considered to be available for unrestricted use, unless specifically restricted by the donor. Amounts received that are designated for future periods or restricted by the donor for specific purposes are reported as temporarily restricted support, andincreases that net asset class. However, if a restriction is fulfilled in the same reporting period in which the contribution is received, the Organization generally reports the support as unrestricted.

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Gifts of property and equipment are reported as unrestricted support, unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used, and gifts of cash or other assets that must be used to acquire long-lived assets would be reported as restricted support. Absent explicit donor stipulations about how long those long-lived assets must be maintained, the Organization reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service.

Certain Vulnerabilities and Concentrations During 2014, the Organization received 25% of its revenue from the U S. Dept. of the Treasury (CDFI). Government receivables at December 31, 2014 consist of 95% from the Illinois Department of Commerce and Economic Opportunity. Pledges receivable at December 31, 2014 consist of 18%, 17%, 14% and 12% from Fifth Third Bank, Chicago Community Trust, US Bank and Knight Foundation, respectively. Any negative change in the economy could have an impact on contributions, fundraising efforts, and contracts, as well as government grants.

Donated ServicesContributions of services are required to be recognized if the services received (a) create or enhance non-financial assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. For the year ending December 31, 2014, the Organization received donated legal services valued at $15,165. For the year ending December 31, 2013, the Organization received donated human resource consulting and legal services valued at $52,961.

In-Kind SupportIn addition to receiving cash contributions, the Organization receives in-kind contributions from various donors. In accordance with generally accepted accounting principles, the Organization records the estimated fair value of certain in-kind donations as an expense in its financial statements, and similarly records a corresponding donation by a like amount. For the year ending December 31, 2014, the Organization did not receive any in-kind contributions. For the year ended December 31, 2013, the Organization received donated event space valued at $5,000.

AdvertisingThe Organization expenses the cost of advertising as incurred. Advertising and marketing expenses were approximately $55,648 and $40,433 in 2014 and 2013, respectively.

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Functional Allocation of ExpensesThe costs of providing the various programs and other activities have been summarized on a functional basis in the Statement of Activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited.

ReclassificationsCertain items in the 2013 financial statements have been reclassified to conform to the 2014presentation.

Note 2 – Restricted Cash

Restricted cash is summarized at December 31, as follows:

2014 2013

Funding Source Funding Purpose Economic Development Lending (1) 208,031$ 448,921$ Bank of America Foundation SBA loan losses (1) (2) 60,000 60,000 Illinois DCEO Lending: Re-lend prime + (1) - 530,499 Community Development Financial Lending: Technical (1) - 2,694 Kankakee County Lending: Kankakee County (3) 32,656 21,036 WBDC Loan repayments (4) 13,361 - Metropolitan Capital Bank Lending: Participation loans (4) 3,218 291 Various Participation funders Lending: Participation loans (4) 92,270 14,831 CDFI Technical assistance (5) 921,481 - City of Chicago Lending in Chicago (6) 36,763 - Accion, The US Network Train WBC Microlenders (7) 935,600 - Citi Business Funds held for others (8) 286,275 -

2,589,655$ 1,078,272$

(1) This represents the cash portion of temporarily restricted net assets.(2) The Small Business Administration notes payable agreements requires cash to be maintained

in a separate, restrictive, account to cover 15% of outstanding notes receivable as a loan loss reserve.

(3) The Kankakee County line of credit is restricted to loans in Kankakee County.(4) The Organization collects payments, as a fiscal agent, on behalf of these banks (see Note 6).

These funds are payable as directed by these Banks according to the participation and loan servicing agreement and therefore are restricted.

(5) CDFI advanced funds of $921,481 for financial assistance.

14


Note 2 – Restricted Cash (cont.)

(6) City of Chicago's Department of Business Affairs and Consumer Protection advanced $100,000 for the micro loan capitalization program. At December 31, 2014, $63,237 was lent, leaving the remaining balance of $36,763 to be lent to small businesses in the City.

(7) Accion US Network advanced funds of $1,226,000 for the We Lend Program, at December 31,2014 $290,400 of services were performed leaving the remaining balance of $935,600 for future training with respect to Women Business Centers.

(8) Citi-Business advanced funds of $331,000 for the City of Chicago Treasurer's Office to implement the credit building initiative and capital access center pilot program. At December 31, 2014 $44,725 was expended leaving funds of $286,275 to be distributed in the future to qualified clients as determined by the City of Chicago Treasurer's Office.

Note 3 – Cash Designated for Loan Loss Reserve

The Organization has established an additional cash account as a reserve for potential loan losses onnotes receivable associated with the Small Business Administration’s Notes Payable. This reserve is in addition to the required 15% noted as restricted cash for the Small Business Administration. At December 31, 2014 and 2013, the amount maintained in the designated cash account was $45,900and $67,034, respectively.

Note 4 – Conditional Promises to Give

The Organization has received the following conditional promises to give that are not recognized as assets in the statement of financial position as of December 31, 2014:

Earned or

AdvancedGrant as of Funding

Term Amount 12/31/2014 Available

U.S. Small Business Administration - 7/01/14 to

Microloan Program 6/30/15 66,536$ 31,591$ 34,945$

City of Aurora 12/01/14 to

11/30/15 10,000 - 10,000

U.S. Department of Treasury 8/26/14 to

12/31/17 1,000,000 921,481 78,519

1,076,536$ 953,072$ 123,464$

Conditional Promises to Give Upon Expenditure of Funds Including Awarding Loans:

15


Note 5 – Property and Equipment

Property and equipment are summarized by major classification at December 31, as follows:

2014 2013

Furniture and equipment 169,872$ 150,888$

Leasehold improvements 15,523 15,523

Software 72,183 68,972

257,578 235,383

Less accumulated depreciation and amortization (169,651) (130,540)

87,927$ 104,843$

Depreciation and amortization expense for the years ended December 31, 2014 and 2013 were$39,111 and $30,905, respectively.

Note 6 – Loans Receivable

Loans receivable at December 31, consist of the following:

2014 2013

Term 2,629,747$ 2,625,697$

Start-up 750,153 586,428

Balloon 270,477 203,181

Restructured 139,171 148,126

3,789,548 3,563,432

Less allowance for loan losses (510,915) (516,165)

3,278,633$ 3,047,267$

Current Long-Term Total

Principal amount 2,444,709$ 1,344,839$ 3,789,548$

Reserve for loan loss (332,095) (178,820) (510,915)

Net notes receivable 2,112,614$ 1,166,019$ 3,278,633$

Current Long-Term Total

Principal amount 2,326,688$ 1,236,744$ 3,563,432$

Reserve for loan loss (337,019) (179,146) (516,165)

Net notes receivable 1,989,669$ 1,057,598$ 3,047,267$

December 31, 2014

December 31, 2013

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Note 6 – Loans Receivable (cont.)

Expected repayment maturities of notes receivable are as follows:

Principal

Year Amount

2015 2,444,709$

2016 795,351

2017 427,418

2018 102,432

2019 19,638

3,789,548$

The loan portfolio weighted average interest rate at December 31, 2014 and 2013 was 12.1% and 9.8%, respectively.

The allowance for loan losses (ALL) activity is as follows:

Microenterprise Restructured TotalAllowance for Loan Losses

Balance, January 1, 2013 455,363$ 26,686$ 482,049$ Provision for loans losses 166,331 39,169 205,500 Loans charged-off (189,799) (7,944) (197,743) Recoveries of loans previously charged-off 25,380 979 26,359 Balance, December 31, 2013 457,275 58,890 516,165

Provision for loans losses 166,252 8,750 175,002 Loans charged-off (215,696) (11,352) (227,048) Recoveries of loans previously charged-off 44,456 2,340 46,796

Balance, December 31, 2014 452,287$ 58,628$ 510,915$

17



The breakdown for the allowance for loan losses by loan portfolio segment at year-end is as follows:

December 31, 2014 ALL Evaluation Microenterprise Restructured Total

Collectively evaluated for impairment 452,287$ 58,628$ 510,915$ Individually evaluated for impairment - - -

Total at December 31, 2014 452,287$ 58,628$ 510,915$

December 31, 2013 ALL Evaluation

Collectively evaluated for impairment 457,275$ 58,890$ 516,165$ Individually evaluated for impairment - - -

Total at December 31, 2013 457,275$ 58,890$ 516,165$

The associated loan balances in relation to the category breakdown for the allowance for loan losses at year end is as follows:

December 31, 2014 Loan Balances in

relation to ALL Evaluation Microenterprise Restructured Total

Collectively evaluated for impairment 3,650,377$ 139,171$ 3,789,548$ Individually evaluated for impairment - - -

Total loans at December 31, 2014 3,650,377$ 139,171$ 3,789,548$

December 31, 2013 Loan Balances in relation to ALL Evaluation Microenterprise Restructured Total

Collectively evaluated for impairment 3,415,306$ 148,126$ 3,563,432$ Individually evaluated for impairment - - -

Total loans at December 31, 2013 3,415,306$ 148,126$ 3,563,432$

The following table shows the loan portfolio segments allocated by payment activity at year end. Loans are generally deemed performing if they are less than 90 days delinquent.

Microenterprise Restructured TotalPayment Activity as of:

December 31, 2014

Performing 3,592,595$ 126,054$ 3,718,649$ Non-performing 57,782 13,117 70,899

Total 3,650,377$ 139,171$ 3,789,548$

Credit Risk Profile by Payment Activity

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Microenterprise Restructured TotalDecember 31, 2013

Performing 3,376,521$ 137,944$ 3,514,465$ Non-performing 38,785 10,182 48,967

Total 3,415,306$ 148,126$ 3,563,432$

Credit Risk Profile by Payment Activity

The following table shows an aging analysis of the loan portfolio by time past due at December 31:

Current

30 - 89

Days Past Due

90 Days or

More Past Due

Less than

90 Days Past Due

90 Days or

More Past Due Total Loans

December 31, 2014

Microenterprise 3,468,357$ 124,238$ -$ -$ 57,782$ 3,650,377$

Restructured 109,225 16,829 - - 13,117 139,171

Total 3,577,582$ 141,067$ -$ -$ 70,899$ 3,789,548$

December 31, 2013

Microenterprise 3,309,288$ 67,233$ -$ -$ 38,785$ 3,415,306$

Restructured 119,210 18,734 - - 10,182 148,126

Total 3,428,498$ 85,967$ -$ -$ 48,967$ 3,563,432$

Accruing Interest Non-Accrual

Loan Participation and Servicing AgreementsThe Organization has entered into loan participation agreements with multiple banks. The banks acquired a 100% non-recourse participation interest in loan accounts. The loan balances are excluded from the financial records of Accion Chicago, but the accounts are serviced by the Organization. As of December 31, 2014, the outstanding loan participation balances totaled $1,328,442. Management has determined there is no significant risk of loss to the Organization as a result of this participation agreement.

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Date of Original Value Current Value

Participating Bank Participation of Loans of Loans

PrivateBank 12/5/14 591,235$ 557,785$

Delaware Place Bank 10/29/14 672,291 617,883

Hinsdale Bank 10/6/14 25,899 22,732

Burling Bank 9/12/14 47,645 42,640

NorthBrook Bank 9/8/14 48,288 33,770 Metropolitan Bank 7/2/14 29,942 20,168

Old Plank Trail Bank 4/10/14 117,666 14,837

North Shore Community Bank 3/26/13 117,021 9,049

NorthBrook Bank 12/19/12 83,225 9,578

1,733,212$ 1,328,442$

During the year ended December 31, 2013, the Organization has also entered into a monthly agreement with the Women’s Business Development Center (WBDC) for certain loan processing administrative support and loan servicing activities. There is no specific termination date of the agreement. However, the Organization does not expect the agreement to continue past the next twelve months. The minimum monthly payment is $25 per account serviced. As of December 31, 2014, the Organization is servicing seventeen loan accounts with a total outstanding balance of $122,328.

Note 7 – Funds Held for Others

Citi Business advanced funds of $331,000 for the City of Chicago Treasurer's Office to implement the credit building initiative and capital access center pilot program. At December 31, 2014 $44,725 was expended leaving funds of $286,275 to be distributed to qualified clients determined by the City of Chicago Treasurer's Office.

Note 8 – Leases

The Organization has operating leases for its facility, copiers, and a postage machine that expire at various dates through March 2018. Rental expense for these leases totaled $134,306 and $119,712for the years ended December 31, 2014 and 2013, respectively.

Future minimum lease payments are as follows:

2015 128,779$

2016 102,360

2017 40,216

2018 4,290

275,645$

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Note 9 – Notes Payable

Notes payable at December 31, are summarized as follows:

Interest

Payment

Lender 12/31/14 12/31/13 Terms 12/31/14 12/31/13 12/31/14 12/31/13Secured Debt

Small Business Administration (1) 3.625% 3.625% Monthly 4/4/14 4/4/14 -$ 143,129$ Small Business Administration (1) 2.375% 2.375% Monthly 1/7/20 1/7/20 236,811 285,556

236,811 428,685

Unsecured Debt

CDFI Fund (2) 0.00% 0.00% Quarterly 12/31/57 12/31/57 541,800 554,400

Community Savings Bank 0.00% 0.00% Semiannual 12/31/57 12/31/57 86,000 88,000

Kankakee (revolving loan fund) 0.00% 0.00% End of term 2/28/15 2/28/14 75,000 75,000

702,800 717,400

Subordinated Debt

US Bancorp 2.00% 2.00% Quarterly 3/15/18 3/15/18 250,000 250,000

Amalgamated Bank of Chicago 2.00% 2.00% Quarterly 11/30/15 11/30/14 50,000 50,000

First Midwest Bank 2.00% 2.00% Quarterly 11/30/17 11/30/17 50,000 50,000

350,000 350,000

Interest Rate at Maturity at Balance at

(1) Principal and interest are payable monthly at a rate based upon average size of micro-loans made, collateralized by such loans totaling $236,811and $428,688 at December 31, 2014 and 2013, respectively.

(2) The Department of the Treasury, Community Development Financial Institutions (CDFI) Fund had financial covenants, defined in their original agreement, relating to net assets, net revenue, and operating and capital ratios. However, the Organization has been informed by the CDFI Fund that the repayment of this debt will not be accelerated and they are no longer required to submit reports to the CDFI Fund. In 2007, the Organization further restructured the debt agreement with CDFI Fund, capitalizing the balance of $30,000 for past interest, reducing the interest rate to 0%, extending the maturity to 2057, and requiring quarterly payments of $3,150.

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Note 9 – Notes Payable (cont.)

Interest

Payment

Lender 12/31/14 12/31/13 Terms 12/31/14 12/31/13 12/31/14 12/31/13Equity Equivalent Debt

Bank Financial 2.00% 2.00% Monthly 1/1/15 1/1/14 40,000$ 40,000$

Bank of America 0.00% 0.00% Monthly 7/1/57 7/1/57 63,750 65,250

Chicago Community Bank 2.00% 2.00% Semiannual 1/1/15 1/1/14 100,000 100,000

Evergreen Bank Group 2.00% 2.00% Semiannual 3/12/17 3/12/17 100,000 100,000

Fifth Third Bank 0.00% 0.00% Semiannual 6/30/57 6/30/57 165,203 169,090

First Bank/Illinois 2.00% 2.00% Semiannual 4/1/17 4/1/17 250,000 250,000

First Eagle Bank 2.00% 2.00% Semiannual 9/30/17 9/30/17 100,000 100,000

First Savings Bank of Hegewisch 2.00% 2.00% Semiannual 1/1/16 1/1/16 400,000 400,000

Leaders Bank 2.00% 2.00% Semiannual 1/1/18 1/1/18 75,000 75,000

MB Financial Bank 0.00% 0.00% Semiannual 6/1/57 6/1/57 84,629 86,621

Oxford Bank & Trust 2.00% 2.00% Semiannual 1/1/19 1/1/19 25,000 25,000

PNC Bank 0.00% 0.00% Monthly 8/15/56 8/15/56 83,687 85,871

Northern Trust Company 0.00% 0.00% Semiannual 12/31/56 12/31/56 84,000 86,000

Republic Bank 2.00% 2.00% Monthly 1/1/15 1/1/14 24,953 24,953

1,596,222 1,607,785

Total notes payable 2,885,833 3,103,870

Less: Present value discount (3) (911,068) (998,230)

Net Long-term debt 1,974,765$ 2,105,640$

Interest Rate at Maturity at Balance at

(3) A 7% discount interest rate was imputed on below market interest loans and interest-free loans, which was included in temporarily restricted contribution revenue in the year the loan was issued or terms renegotiated. The discount represents a cumulative amount of net revenue that has been recognized due to below market interest and interest-free loans. Each year, as the interest expense is recognized, the discounted amount decreases.

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The original contractual balance, present value discount and net balance of notes payable are summarized as follows at December 31:

Contractual Present Value Balance, Net

Balance Discount of Discount

Current portion, long-term debt 360,764$ 87,071$ 273,693$

Long-term debt 2,525,069 823,997 1,701,072

Total long-term debt 2,885,833$ 911,068$ 1,974,765$

Contractual Present Value Balance, Net

Balance Discount of Discount

Current portion, long-term debt 503,891$ 89,664$ 414,227$

Long-term debt 2,599,979 908,566 1,691,413

Total long-term debt 3,103,870$ 998,230$ 2,105,640$

2014

2013

Maturities of debt before the present value discount for imputed interest rate on below market interest and interest-free loans at December 31, 2014 are as follows:

Equity

Year Secured Senior Equivalent Subordinate

Ending Debt Debt Debt Debt Total

2015 44,815$ 89,600$ 50,000$ 176,349$ 360,764$

2016 46,993 14,600 - 411,396 472,989

2017 48,121 14,600 50,000 461,396 574,117

2018 49,277 14,600 250,000 86,396 400,273

2019 47,604 14,600 - 36,396 98,600

Thereafter - 554,800 - 424,290 979,090

236,810$ 702,800$ 350,000$ 1,596,223$ 2,885,833$

The Equity Equivalent Debt is a long-term capital product for community development financial institutions investing in economically disadvantaged communities. Although maturity dates are stated and incorporated in the above analysis, investors generally renew their commitment, therefore providing a relatively permanent capital base.

The Organization's $1,000,000 revolving line of credit with MB Financial Bank was not renewed at the maturity date of September 15, 2014.

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Under the Revolving Loan Fund (RLF) agreement with Kankakee County, the Organization has access to a revolving line of credit. Amounts borrowed are restricted for lending purposes, as defined in the RLF agreement. As of December 31, 2014 and 2013, the Organization had borrowed $75,000, the full amount of this line of credit.

The loans from the Small Business Administration are collateralized by the respective outstanding notes receivable.

The total interest incurred and expensed on all notes payable outstanding, other than imputed interest, for the years ended December 31, 2014 and 2013 was $33,861 and $38,355, respectively.

The Organization is also a guarantor for a credit card utilized by employees for business expenses. The credit card has a $35,000 limit of which $36,063 and $8,597 was outstanding and included in accounts payable at December 31, 2014 and 2013, respectively.

Note 10 – Commitments and Contingencies

Financial Instruments with Concentration of Credit RiskLoans range in size from $500 to $50,000, while their terms generally range from 2 to 36 months, with the exception of Small Business Administration loans that have a maximum term of 72 months. Collateral and cosigners may be required, and are dependent upon the loan amount and the perceived credit risk. Most of the Organization’s business activity is with borrowers located throughout Illinois, with the majority of these borrowers concentrated in the Chicagoland area. Geographic concentration risk arises largely from the influence of economic conditions in the Midwest region, particularly the Chicagoland area, on the Organization’s borrowers.

Fees and Grants ReceivedThe Organization has received significant financial assistance from federal, state and local government agencies. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements, and may be subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the Organization. Management believes the risk related to disallowed claims is minimal.

Loan ServicingThe Organization maintains an agreement with a bank to service its loan portfolio. The agreement provides that the bank will be responsible for recordkeeping, compliance with regulatory requirements, collection and remittance to the Organization. In consideration for these services, the Organization pays the bank a fee for each loan, based upon certain classifications as defined in the agreement. Expense for loan servicing under this agreement approximated $122,328 and $102,434for the years ended December 31, 2014 and 2013, respectively.

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Note 11 – Temporarily Restricted Net Assets

Temporarily restricted net assets at December 31, consisted of the following:

2014 2013

EDA Revolving Loan Fund 674,050$ 775,353$ Elizabeth Street Capital Initiative 18,551 - IL DCEO Revolving Loan Fund - 1,821,357 CDFI - Technical Assistance Program - 2,694 Chicago Community Trust - time restricted 37,500 37,500 City of Chicago - revolving loan fund 67,729 - Bank of America Foundation - Funds for

SBA Loan Loss Reserve 60,000 60,000 Imputed interest on below market and interest-free loans 911,065 998,230

1,768,895$ 3,695,134$

Note 12 – Employee Benefit Plan

The Organization has a SIMPLE Individual Retirement Account Plan that covers substantially all of its employees. The plan calls for the Organization to match employee contributions to the plan dollar-for-dollar up to a maximum of 3% of employee compensation. Benefit plan expense was $49,850 and $36,014 for years ending December 31, 2014 and 2013, respectively.

Note 13 – Related Party

The Organization has an equity equivalent debt agreement in the amount of $100,000, two certificates of deposit with a total value of $500,000 and a credit card with a credit line of $35,000with First Eagle Bank whereby a Board member owns and manages the bank. All terms and conditions of the equity equivalent debt with First Eagle Bank are consistent with all other Accion Chicago equity equivalent funders (see Note 9).

Note 14 – U.S. Network

Accion Chicago is a member of the Accion U.S. Network, a nationwide microlending network. The Network was officially launched in late 2011 to provide financial, marketing, and risk management support to each of the four Accion lending companies in the United States. Members including Accion Chicago, Accion East, Accion New Mexico-Arizona-Colorado, and Accion San Diego each pay annual dues to the Network in order to support its work on their behalf. Together, the fourAccion affiliates continue to grow local lending operations while the Network seeks to maximize resources nationally and to move the industry forward. Together, the four independent Organizations have served tens of thousands of clients since 1991.

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Note 15 – Refundable Advances

Refundable advances as of December 31, 2014 consist of the following advances from government and non-governmental sources:

City of Chicago Dept. of Business Affairs and Consumer Protection

Revolving loan program April 1, 2014 - December 31, 2016 32,271$

U.S. Dept. of Treasury CDFI - Financial Assistance

August 26, 2014 - December 31, 2017 921,481

Accion, The US Network - We Lend Program

April 3, 2014 - January 31, 2016 935,600

Total refundable advance 1,889,352$

Note 16 – Loss in Uncollectible Grant

Accion Chicago had a program partnership with the Illinois Department of Commerce and Economic Opportunity (DCEO) that ran from October 2010 to September 30, 2013. This program, funded with HUD disaster recovery dollars, supported small business lending across the state of Illinois and was targeted to businesses that would create jobs or strengthen low-to-moderate income communities. Accion was awarded $4.25 million under this program. At program closeout in May 2015, Accion was informed by DCEO that it would not be reimbursed for the final $241,664.Accion's management and legal counsel believe these funds are due to the Organization, but will not pursue further recovery action. As such, the final $241,664 is presented in the 2014 statement of activities as a loss in uncollectible grant.

Note 17 – Subsequent Events

For the year ended December 31, 2014, the Organization has evaluated subsequent events through May 11, 2015, which is the date the financial statements were available to be issued. No subsequent events have been identified that are required to be disclosed through that date, except for the following:

In March 2015, the U.S. Small Business Administration provided the Organization a $1,000,000 loan to be used for the Microloan Program. This note is collateralized by the deposit accounts for the Microloan Revolving Fund and the Loan Loss Reserve Funds. No payments of principal or interest will be required during the first twelve months from the date of the note. Principal and interest will be payable monthly beginning the thirteenth month from the date of the note. Payments on the note, based on the 2% buy down, will be $9,259 for one hundred and twenty months. The balance of the note will be due at maturity. On March 26, 2015 the Organization drew down $255,000.

On March 25, 2015, Devon Bank provided the Organization with a $75,000 subordinate debt agreement. Principal is due in five years with interest of 2% payable quarterly commencing on the next calendar quarter following the initial disbursement.

As of March 1, 2015, Accion is no longer servicing WBDC loans.

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