Many small business owners lack access to financing, making them vulnerable to predatory lenders. A digital platform powered by Mastercard makes it easy to maintain CDFI financing.
When small business owners shop for loans, they often jump into a frenzy online loan options – loans, lines of credit and different types of loans. Although many promote their products as fast and convenient, they often come with high prices and confusing terms.
Online non-bank lenders are a growing source of financing for small businesses. Traditional banking is not always an option, especially for minority entrepreneurs turned down twice as many loans as white business owners. And the more mission-driven lenders that can help often fly under the radar, in part because their marketing budgets aren’t as robust as other predatory programs.
Community fund (CRF) is working to change this online lending game. The Minneapolis CDFI founded Connect2Capital five years ago. In essence, the digital platform brings together all the products offered by CRF and similar organizations under one digital umbrella. Connect2Capital then uses a unique algorithm to match business owners with CDFIs and other mission-driven lenders. Once connected with a lender, small business owners continue to receive assistance from Connect2Capital as they prepare their application and move through the foreclosure and closing process.
In creating this market, CRF did not invent the wheel. There are several existing platforms that match businesses with financial opportunities, but not necessarily mission-driven lenders. The platform also solves an important problem for CDFIs. Much of the success of a CDFI depends not only on its ability to raise money, but also on how effectively it can release money to those who need it.
“We realize that there is no platform that provides such services for small businesses that focus on non-profit lenders that offer technical and technical support, and provide better prices and more affordable loan products because of FinTechs,” said Patrick Davis, CRF’s vice president of strategy. they understand.”
In addition to connecting small business owners with lenders they might not otherwise have access to, the platform takes a lot of the work out of the process for CDFIs – enabling them to process more loans and serve more entrepreneurs. In the beginning, CRF and its partners loaned $7 million through Connect2Capital. That loan volume has grown to more than $300 million from more than 110 lenders across the country – most of which serve a variety of small businesses. By 2021, approximately 70% of businesses using Connect2Capital will be BIPOC, women, veterans or LGBTQIA.
The sector started with funding from national banks and financial services companies. the Mastercard Center for Inclusive Growth, the company’s philanthropic hub, is Connect2Capital’s first supporter, providing significant funding to improve and grow the platform during the pandemic.
“Platforms like Connect2Capital are talking about great opportunities to access some of the same technologies and innovations that are powering FinTech with the goal of expanding access to affordable capital for small businesses,” said Sandy Fernandez, VP, North America, Mastercard Center for Inclusive Growth.
After receiving funding, CRF faced its biggest hurdle: getting buy-in from other CDFIs.
“We’ve had a really hard time getting other CDFIs to see the vision and get into the field,” Davis said. “The first two or three years were very difficult, and it’s true that we didn’t get much traction.”
Then COVID-19 hit.
The pandemic has devastated many small businesses, especially those owned by entrepreneurs of color in low-income areas. In response, many public funds have entered the CDFI space PPP loans and local and regional small business programs. However, despite the fact that CDFIs are well positioned to distribute funds, many are not technically prepared to manage funds. Many have turned to Connect2Capital for help.
“All that federal money that needed to find its way into the hands of small businesses that couldn’t secure bank financing,” Davis said. “We have been building this equipment for several years before COVID. It was perfect for crisis response. “
One of these programs is the Southern Opportunity and Resilience (SOAR) Fund, which used the Connect2Capital platform to host its application. SOAR awarded $61 million in loans from 13 CDFIs to help small businesses in 11 southern states recover from the pandemic. Almost half of the loans go to Black companies.
Ascendus was one that benefited the SOAR fund. According to the lender’s CEO, Paul Quintero, the New York-based CDFI expected to lend $20 million this year. But as of mid-November, they had lent more than $35 million, mostly to small business customers.
Quintero refers to the volume of his presence in Connect2Capital. Ascendus intervened Connect2Capital in 2019, but saw a significant increase in activity from the sector after the COVID-19 pandemic.
“The platform and the program helped us reach more small business owners, and that was a big challenge for us,” Quintero said. “The epidemic has unleashed the full potential of the sector.”
Connect2Capital will continue to expand in 2023, in part in partnership with Mastercard. The growth of the sector is one of the promotion of Mastercard Strive USA, which will both expand Connect2Capital and partner with other innovators to build digital CDFI capacity to leverage affordable capital for entrepreneurs across the country.
“CDFIs have shown how they can combine financial and technical assistance to meet the credit needs of underserved small businesses, especially in times of crisis,” he said. Fernandez. “As small businesses continue to face multiple challenges, Strive USA is bringing together resources and innovation across the philanthropic, public and private sectors to build a stronger small business support ecosystem.”
Christopher C. Williams is a freelance financial writer based in New Jersey. He has worked for years with Dow Jones Newswires and Barron’s Financial Weekly and contributed to the publishing of the Wall Street Journal, The New York Times and Essence magazine. She focuses on the intersection of business, economic equity and racial justice.
