By Kristen Scheyder, Senior Program Officer, Citi Foundation
Answering the Call
In June of 2020, the Citi Foundation issued a competitive request for proposals (RFP) to provide $15 million in unrestricted grant funding – also referred to as enterprise capital - for Community Development Financial Institutions (CDFIs) serving small businesses owned by people of color and low- and moderate-income communities around the U.S. adversely impacted by the COVID-19 pandemic. During this unprecedented time, CDFIs were confronting new challenges they had never faced before – overwhelming demand from new clients, the need to set up systems to engage both clients and employees remotely, and the imperative to capitalize on various federal, state and local programs to benefit their clients -- all while trying to raise money to support their operations and generate loan capital.
In speaking with CDFIs, the Citi Foundation quickly recognized their need for flexible support to meet these challenges and that each organization had unique needs based on their individual organization and the communities they served. Some needed to staff up, some needed to invest in technology, and others needed to free up their balance sheet so they could participate in the Paycheck Protection Program (PPP) and other local guarantee programs. Many CDFIs were also expanding the breadth and depth of the technical assistance they were providing to small businesses to help them survive the pandemic. This was especially true for businesses owned by people of color. According to research conducted by the Federal Reserve Bank of Atlanta, the odds of Black- and Hispanic- owned firms applying to CDFIs were 1.6 and 1.7 times greater, respectively, than that of similar white-owned firms.
Through our RFP initiative, 30 CDFIs were selected to each receive unrestricted grant support of $500,000 for a total of $15 million. Here are some highlights of how recipients used their flexible funding.
Scaling up lending practices
BOC Capital Corp (BCC) used the unrestricted funding to leverage new capital sources, support reserves requirements and adjust underwriting guidelines to facilitate greater capital access for entrepreneurs of color. The funding also served as a required match for BCC’s successful application for a Federal CDFI grant of over $700,000 and enabled BCC to advance funding for PPP loans that resulted in more than 1,400 PPP loans for over $37 million. Citi Foundation support also contributed to BCC’s net asset ratio necessary to qualify for a $1.5 million equity equivalent investment targeted to Black-owned businesses and additional loans and grants. Further, BCC was able to make quick decisions that ultimately attracted new capital and increased its capacity to help so many diverse businesses needing support.
“Citi Foundation’s unrestricted funding has given us the opportunity to expand our services and increase our lending capacity to underserved businesses who were deeply impacted by disproportionate and inequitable assistance. With this support, we were able to empower small business owners with hands-on support and financing and advance our economic justice mission.” – Nancy Carin, Executive Director of BOC Capital Corp.
Ability to make larger loans to nonprofits to advance equity goals
For the Four Bands Community Fund, unrestricted funding enabled them to scale the organization's activity by providing the catalytic capital needed to do so. Four Bands leveraged their grant funds and gained access to over $1 million in debt for lending capital. By utilizing the funding from the Citi Foundation to finance debt and equity and deploy larger loans to their communities, Four Bands increased their average loan size from $57,000 in 2020 to $130,500 in 2021. Additionally, the capital allowed Four Bands to amplify the voice of a group of regional leaders called the Mountain Plains Regional Native CDFI Coalition. The Coalition is a grassroots effort to amplify the strength of indigenous communities in the region, and is also advancing diversity, equity, and inclusion efforts in rural areas of the U.S.
Evolving underwriting criteria for loan products, particularly to small business owners and entrepreneurs of color
The National Association for Latino Community Asset Builders (NALCAB) is a CDFI that acts as a network of over 200 nonprofits serving diverse Hispanic/Latino communities. With the unrestricted grant support from the Citi Foundation and other funders, NALCAB launched the Small Business Loan Guarantee program. The program offers support to network member lenders to make quality loans to small businesses that would not have otherwise qualified for a loan under the lender’s established underwriting criteria. Specifically, the program guarantees the lesser of 50% of loan principal or $10,000 for small business loans $75,000 for real estate secured small business loans. Through March 2023, 47 guarantees have made $2,395,000 in small business loans possible. NALCAB also utilized the Acceso Loan Fund to provide liquidity to three NALCAB network lenders with low-cost debt to facilitate PPP lending to Latino small businesses. The first round of funding was valued at $6.37 million and NALCAB redeployed an additional $5.25 million for a second round which ultimately funded 640 small businesses.
Learnings and Outcomes
What we said back in 2020 and in the decades of supporting community finance institutions across the U.S., holds very much true today. “CDFIs matter now, more than ever, to ensure that even the most affected businesses and communities can stabilize and thrive”. CDFIs continue to play a vital role in expanding access to safe and affordable financial products and services for individuals and small businesses in low- and moderate-income communities, and their creativity and commitment really shined through in the work they have done to assist individuals, communities and small businesses adversely impacted by the COVID-19 pandemic. Our decision in 2020 to provide the $15 million in unrestricted grant support has enabled the 30 CDFIs grantees, to nimbly respond to the unique needs of their individual communities and collectively deploy over $7.2 billion in capital to more than 320,000 small businesses around the country. And the clients that ultimately benefited from the lending and technical support provided by these 30 CDFIs were predominantly low to moderate-income and/or small business owners and entrepreneurs of color, as well as women and veterans.
We continue to learn from the transformational work of CDFIs and community finance organizations across the country. Our $15 million program was followed by additional initiatives in subsequent years to continue supporting small business providers and community finance organizations. To read more, visit our Community Financial Innovation Fund page.
*Impact numbers self-reported by grantee organizations