small business funding

New Funding: The CDFI Offers Financial Assistance to Philly’s Black and Brown Owned Businesses

The Hartford

Are you a small business owner who has struggled to qualify for traditional bank loans in the past? If so, then now might be the ideal time to consider reaching out to a CDFI (Community Development Financial Institute). In this episode, Jon Aidukonis and Gene Marks, along with Dan Betancourt, the president and CEO of Community First Fund, discuss how CDFIs are stepping up to promote inclusion by offering financial assistance to business owners from historically marginalized groups and communities.

Podcast Key Highlights

  • Which Small Businesses Will Benefit from Working with a CDFI (Community Development Financial Institute)?
    • CDFIs tend to work with small businesses that can’t qualify for a traditional bank loan.
    • While not a prerequisite, CDFIs are especially interested in helping minority-owned small businesses as well as those located in low to moderate income areas.
  • Which Organizations Can Help Me Find a CDFI for My Business?
    • PA CDFI Network
    • The Enterprise Center
    • Entrepreneur Works
    • The Women’s Opportunities Resource Center
    • PIDC (Philadelphia Industrial Development Corporation) Philadelphia
    • The Small Business Administration
    • Small Business Development Centers
    • SCORE (Service Corps of Retired Executives)
  • Who Typically Funds or Invests in a CDFI?
    • Tax Returns from the Last 3 Years
    • A Net Worth Statement
    • A Business Plan
  • Additional Resources for Minority-Owned Small Businesses
    • The Grit Fund is an inclusion initiative that was developed by the Philadelphia Chambers and their local CDFIs. Their goal is to lend capital to at least 1000 black or brown businesses over the next two to three years.
    • The SSBCI (State Small Business Credit Initiative) 2023 will provide $200 million in capital to CDFIs across the state. With more funding at their disposal, these CDFIs will finally be able to invest in the businesses that need these resources the most.

Links

Transcript

The views and opinions expressed on this podcast are for informational purposes only, and solely those of the podcast participants, contributors, and guests, and do not constitute an endorsement by or necessarily represent the views of The Hartford or its affiliates.

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Gene : Hey, everybody, and welcome back to another episode of Small Biz Ahead. My name is Gene Marks. I’m here with Jon Aidukonis. Jon, hello, hello.

Jon: Hey, Gene. How’s it going?

Gene : It is going good. We have a great guest with us today. Dan Betancourt, who is the president and CEO of Community First Fund. Dan, thank you very much for joining me. You’re based in Philadelphia. We’re going to be talking about Philadelphia’s GRIT fund and CDFIs as well. But first of all, let’s just start a little bit about yourself. You’re president and CEO of Community First Fund. What is Community First Fund?

Dan: We are a community lending organization. Some people know us as community revolving loan funds, started about 30 years ago. About two years ago, our organization who covers Central and Southeast PA, merged with a local CDFI, founded on the Girard, near American Street, so that was FINANTA. So a lot of it was the former empowerment zone organization on American Street. And so we have a long rich history through our FINANTA merger and Community First Fund serving the greater Philadelphia area for the past 30 years.

Gene: Got it. And so you’re a community development, financial institution, or CDFI. And I realize this is you’re based in Philly. And I do want to talk about the fund that you’re doing, but CDFIs are all over the country. What exactly is a CDFI, Dan? And do you have to be located in an underserved area or a minority business to take advantage of a CDFI, or are your programs open to all businesses?

Dan: Well, I mean, the program primarily focuses on small businesses that have a hard time accessing loans. Community loan funds started about 30 years ago, really out of a movement because entrepreneurs and small businesses couldn’t get capital from their financial institutions. So it really was started by community groups, civil right organizations, even religious organizations. Today, there are about a 1000 across the U.S., about a dozen in the greater Philadelphia area. And we primarily lend to business that can’t access or don’t qualify for your traditional bank financing. And yes, we do focus on low income communities. We do focus on business owned by people of color, although it’s not limited to that.

Gene: So if I go to a traditional bank, I know the traditional banks. You see them on the street, you see their advertisements. A lot of businesses can’t qualify for traditional bank loans for various reasons. Where do they find CDFIs? How would I find you guys?

Dan: Well, we do have a network at the pacdfinetwork.org. So that’d be one way, and there are a number of neighborhood CDFIs in Philadelphia. I’ll just do off the top of my head, to name a few. Of course, Community First Fund. There’s the Enterprise Center on west Philadelphia. And there’s a number of others vested in. There’s Entrepreneur Works, Women’s Opportunities Resource Center. There’s obviously PIDC, impact as well. So, there’s a number of them serving the greater Philadelphia area.

Gene: All right. That’s really good. Now, if we’re outside of the greater Philadelphia area, which again, I think a lot of cities have similar networks of nonprofits and lenders, right?

Dan: I would say at least half of the ones I mentioned also serve the five county area. That’s greater Philadelphia, including, if you add Delaware and Camden County in south New Jersey as well.

Gene: Right. Would the Small Business Administration or small business development centers or Score which is affiliated with the SBA. If a business owner went to them, say they were located in Houston or St. Louis and they went to them. Would those types of organizations also be able to redirect you to a local CDFI?

Dan: Correct. I would say that most bankers, the small business development centers and the Scores know their local CDFI, and I would say about half of the way we could get connected to small business is through those sources.

Gene: The CDFIs themselves, I mean, how do you get your funding?

Dan: So our funding is very similar to a bank where banks have depositors, and that’s how they re-lend. We have investors and they tend to be investors that like the kind of mission lending that we do. The investors tend to be banks, foundations, religious institutions, individuals and then government agencies. They invest in the fund, and it revolves and we keep lending it out. And eventually we’ll give it the principle back and the rate of return to that investor.

Gene: What types of loans do you guys offer? How are they normally structured as far as terms, amounts, interest rates? What can a business owner expect?

Dan: Very similar to what they would expect at a bank with an interest rate that’s marketable. Of course, average probably, four or five year loan for a business loan. And the purposes are the full range of working capital, equipment, expansion, even if you want to buy the real estate. Maybe you’re renting a building, you want to buy the real estate. So it’s pretty broad in terms of the kind of loan structure that we do, but it’ll be very familiar to the small business.

Gene: What about due diligence that’s required? I mean, what if it’s a startup business or the operating unprofitably over the past couple years, what do you require for loan application?

Dan: I mean, the number one question we’re trying to figure out is, are we going to get paid back. And so we do underwriting the way traditional bank or business underwriting is, but we understand not everyone’s going to look good on paper. And so, we can stretch where we have to, and then make other requirements where it makes sense. But ultimately we become the financial advisor to the small business and help them understand how to qualify for a loan with us.

Gene: Are you guys like the sort of SBA lenders where SBA lenders have a certain it’s like 90 or 95% of their loans are guaranteed by the SBA? Is that the same situation with the loans that you give out? Are they guaranteed by the government?

Dan: They are not, although we can access a loan guarantee when we need to and it makes sense with a small business owner.

Gene: And if I’m a small business owner asking for a loan, can I be expected that I’ll need to put up collateral? And what happens if I just don’t have assets to collateralize?

Dan: We typically do want the small business to have what they call skin in the game. So as collateral’s available, and depending on the amount, we will require it, but it is not an absolute requirement. And that’s where I think the seven A, the SBA Seven A Program, the loan guarantee does help when there’s a shortage of collateral.

Gene: Even more so, do you guys partner with banks? Is it somewhat common that I could get a million dollar loan from you and another million dollar loan from a bank? In other words, would banks welcome the fact that you’re sort of part of the financing package? Or do you normally just offer loans just independently?

Dan: I would say about in half of all cases, the bank is handing over the request to us from a client they’re unable to help. And so there’s already a close relationship with the local bank, because they have deposits with them, and there’s a relationship, and it’s a really warm handoff. Sometimes we’re doing the loan on our own because the bank’s not able to do it. Sometimes we partner with the bank, and we’re doing, let’s say, the equipment. They’ll do the line of credit, and we’ll share. Or sometimes we’ll just share the loan. And so it’s a really good synergy between the local city fund and the bank feels really comfortable working with their local community loan fund.

Gene: Got it. And does the Community First Funds, do you guys provide any other banking services or is it just loans? In other words, do you do checking accounts? Do you offer credit cards? Do you do things that a retail bank would do?

Dan: There are different kind of CDFIs that the majority that I’ve been sharing with, you do not take deposits or have retail products. They’re generally small business or commercial lending institutions.

Gene: So let me pivot a little bit, then I’ll hand this over to Jon in just a couple of minutes. So, okay. So Daniel, so I have a client that is… I’m just thinking of them specifically. It’s two brothers that run a company in Bucks County, Pennsylvania. So it’s not necessarily in north Philly or west Philly. They’ve struggled over the past couple of years. They have like 20 employees. They are having a difficult time getting financing from a traditional bank. So again, they’re not in an underserved area or a low, moderate income area. They’re not minority owned. They do have a business that’s been up and running for a decade, but if they were of need of the kinds of services that you would provide, the kinds of financing you would provide. Are they eligible?

Dan: They’re certainly eligible. And as I said, the second question we’re trying to ask is are they able to access capital? And it sounds like there could be a situation here where maybe they don’t have a strong net worth or some other, or low profits and things like that. And this is the area that we feel very comfortable in analyzing that business and trying to help a business like you described.

Gene: That’s good. I mean, and I ask that because I’m seeing these two guys next week. And I mean, for me to say like, “hey, I had a conversation with Dan at Community First Fund, and he might be able to help you guys.” And I know that if they’re even aware of CDFIs, I know the first response I’ll get was saying, well, isn’t it mostly for minority owned businesses or in low to moderate income areas? And I guess my answer to that is no, that may not be the case. And you should talk to a CDFI to see if they can help. Is that good advice to give them?

Dan: I think that’s always been the marketing challenge for organizations like ours, where some people think we only lend to one group versus another group, or we only lend to catalytic projects or corner stores or restaurants. I mean, our lending is pretty broad, and it goes pretty deep in the communities that’s fit the greater Philadelphia area.

Gene: Okay. And then this will be my final question. And then Jon, I’ll turn it over to you. We have not even talked about Community First Funds Philadelphia grit fund. So I’m kind of hoping you’re going to ask about that. But before I let Dan go, one final question for you, Dan, is, do you guys compete against other CDFIs? You mentioned there was about a dozen of you say in the Philly area. There’s 1000 around the country. So if I’m a business owner and I’m looking for funding, can I go, am I going to get the same answer from any CDFI locally? Would you advise that I talk to more than one CDFI because you guys do compete and there might be other alternatives? And even added to that, do I have to use a CDFI in my local area? Could I talk to a CDFI in Texas or Illinois? What are your thoughts on all of that?

Dan: Right. And your earlier question was like, will CDIF lend in the Bucks County. And even though I said, our lending is pretty broad, some CDFIs are geographically focused. So if we get a request from Maryland or Texas, use as example, we’ll just say, you’re not in our 20 county area, for example, the greater Philadelphia area. So geography does matter just like it does for a bank, because that’s where you’re getting your investments and the philanthropy to support your operations. So yeah, I mean, as far as competition, we don’t see ourselves as competing against each other. And the reason for that is there are far more clients that have needs than know about us. And I would say build a relationship with, with at least one CDFI financial institution and go from there because one thing I understand about entrepreneurs is they want build a trust relationship. One that they can help grow and expand their business over time. And the best way to do that is to build a relationship with at least one institution.

Gene: All right. Makes sense. All right, Jon, I’ve just beaten Dan up with all of my questions. So now it’s your turn.

Dan: Thanks, Gene.

Jon: Yeah. I think people always love to hear about resources available to them, especially when it comes in the form of cash. Have you noticed a trend kind of coming out of the pandemic, really looking at ways to increase funding for small businesses? And do you feel like that’s slowing down or picking up? What are your thoughts on having to be keen to look out for opportunities like this coming forward?

Dan: Well, as far as trends, I mean, there’s definitely a trend that government spend at this local level, city, council, state level, state legislature, and then the federal government through it’s PPP and SBA put a lot of resources, grants or near grants or forgivable grants to small business to help boost them and help them survive and thrive. And we all saw that across the U.S. and if that didn’t happen, I don’t know what financial situation we would be in right now. So that was a positive. As far as the banks coming out of COVID, they all came out with a lot of their clients intact, small business intact. And so they’re very liquid because a lot of businesses and individuals have a lot of cash and deposits.

Dan: And so the banks are willing to lend. And they’re actually getting into spaces where maybe they wouldn’t before. They’re lending to businesses that maybe they wouldn’t have in the past. So I think that’s all good, a good trend for small businesses that the banks are ready to lend and have been lending.

Dan: And there was a question earlier by Gene, as far as can business have losses. I think all financial institutions can look at the trends of small business and see that maybe you had a loss because there was a blip, and then now you’re back or you have a new financial statement or income statement. So a lot of things that happened COVID can be explained, and then we can underwrite and take a look at that for an approval.

Jon: And what are the things that business owners should think about before coming to an institution like yours versus maybe a bank or different lender, right? Are there typically different pieces of information? Are there different ways to engage? What’s the best way for someone who’s looking to kind of move into working with an organization like yours to do that?

Dan: I would say just an awareness of who the local community development lending institution is, or CDFI. And I already said the PACDFInetwork.org is a good place to find that. Our website community firstfund.org is another place. So just becoming aware of it, talking to your local banker, seeing who they would refer you to is always a good thing. As far as preparing for the loan request, it’s very similar to a bank. So if you gave a package of the bank with your three years tax returns and you fill out a net worth statement and you have a business plan, just forward that to the same community development, financial institution, or CDFI. And you’ll find that you don’t have to replicate information. We’re going to look at very similar financial documentation.

Jon: Awesome. And what do you think business owners should kind of think about, like after they come to you guys for a loan? Are there other programs that a CDFI would typically offer or kind of other ways that you might be able to partner with them as they kind of think about growing their business?

Dan: There are really good resources in Philadelphia for ongoing training, entrepreneurial training. There’s small business development centers, Temple and Widener among others, private bank initiatives. Santander Bank just launched a new initiative for training for anyone related to the food business. And then of course, JP Morgan Chase had the 10,000 small business credit initiative, which a lot of people got what I call like in a business MBA. It’s really just a course, a series of financial education courses over three years. And there’s a lot of resources, the Philadelphia Community College had some courses. My organization has training Community First Funds. So beyond the loan, connect with an organization that has ongoing training, so you can grow and expand your business.

Jon: Awesome. Do you feel like people have been looking for information and content like that more kind of over the past couple years? Or do you feel like those are resources people still don’t seem to be aware of?

Dan: There’s always an awareness challenge when we don’t have like a branch system, like a bank would. So sometimes it might seem invisible, but once you get connected into one organization, they’ll connect you into the whole network. Yeah. So I think that’s an opportunity for people to learn about the even education resources.

Jon: No, I mean, I think we’ve talked to a couple folks from CDFIs over the past year, I’d say, Gene keep me honest here, especially as it relates to different programs that local governments have been offering and different institutions as is kind of related to pandemic recovery. But it feels like it’s such an organic way to really kind of benefit the community. And there’s just kind of a genuine spirit of real good will. So definitely appreciate all that you do for our community. And I’m sure they do as well.

Gene: I have a couple other questions, Jon. Dan, you’ve got this grit fund that you’re launching. It’s a hundred million dollar grit fund for Philadelphia’s black and brown owned businesses. Can you tell us what that is?

Dan: Yes. It’s diversity, equity, and inclusion initiative that came out of the Philadelphia Chamber. And what they recognized is there are historically disadvantaged businesses in Philadelphia, and they wanted to focus on that. When we think about the summer of George Floyd and the awareness that did for corporate America, they wanted to reinvest in disadvantaged communities. And I thought that was a really important thing for the Chamber to think about. And so they approached the CDFIs in Philadelphia and said, “hey, would you partner with us? How do we get more capital?” And so then that led to bringing the banks in to invest more money, more deposits into the CDFI so we can lend out to black and brown business in the city of Philadelphia. So essentially our goal is to lend capital to at least 1000 businesses over the next two to three years.

Gene: And what’s your plan for getting the word out about that?

Dan: Well, we’ve had a number of articles of Philadelphia Inquirer, The Business Journal and all of the ethnic newspapers and radio stations. And what we’re doing with that hundred million, the vast majority of that is loan capital for the CDFIs in Philadelphia. And so, honestly, it’s just our normal come in for a loan, and we’ll figure out where the capital comes from. In this particular case, the grit fund is extra capital from the banks to invest in the native CDFIs in Philadelphia.

Gene: Are there other similar programs like this around the country, or is this just something that’s just a Philly thing?

Dan: It appears like it’s just a Philly thing because for all the banks to come together and agree to lend a hundred million dollars to a group of CDFIs, there are not many cities in America that have made that commitment.

Gene: I write for the Philly Inquirer every week. And so I get exposed to a lot of data. And Pew Research has a whole bunch of data about Philly in general. And I just want to get your comments on that. You probably know this already, Dan. But in Philadelphia, this is pre-pandemic, right? Of all of the businesses in Philadelphia, 75% of them are white-owned, 75%. 6% are black-owned with the remaining, among Asian and Hispanic and other races. Why do you think that is? And do you think that the kind of funding that you guys are providing will make a difference and maybe bringing those black-owned business percentages up further?

Dan: Well, the why is really the legacy and the history of America. When we enslave a people over generations, it’s not only not having a head start, you start in a negative. And so there’s not that generational wealth to pour to a new business. So in a way we’re starting over just in the last 50 or 100 years. And so it’s not a surprise that 6% of black businesses doesn’t match to 40% of the population. And so, we as America need to come to terms with that, and I think that’s part of the conversation that we’re having here today.

Gene: That’s a great answer. It’s funny. I grew up in Philadelphia, and I’m in my mid-fifties. The average age of the U.S. small business owners over the age of 50. I know for a fact growing up in Philly, if you were a black business owner in the 1960s and seventies, it was a lot harder for you than a white business owner. And I think that has a lot to do with why black business ownership still remains low. We’re seeing the results of that. But I don’t know if you agree or not, I feel optimistic about the future. I feel like there’s more awareness of this. There’s more funding programs like yourselves. I see a younger generation of black and brown entrepreneurs coming into this world that I think are going to change those numbers. Do you agree with that? Do you feel like we are heading in a better direction?

Dan: I am an eternal optimistic person, totally optimistic, but the issues of race in America just have a way of showing that ugly face. If I had to, my heart or heart say the summer of George Floyd and the reaction by corporate America is that a movement or a moment? I think only time will tell whether this is truly going to be a movement to provide racial equality in America, particularly for the entrepreneurial class of this country. So I’m optimistic, but I am cautious.

Gene: Fair enough. I have one final question. And then Jon, I’ll turn it back to you for any question you might have to finish, but Dan, the SSBCI, the State Small Business Credit Initiative, this is like a $10 trillion, I believe has been approved by the government to fund organizations like yours and banks, community investment organizations. That money is hopefully coming sometime in 2022 or 2023. It’s a big number. In Philly alone, it’s going to be a hundred million plus available in capital for businesses in the area. And this affects businesses all across the country.

Gene: So I guess I’d like to just ask you for our listeners, what can you tell them? How can you prepare them? What do they need to know about this SSBCI funding as it starts becoming available and hopefully later this year and into 2023?

Dan: I’ll just start saying that I think this is the reason why you want to build a relationship with your financial institution or CDFI, because we have access to any number of alphabet programs. And so we at Community First Fund and the CDFIs that we work with don’t really require our clients, our small business owners to try to memorize that or know all that. I think that’s the value proposition that we had. We’re aware of all those funding sources and we can access. Specifically to your question on the small business state credit initiative. It’s a game changer. It’s $200 million in capital for CDFIs across the state. And a large percentage of that capital will go to CDFIs in the city of Philadelphia. And that capital will allow us to take the appropriate risk that we need to do to help grow that number for black and brown businesses that you talked about earlier.

Gene: God, you are so funny. I just literally talked to somebody from Ben Franklin Enterprise and also another person at Drexel University in Philly, because I’m working on this piece right now. And they said exactly what you just said, which is like now is the time if you’re a business owner, start reaching out to lenders, to people at CDFIs, to nonprofit groups that give out grants, because you want to establish those relationships now and build them because like you just said, there’s a game changing amount of money that’s going to be coming available. And these people need to get the money out. You want to also get funding out to people, but you’re going to be funding people that you know and you have relationships with I’m assuming first. And I think it’s super important for business owners to realize that. Great conversation, Dan, and thank you so much.

Gene: Hey, everybody, thanks for listening to this segment and interview. There’s going to be a lot of money available through SSBCI so you should be talking to your community development, financial institutions, CDFIs. We’ve been speaking to Daniel Betancourt as the president and CEO at the Community First Fund. If you’re a Philly, small business, particularly if you are a black or brown owned business, reach out to Dan at Community First Fund. There is a hundred million dollar fund that is being launched to help your business out. So I hope that information helps you. Obviously, if you’ve got any questions or comments or need some advice in running your business, please visit us at SmallBizAhead.com or SBA.TheHartford.com. Dan, thanks again for joining us.

Dan: Thank you.

Gene: Jon, my friend, thank you for co-hosting this. My name is Gene Marks. We will see you again with our next episode. Take care.

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