New report by Calvert Impact and partners demonstrates path to scale for community finance
Jul 06, 2023 | Bethesda, MD
Calvert Impact announced the release of a report this week on a series of loan participation funds formed to help small businesses weather the pandemic, which includes lessons for creating the market conditions necessary to help community lenders scale their small business lending programs. The report, “Small Business Community Finance: Scaling with Integrity,” was co-authored by Community Reinvestment Fund, USA (CRF) and National Development Council (NDC), with support from the Citi Foundation and Wells Fargo. It focuses on what can and should be done to ensure broader access to credit for small businesses, especially historically under-resourced small businesses.
Known collectively as the Recovery Funds, the programs worked with nearly 40 community lenders across the country to finance more than 5,500 small businesses during and in the wake of the pandemic, nearly 70% of them led by women and/or people of color.
“The report lays out how innovative approaches to community finance can help chronically undercapitalized small businesses access much needed capital,” said Jennifer Pryce, Calvert Impact President and CEO. “We’ve learned how CDFIs, credit unions, and other community finance organizations with proven track records supporting small businesses can be effectively scaled up. We couldn’t have done so without the incredible range of public, private and nonprofit partners that made the programs a success.”
The report highlights key areas that policy makers, banks and investors should focus on to further develop a robust community finance capital market in an environment where more and more small businesses are struggling to find the capital they need to grow. The recommendations draw lessons from more mature credit markets and call for standardization of loan origination processes, robust data collection and analysis, tailor-made technologies, and access to affordable risk capital to facilitate the development of secondary markets. “We stress the importance of leveraging these traditional market tools while maintaining a deep commitment to equity and access, which is essential to the work of community lenders” said Krystal Langholz, strategy director at Calvert Impact and lead author of the report.
“CDFIs have a history of strong performance, as well as a deep understanding of the local markets they serve,” said Jenny Flores, Head of Small Business Growth Philanthropy at Wells Fargo. “Wells Fargo has collaborated for decades with community finance organizations to help create more equitable access to capital because we can strengthen the financial system as a whole by working together.”
Kristen Scheyder, Senior Program Officer, Citi Foundation, added, “These Funds are at the forefront of an exciting new opportunity to improve the way capital reaches small business owners and the Citi Foundation is proud to support the continued development of the community finance capital market.”