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Small Business Community Finance: Scaling with Integrity

Small businesses in America are chronically undercapitalized. The community finance organizations that serve these small businesses are likewise capital constrained, in part due to their prioritization of mission in service of their communities and in part due to structural industry challenges like limited access to secondary markets.

In this report, we share learnings from a market innovation prompted by the COVID-19 pandemic, documenting the development of a quasi-secondary market for small business loans through multiple state-based loan participation funds known collectively as the “Recovery Funds”. The Recovery Funds have financed more than 5,500 small businesses, nearly 70% of them led by women or people of color, through nearly 40 community lenders across the country. Participating in the Recovery Funds allowed community lenders to exponentially increase their originations without needing to increase the size of their balance sheets at the same rate.

These efforts provide a roadmap for how to scale with integrity and remain true to the mission of the CDFI field. We call for policy makers, banks, and investors to provide support around five key areas to foster innovation and further market development in community finance: 1.) Address the gap between real and perceived risk with smart subsidy; 2.) Invest in market infrastructure; 3.) Support data collection and analysis; 4.) Prioritize home-grown technology; 5.) Leave no community behind.

Download Small Business Community Finance - Scaling with Integrity or read below.