On June 15, 2021, Vice President Kamala Harris and Treasury Secretary Janet L. Yellen made an announcement that was eagerly welcomed by an often neglected sector of small businesses across the country: The U.S. Department of the Treasury is awarding $1.25B in COVID-19 relief funds to 863 Community Development Financial Institutions (CDFIs).
The support program comes at a pivotal moment both for CDFIs and the small businesses in the communities they serve. Over the past year, the mission driving all CDFIs—delivering loans to small businesses in low-income, underserved communities—has become a topic of national interest, aligning with the priorities of the American government as it tries to rebuild our economy. As small businesses continue to fight for their survival, leaders are facing immense pressure to get the recovery right. If they don’t, small businesses—and minority-owned small businesses in particular—will continue to bear the consequences.
The state of minority-owned small businesses
You’ve likely seen the statistics: minority- and women-owned small businesses were the hardest-hit by the COVID-19 pandemic. The categories were both overrepresented in the sectors most affected by the pandemic, and disproportionately turned down for capital through standard and Paycheck Protection Program (PPP) loans alike. These factors took a massive financial toll:
- Rendering 41% of Black-owned small businesses inactive during the early months of the pandemic (as compared to 17% of white-owned small businesses).
- Leaving nearly 80% of Black or Asian-owned small businesses in weak financial shape (as opposed to 54% of white-owned small businesses).
- Burdening Black-owned businesses with a barrier that they faced at higher rates than any other demographic: a lack of access to credit.
While white-owned small businesses were facing low customer demand as a result of strict stay-at-home orders, minority-owned small businesses were failing for a different reason: nobody was lending to them. Supporting CDFIs in providing these overlooked, underfunded small businesses with much-need capital is essential to a strong and equitable recovery, and the current administration is taking steps to remedy the problem.
“In serving places that the financial sector historically hasn’t served well, CDFIs lift our whole economy up. We know that for every dollar injected into a CDFI, it catalyzes eight more dollars in private-sector investment, meaning that today’s announcement might lead to an additional $10B in investment,” said Secretary Janet Yellen of the new support program. “The President and the Vice President ran on a very ambitious agenda – ‘Build Back Better,’ unwinding systemic racism, creating an economy that works for everyone. I believe this is what that looks like in practice. By channeling more capital into CDFIs, we are translating those ideals into reality.”
What sets this CDFI support program apart?
The billion-dollar support program is specifically designed to cover loss rates, de-risking CDFI lending and allowing them to extend substantially more capital than they otherwise could by covering any incurred losses. Because of this decision, the awarded $1.25B can translate to more than $10B in the accounts of underserved small businesses. It’s a powerful program approach—and CDFIs, with more money in their hands than ever before, are recognizing the importance of being equipped to lend efficiently and effectively.
With all eyes on CDFIs to lead economic recovery, they aren’t just extending ten times the capital they were pre-COVID, they’re doing it under a regulatory microscope, and the financial, business, and advocacy worlds are watching. As your organization shifts from doing a few loans a month to funneling millions of dollars back into the small businesses that fuel our economy, you need a lending solution that can support the higher volume of loans while meeting the urgent needs of your borrowers.
How a digital solution will make your share go the furthest
Here’s how the right digital lending solution can help you extend your newfound support funds faster and smarter, getting them into the hands of creditworthy underserved small businesses, lifting up communities, and propelling your organization’s mission forward:
- Enable end-to-end automation. In the realm of small business lending solutions, investing in your online channel means more than just adopting digital loan origination. It encompasses end-to-end solutions that cover everything from application intake to loan underwriting, gathering of supporting credit information to funding, and servicing to collections and repaying.
Turning to an end-to-end solution won’t replace your lending officers or render your staff irrelevant, but it will make them more efficient, allowing them to focus on the areas where they’re needed most: building relationships, connecting businesses, training owners, and rebuilding communities.
Keep in mind, end-to-end automation capabilities don’t have to lock you into a boxed solution. Look for a solution that enables you to automate as much or as little as you like, and customize automation parameters on a loan-by-loan basis. Automation is a benefit with a big return, even if it’s only used for certain workflows or loan types.
- Empower stronger collaboration. Collaboration is essential to CDFI success. With a digital solution accessible from anywhere, anytime, by any partner, borrower, or collaborator, communication is streamlined across all parties. No more missed calls, delayed emails, and documents lost in the mail or forgotten in the fax machine. Efficiency is your priority, and granting system access to those who need it can eliminate communication silos, promote transparency, and expedite the exchange of information for faster decisions and funding.
- Benefit from built-in reporting. Collecting comprehensive, accurate, and digestible impact data is a key part of a CDFIs operations. With the right digital lending solution, reporting can be entirely automated. This makes collecting impact data seamless and error-free—it’s functionality with a giant value-add. With reporting technology built-in, your CDFI will generate a higher volume of higher quality data quickly and easily, allowing your staff to focus on the human side of the lending equation rather than repetitive calculations, and empowering you with the support you need to request additional program funding when you need it.
- Gain greater flexibility. Today more than ever, being able to turn on a dime and make rapid adjustments is essential. Adapting loan terms quickly, enabling (or disabling) deferrals on the spot, and being equipped to make other critical, real-time changes to lending and payment terms are key to small business borrowers’ survival. With a secure, configurable digital system that’s always open for business—even when the lights go dark or your staff goes home for the weekend—you can deliver capital while minimizing risk. For underserved small businesses fighting to survive, flexibility and speed are vital, and digital can help you deliver.
As you organize your CDFI amid an unprecedented funding influx and overwhelming demand, be sure you’re doing everything you can to make your share of the support program funds go as far as possible—and your lending experience seamless and expedient. After more than a year of last-minute loans, makeshift processes, and a system that all too often ended in “no,” your staff, your partners, and the small businesses you serve will thank you for it.