A new plan offers a blueprint for expanding access to small business loans with affordable terms in the most “underbanked” borough, where that kind of credit is often a vital lifeline.
The Center for an Urban Future think tank argues in a new report that nonprofit Community Development Financial Institutions are already on the ground here and equipped to fill gaps in the banking system. Often loaning to businesses owned by Black, Latino, Asian and Indigenous entrepreneurs, they provide crucial capital on fairer terms — if only those CDFIs could get more support from the state and the city to hire workers to process their loans.
“The work that we do does require quite a bit of hands-on capacity,” said Nancy Carin, executive director of the Business Outreach Center Network that gives loans and advice to small businesses, plus gig workers like Uber drivers, throughout New York City.
Since a $10,000 loan tends to require at least as much vetting and time as a six-figure one, Carin explained that “if someone were to give us double our capital today, that would not necessarily mean we could double our lending unless we also doubled our capacity” to process applications.
Nearly half of the households in the Bronx have limited or no banking access, with 18% unbanked and another 30% having a basic account but also using services like check-cashing operations, according to 2019 NYC data. And similar issues affect many of the businesses in the borough servicing those households, including difficulty in accessing loans and a lack of technical and administrative support for fledgling operations.
CDFIs not only extend loans to small businesses, but work closely with them to make sure that money is put to fruitful use, while also operating as a kind of back-office and providing training sessions on things like communicating with employees and crunching numbers.
But as the new report, first shared with THE CITY, notes, CDFIs presently deliver just .4% of all small business debt financing in New York City annually, delivering $138.3 million in loans here in 2017 — compared to $210.3 million in Los Angeles County and $235.2 million in Cook County, Illinois, which includes Chicago.
Even that $138.3 million figure “vastly overstates the financial capabilities of New York CDFIs,” said Jonathan Bowles, executive director of the Center for an Urban Future, because it counts loans from a few private CDFIs that have much more money to dish out, but tend to be less oriented toward community service.
And, the report notes, neighborhoods like East Tremont and Mount Hope in The Bronx have no physical CDFI locations at all.
‘Being Able To Survive’
Ben Frierson, a Black man originally from South Carolina, runs Ben’s Distribution Center in The Bronx. He told THE CITY that two loans from nonprofit CDFIs — a $75,000 one from TruFund in 2020 and a $250,000 loan from the Business Outreach Center (BOC) in 2022 — were instrumental in keeping his business afloat and supporting its growth.
That first loan was used to maintain operations and inventory and make rent payments as the pandemic bludgeoned small businesses across the city, Frierson said. The second loan was used to refinance debt to reduce expenses and pay off equipment like fleets of 18-wheeler trucks.
“The first one, we probably would have survived. But the second one, I probably wouldn’t be on this phone discoursing with you,” Frierson told THE CITY, saying the support helped him to hang on by cutting his “monthly debt, payments and expenses and debt obligations by 25, 30% monthly.”
“That really makes a difference in us being able to survive and continue to do business,” he said.
Dianne Moore, who runs a cleaning company with locations in The Bronx and Westchester, told THE CITY that working with BOC had been a “godsend,” with the CDFI supplying financial counseling along with critical financing.
“It’s almost like a quiet secret that everyone doesn’t know about,” said Moore, a Black woman who grew up in The Bronx near Crotona Park on East 170th Street and Boston Road. She received a loan from BOC Capital in 2018 totaling $35,000 for equipment like floor-cleaning machines, after a commercial bank had rejected her application for a loan of less than $5,000, she recalled. She was never given a reason.
“They didn’t say. I have no idea,” said Moore, whose company, established in 2016, saw its revenues double in each of its first four years and continue to go up during the pandemic as demand for disinfecting and cleaning supplies skyrocketed.
Loan denials from commercial banks are a reason why CDFIs are so enticing to business owners like herself. But, with their limited resources for marketing and outreach, it’s difficult for CDFIs to connect with prospective clients.
What could change that, the report argues, is government support to help fund the operations of nonprofit CDFIs, to help them process more loans to provide critical cash to small businesses with lower interest rates than those businesses could get from a private bank, if they could get a loan there at all. Bowles told THE CITY that it would not take a significant public investment to boost CDFIs to make many more small loans averaging under $5,000.
“As little as $5 million would make an enormous difference, potentially allowing CDFIs to lend to 1,000 more underserved entrepreneurs each year,” Bowles said. Possible solutions, he said, include a city-created fund to help the institutions invest in staffing, marketing and technology, and allocating a greater share of existing dollars — approximately $1 million or $2 million — to the CDFI department within the city’s Small Business Services.
Relying on a combination of public and private funding that includes grants, awards and donations, nonprofit CDFIs can lend at better interest rates through those subsidies, said Bowles. Part of that public funding comes from the U.S. Department of Treasury’s CDFI Program Fund, which awarded $180.3 million in 2021. Nonprofit CDFIs tap into this money to finance small businesses in low-income and underserved neighborhoods.
Philanthropic contributions also offer lending dollars to CDFIs. Citi Foundation gave $50 million in grants in 2020 and 2021 to institutions across the U.S. Seven recipients are based in New York, including Accompany Capital and the Business Outreach Center Network (BOC Capital). Of that sum, $15 million was distributed to help CDFIs cover losing money on loans, and support their operations with staffing and other needs. The money that helps mitigate any losses from loans in turn helps CDFIs maintain affordable rates.
“CDFIs are overlooked and underfunded because they serve the smallest businesses in the most vulnerable communities, predominantly immigrant- and minority-owned businesses,” said Bowles. While the investments that city and state leaders make in Business Improvement Districts, Chambers of Commerce and Local Development Corporations are important, he said, they largely benefit established businesses and “often don’t reach the smallest entrepreneurs.”
But hamstrung by limited budgets for staffing, marketing and outreach, most nonprofit CDFIs make no more than a few hundred loans a year in a city that’s home to 64,500 minority-owned businesses with employees plus countless solo entrepreneurs, according to the report.
Last year, the state awarded a total of $1.4 million to 22 CDFIs for capital and technical assistance, while CDFIs received another $47 million in federal funding through the American Rescue Plan during the pandemic. But the federal money won’t recur and the state money isn’t enough for these operations to expand, even as demand for them is plainly there.
“If there was capacity or some kinds of funding [for] marketing which enabled CDFIs to get a steadier stream of new clients, I think that would be extremely helpful,” said Yanki Tshering, the executive director of Accompany Capital, a nonprofit CDFI.
Accompany Capital, one of the larger nonprofit CDFIs, distributed more than $7.2 million in loans in 2021 with a staff of about 18 people, and a budget of just $35,000 for marketing its loans. To get that money out, Tshering says she had to raise $3.5 million for operational expenses — mostly payroll and rent — before starting to raise money for loan capital.
“If we had some regular funding from New York state or New York City, we would have more time to actually provide the services,” said Tshering.