An Inside Look at CDFI's
There is an invisible world of financial institutions that exist inside of your local community which are Community Development Finance Institutions.
It is often said that non-profits are great at their mission, but less effective at marketing.
It’s become my mission to use my platform to help change that reality in my sector and spread the word about the role CDFI’s play in the financial industry.
ACE (Access to Capital for Entrepreneurs) and CDFIs like us give folks a chance when others can’t or won’t. We don’t see a dilapidated alleyway or an abandoned building, we see schools, stores - a thriving community for families.
Back in my Wall Street days, I was mostly unaware of the CDFI industry. Like most people in my sphere, when you mentioned the word “finance” a stereotypical image was traditional wall street - private equity, hedge fund managers, investing, stocks, etc. Six years ago I was introduced to the concept of CDFI’s and appreciated how they could marry both my finance and quantitative lens with my desire to do altruistic and impactful work.
Now I work as the Chief of Strategic Partnerships with ACE, a CDFI with offices across metro and North Georgia. We have a specific vision to primarily serve women, persons of color, and those in low-income communities whose businesses would not be as successful without our assistance. In conjunction with our mission, ACE’s vision is to decrease gender and racial wealth gaps, particularly for African American and Latinx communities. (https://aceloans.org/organization-overview/)
What are CDFI’s?
On a basic level, a CDFI is defined as a mission-based institution focused on community lending.
However, CDFIs are not cookie-cutter. They can be banks, loan funds (housing, facilities, or small business), microloan funds, or venture capital providers - varying in size, complexity, and focus. It's a national industry that holds over 150 billion in assets on balance sheets and about $250 billion in assets under management.
CDFIs were some of the first organizations created out of governmental efforts to combat racial discrimination and poverty, specifically related to lending practices known as redlining. Some, like ACE, seek to solve capital challenges for entrepreneurs and small businesses who have been systemically prevented from accessing important economic opportunities.
This increased capital allows populations, especially historically disenfranchised groups, to build businesses, create wealth and expand assets, some key elements to creating an equitable economic playing field across demographics.
In America, white households have the economic edge over minorities due to generational wealth and compounding cultural biases that make it easier to start businesses.
“The average Black household had $142,330 in 2019 compared with $980,549 for the average white household. This means that, on average, Black households had 14.5 percent of the wealth of white households, with an absolute dollar gap of $838,220.”
(https://www.americanprogress.org/article/eliminating-black-white-wealth-gap-generational-challenge/)
CDFI’s help fill that gap by creating pathways to capital in underserved communities. We function on the ‘main street level’. Generating economic activity in these communities brings in income, creates jobs, and keeps it circulating through the community.
CDFI Impact by the numbers
In my field of finance and investing, numbers mean everything. They quantify the success or failure of a company.
The one downfall of numbers is that they often have no context. Not without words. Put the two together and your numbers start to tell you a story.
A look at the stats from my CDFI - Access to Capital for Entrepreneurs - tells a story of the economic hardship our clients have faced in the last 2 years. And it illustrates to me more clearly than ever before how important our work is.
CAPITAL
(As of June 30, 2022)
Since the pandemic began, we have deployed over 1,300 loans and just over $72 million, half of our historical 22-year loan volume in just 2.5 years. Underserved entrepreneurs received 90% of these loans ($63.5 million) and over half to women. This included over 700 PPP loans worth $15.5 million in forgivable capital; all but two of our client's PPP loans were forgiven.
The ripple effect in these communities was the retention of over 6,100 jobs during an incredibly tumultuous time in America.
RELIEF
Countless businesses crumpled under the economic strain that was brought on by the pandemic.
At ACE, we have coordinated $200,000 in grants and $3.78 million in loan forgiveness since 2020.
COACHING & CONNECTIONS
Apart from monetary impact, ACE also seeks to support entrepreneurs and business owners through our business coaching. We have provided business advisory services to 4,800 entrepreneurs, 97% of them underserved.
Our metro Atlanta Women’s Business Center received the 2022 Small Business Administration’s Center of Excellence Award. Since opening in 2015, it has served 9,200 clients. In 2021, ACE opened our second SBA-supported Women’s Business Center (WBC) in Savannah extending our services statewide.
How we make a difference.
There are elements of CDFI’s impact that cannot be defined by the numbers. Instead they are told by the stories of the people we work with.
“I reached out to ACE when I was not able to obtain funding through financial institutions. ACE and its people are a blessing (no pun intended), and I am very pleased with the services I always receive…I am very grateful to ACE and the Women’s Business Center for providing capital, coaching and connections to business owners like me.”
Dr. Blessing Agu.
“ACE WBC has provided me with so much support, access to resources, and education. The staff really cares in the success of women in business. I was so humbled when my company began to grow after I attended a few ACE WBC workshops, they reached out and asked “how can we help you?” Those 5 words meant the world to me. That there is a support system and network of resources for me to continue to grow successfully is priceless.”
– Denise Zannu, Owner of @blackmermaidssoaps
Challenges within the CDFI industry
ACE is only one of thousands of CDFI’s across the country. We share similar stories of impact, defined both by the numbers and heartfelt testimonials from the everyday people whose lives were changed and dreams were answered. We also share challenges.
Ironically, CDFI’s often contend with similar pain points as the businesses we seek to help. Human capacity, limited resources, infrastructure and technology shortfalls, and even liquidity. Yep, most CDFIs are non-depository institutions, so that means we borrow low-interest patient capital from banks, investors or philanthropic entities. For ACE, we are profit-making, but not profit maximizing. So, our rates remain affordable. Also, we still rely on grants to fulfill all educational elements of our work and most operational costs. Grant funding also enables us to take innovative approaches to financing such as extending loans that are outside of traditional banking parameters and to borrowers with no collateral or shortfalls.
Broader challenges such as educating the public to our mission are ever present..
We often fly under the radar even inside the financial industry. It is an uphill climb to communicate the value our mission has in local communities, not to mention the larger effect on the national economy.
It has become my belief that working within the CDFI industry is how one can really make change in the world around them that has an impact that transcends beyond just the initial borrower, creating a ripple that aids collective prosperity.
I spend many of my days in conversation with key industry partners and potential investors who are looking for ways to create impact through their investments. CDFI’s like ACE touch on every part of our client’s lives. We create positive change for their families, their social lives, their health, and their communities at large.
I encourage young college students searching for a fulfilling career to take a different lens when evaluating the finance industry. We can always use more passionate and talented finance professionals. If you are talented with numbers, this is a pathway to do what you love, and love what you do.
This is why I will continue to do this work. If you ever want to chat with me about CDFI’s, the work I do at ACE, or are wondering how you can get involved, you can send me a message over on Instagram @MartinaMEdwards. I’d love to talk with you and connect you with some resources.