Is your organization registered as 501(c)(3) status with the IRS?
Yes
In what city, town, or region and state is your organization headquartered?
Washington D.C., DC, USAWhich dimension of the Challenge does your solution most closely address? [Select up to 2]
What is the name of your solution?
Loan Operating System (LOS)
What is your solution?
Working with a developer, we built our end-to-end solution to include application intake, loan origination, document management, funding, loan servicing, and loss mitigation. We operate our micro- and small business lending on this LOS. Our LOS uniquely includes a pre-approval tool for applicants to know if they qualify for a loan almost instantly. An initial questionnaire streamlines applications, reducing reviews for ineligible applicants. Encrypted data warehousing ensures secure file sharing and saves staff time. Automatic messages keep applicants informed. We provide applicant support and technical assistance for successful loan outcomes.
Rather than continuing with analog processes that aren’t intended for CDFI lending needs, we decided to take full ownership of the issue and make it an opportunity for our organization to not only create a solution for ourselves but to build something adaptable to other CDFIs across the country, tailored to their operations. Our technology will allow CDFIs to process and approve more loans in less time and with less effort, increasing not only their social impact but also their sustainable revenue.
Our next step this year is to make this product available to other CDFIs at an affordable rate to help them meet their business needs. This will allow us to perfect this infrastructure in addition to providing us with a source of capital that we can use for business lending, business training, and other operational expenses, making both our organization – and the CDFIs we enhance through this program – more impactful as well as more financially sustainable.
Film your elevator pitch.
Describe the core technology that powers your solution.
Our LOS is designed to speed loan decision-making while increasing our capacity to finance entrepreneurs who don't qualify for traditional financing. This LOS is currently being used by our team in its second phase and we are moving into a third phase, fine tuning UX/UI design and functionality to make it available to other CDFIs so that as a an economic development community we can make a collective impact by approving more loans faster, funding underserved applicants, particularly those needing larger loan sizes up to $350,000 which small business CDFIs currently have difficulty providing.
Disparities in effective and custom technology solutions hinder many CDFIs from lending to small businesses at scale as the application, loan processing, underwriting, and loan servicing processes are often laborious manual processes for nonprofits with a small budget. The tech gap impacts historically underserved small business applicants seeking faster financing options than CDFIs are traditionally able to provide and who consequently turn to predatory fintech lending at crippling interest rates to resolve immediate cash flow issues. Many fintechs have large budgets that allow them optimize their brand in top search engine results, with appealing user-friendly web interfaces, and almost instantaneous approvals and because low-income and communities of color have challenges with traditional lending institutions, it’s those communities that are in the most need of affordable lending capital who fall prey to these high-interest rate loans. These loans can result in sinking vulnerable business owners with ruinous costs and severe repayment terms.
Through a partnership with a trusted finance and technology firm, we will be hosting and monitoring the LOS. This technology is coupled by our customer support team who serves as a touch point and is available to answer questions applicants have. Our CDFI technical assistance program is also available to applicants who did not meet the lending criteria and we provide guidance and business support training to get applicants to a “yes” without putting them at risk of defaulting on their debt.
Which of the following categories best describes your solution?
A new application of an existing technology
Please select the technologies currently used in your solution:
Who does your solution serve, including demographics, and how does the solution impact their lives?
This solution serves communities nationwide with a focus on BIPOC, women, and low-income entrepreneurs at all stages of their business lifecycle from historically underserved communities. These individuals are currently experiencing a lack of access to financing opportunities from traditional banks and lending institutions, compared to their white and male counterparts. In large part, this is due to lack of financial resources and education available in their communities. According to the Brookings Institute, about 75 percent of Black- and Asian American-owned firms reported difficulties paying their operating expenses, compared to 63 percent of white-owned firms. Black small business owners were also the most likely to experience difficulty accessing credit (53 percent). Black business owners also reported pandemic hardships and concerns about personal credit scores or loss of personal assets as a result of late payments at a rate of 46 percent. Our LOS is accessible, efficient, and will support these entrepreneurs to better position themselves to financing opportunities to start or scale their businesses.
We serve our community nationwide, but have a larger footprint in the Washington Metropolitan Area, California, New Jersey, New York, Florida, Alabama, Maryland, Pennsylvania,Virginia, and Georgia—with the plan to expand our reach. Below you will find the demographics of the individuals we have reached through our support.
Borrower Statistics from Small Business Lending:
Black or African American: 60%
Hispanic or Latino: 21%
White: 13%
Asian/Pacific Islands: 6%
Multiracial, Multi-Ethnic or Other: 6.25%
Native American or Indian American: 0%
Race or Ethnicity Not Reported: 0%
Explain how the problem you are addressing, the solution you have designed, and the population you are serving align with the Challenge.
We created our own end-to-end loan operating system after discovering that there were no out-of-the-box solutions that would meet CDFIs’ and business owners’ distinct and unique needs. Small businesses in distressed communities are typically owned by BIPOC communities. Our Loan Operating System (LOS) serves CDFIs and business owners by bridging the gap in affordable lending technologies. CDFIs nationwide can license our LOS to provide non-predatory loans. The LOS features a pre-approval tool, an efficient questionnaire, and encrypted data warehousing for secure file sharing. Automatic messages keep applicants informed, saving time for both staff and borrowers. Our dedicated lending team and technical assistance program empower applicants to navigate the process successfully. We prioritize accessibility, efficiency, and security, ensuring a positive impact on underserved communities and helping small businesses thrive.
Our tech combats predatory lending, levels the playing field for LMI entrepreneurs banks do not serve, increases neighborhoods’ affordable home inventory, and enables more BIPOC and LMI families to start building generational wealth through asset ownership.
What is your theory of change?
For NCRC CDF, compassionate lending helps bridge the racial wealth gap business owners face today. We believe compassionate and affordable lending creates a positive impact in marginalized communities. We are able to assist entrepreneurs with the access to capital and business support services they need to pursue their dream to own a successful business. Small businesses are the backbone of thriving communities, they create job opportunities and provide products and services people need. Ensuring low-income and communities of color have access to quality and locally-owned business offerings is not only convenient but crucial for the betterment of residents. Local businesses pay local taxes which means more revenue goes back into the community. Compassionate lending works at dismantling systemic issues such as economic inequalities and discriminatory practices—which are at the root of financial insecurity in these communities.
The integration of tech into the community development finance arena aims to better serve a more diverse population in a competitive market. With this LOS, we will create better businesses within communities, resulting in wealth staying in the communities. Overall contributing to a better quality of life for the next generation. As this software becomes available to more CDFIs, they are able to grow their small businesses pipeline significantly, and we will see the impact of it for generations to come.
What is your solution’s stage of development?
Pilot: a product, service, or business model that is in the process of being built and tested with a small number of beneficiaries or working to gain traction.What is your organization’s stage of development?
Scale: A sustainable organization actively working in several communities that is capable of continuous scaling and has a proven track record, earns revenue, and is focused on increased efficiency within its operations.How many small businesses does your solution currently serve?
Currently we have 138 small businesses within our LOS and our goal is to lend $10MM to small businesses in 2023. Since implementing the LOS, NCRC CDF has seen a 150% increase in its small business pipeline. By January 2024 we hope to make our LOS available to at least another 10 CDFI clients. As a result we would then be able to assist financing to 1,380 small businesses. In the next five years we hope to grow our LOS at least 30 additional CDFIs clients to utilize our software, with a very conservative 25 percent increase in lending for each CDFI and lending to more than 4,000 small businesses.
Furthermore, Small Business Administration (SBA) defines a small business as a firm that has fewer than 500 employees. Therefore the impact has the potential to reach about 2.1 million people, by providing employment opportunities within these small businesses.
How do you define the community you serve, and who are its stakeholders?
We serve low- to-moderate income communities, BIPOC entrepreneurs, and women-owned businesses nationwide. Our solution is executed by our staff and our staff and board are the key decision makers who also influence organizational strategy. We will be offering this product software-as-a-service to other CDFIs who operate in a similar structure.
We are a subsidiary of the National Community Reinvestment Coalition (NCRC). NCRC was formed in 1990 by national, regional and local organizations to increase the flow of private capital into traditionally underserved communities. NCRC has grown into an association of more than 700 community-based organizations in 42 states that promote access to basic banking services, affordable housing, entrepreneurship, job creation and vibrant communities for America’s working families. NCRC has 116 CDFI members who we have established relationships with and will be the first to be offered this product.
How do you build trust within the community your organization serves and among small business owners?
Our mission is to support economic mobility and bridge our nation’s racial wealth gap — and we can’t do that alone. That’s why part of the Community Development Fund’s business model is working with institutional partners and investors who share our vision. Furthermore, several of our staff engage in speaking opportunities, attend conferences, and build connections with other organizations in the communities we serve.
Our lending team regularly communicates with our small business clients to share opportunities and resources and we work with our borrowers during times of financial hardship. As highlighted in the Urban Institute, “ What's unique about CDFIs is that there's a high amount of relationship management that occurs during the loan application process.” NCRC CDF takes relationship building seriously, and with this LOS we will be able to have more time helping the borrowers - while spending less time conducting file administration. As a result we are able to maintain trust with our clients and applicants.
What are your impact goals for the current year and the next five years and how will you achieve them?
NCRC CDF’s strategic goals for 2022 through 2026 are detailed below. Taken together, these strategic goals will support an overarching goal of deploying at least $25M over the five-year window. The following goals provide a clear path for reaching the lending-related benchmark:
RACIAL EQUITY FOCUS. Historically, the vast majority of CDF’s clients and beneficiaries have been people of color. CDFIs and other community organizations are well-placed to provide interventions designed to move the needle on income and asset poverty rates in communities of color. CDF will prioritize building DF member capacity as it relates to increasing equitable access to financial products to historically underserved communities, through intermediary lending and development services. Its direct lending will also prioritize Latino and Black borrowers.
EXPAND AND DIVERSIFY FUNDRAISING. Building on NCRC CDF’s increased market presence due to new partnerships, expanded and diversified loan portfolio, and public recognition such as its 2022 Fast Company Top 10 Most Innovative Companies selection, NCRC CDF will work to develop new sources of grant funding. Diversified and unrestricted sources of grant funding will be essential in enabling NCRC CDF to continue to innovate and develop new approaches to meet evolving needs in its target market
The Truist Inspire award will enable CDF to meet its internal goals related to increasing capital to Black and Latino populations nationally by providing capital that can be used to meet the needs of a variety of borrowers.
Why are you applying to Truist Foundation Inspire Awards?
With a clear vision of how best to meet our mission, we’re ready to scale our impact deploying our new LOS to combat predatory fintech and online lenders. We will immensely grow our tech with the help of the Truist Foundation and MIT Solve.
In which of the following areas do you most need partners or support?
Please explain in more detail here.
Our partnership with Truist Foundation and MIT Solve will assist in maximizing social impact by creating sustainable and substantial positive change in communities.
Public relations, Truist Foundation and MIT Solve have a greater market reach and visibility. Through our partnership we will be able to gain a larger audience and generate greater recognition for our cause, ultimately gaining more support and resources. Additionally, we hope to foster long-term relationships in the process.
Product distribution and technology, in this instance, will go hand in hand. NCRC CDF will be able to leverage support to help extend the reach of our LOS to CDFIs nationwide. Also, we can utilize expertise by exploring what the most effective way to expand our LOS client base would be.
Solution Team
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What is the name of your organization?
NCRC Community Development Fund (NCRC CDF or CDF)