Applications are now open for the next round of funding for the Wells Fargo Works for Small BusinessSM: Diverse Community Capital (DCC) program. The DCC program will make available $50 million in lending capital and $25 million in grant capital to be dispersed over three years to CDFIs working to increase lending to diverse small businesses. In addition to the debt and grant capital, the program offers a social capital component to offer activities that will build effective support networks and social infrastructure among CDFIs for the purpose of increasing lending to diverse small businesses. OFN is administering the social capital program.

The first DCC awardees were named during the launch of DCC last fall: Black Business Investment Fund (BBIF) Florida; Hope Enterprise Corporation, and Main Street Launch (formerly OBDC Small Business Finance).

CDFI Connect interviewed Connie Smith, Senior Vice President, Diverse Community Capital Program Manager, about the first round of the program and what to expect on the horizon.

What stood out about the first awardees? 
Each of the CDFIs demonstrated a strong understanding of the markets that they serve, and the capital and capacity gaps for diverse small businesses. They each presented a strategy to address the gaps that was specific and credible. All three of the proposals focused on serving Black/African American small business owners.  We’ve made this segment a priority for the DCC program based in part on findings from a Gallup survey that we commissioned last year, including the fact that Black/African American businesses are more likely to be in startup and growing stages of their business than small businesses in general, and as a result may not qualify for conventional bank loans. By selecting these three for our launch awardees we demonstrated our commitment to that priority. 

In addition, BBIF, Hope Enterprise and MainStreet Launch are serving unique and, in the case of Hope and BBIF, expansive markets in states where Wells Fargo has a banking presence. We say in our Vision & Values that we’re “community-based.”  We want to be “in and of” every community where we do business. The DCC program is an example of our investment in efforts that expand consumer access to high-quality and responsible banking products and services in communities across the U.S.

When the first round was announced, how many applications did you see, and what does this say about the need?

The response to the program certainly validated the survey results.  We received far more interest forms than we anticipated—a total of 111—from CDFIs providing services in 44 states. All expressed interest in grant capital and most in a form of debt. Interest forms were reviewed for acceptable financial position and performance.  All of the proposed strategies were reviewed for specific details about segments served, business types targeted, and partners involved. We also considered how well the proposals outlined the impact of the funding and how the strategy would be sustained at the end of the funding period. 

Based on the response to Round One, we’re sure that the program’s next five rounds will continue to be very competitive.

What can you share about the first official round—there are 15 awardees?

Correct, 15 CDFIs will receive a total of $22.3 million in capital—$5.67 million in grants from the Wells Fargo Foundation and $16.67 million in debt funded by our Community Lending & Investment Group.

Ten of the CDFIs have diverse leaders, including five people of color. Strategies that focus on increasing lending to Black/African American small businesses are a priority, not a requirement, of the program. The strategies funded in Round 1 are focused on serving various diverse segments.

There is also diversity in the size of the funded organizations with their total assets ranging from $2 million to more than $300 million. 

And of course, the awardees are serving communities across the U.S.

Can you share how the social capital element is already playing out, and how you expect to see it evolve?

We consider the social capital component of our program a differentiator. The three awardees from the program launch, along with our Round One awardees, have already begun to meet as a Knowledge Network. The DCC Knowledge Network exists to allow the CDFIs to share best practices, learn from others and explore opportunities to collaborate. The group has selected three areas of focus: marketing & outreach, underwriting, and tailored products. They will begin to share, collect and document best practices for each of the focus areas. The idea is to share the collected practices with many other CDFIs, not just those benefiting from DCC funding. 

We’re actually planning a session at the upcoming Small Business Finance Forum to share the process and the progress of the Knowldge Network’s focus on underwriting. There will likely be additional sessions at the OFN Conference in Atlanta. 

Another social capital program offering will be consulting opportunities provided by DCC awardees and other experts to fellow CDFIs. These opportunities will be offered later this year.

How will you measure the impact of DCC funds?

Of course, we’re very interested in the impact of the program. All awardees will complete an annual report providing information about their lending volume to diverse small businesses (by segment), portfolio quality, the kinds of businesses financed, and the type and hours of development services offered. We’ll also be collecting examples of borrower success stories and other anecdotal information about borrowers accessing debt from other providers, including conventional lenders. Our launch awardees have tested our report and we think we’re on track to collect meaningful data.

What can you say to applicants?

Round two interest forms are due June 1. As I said previously, the DCC program will continue to be very competitive. The interest form provides ample space to provide specifics about a proposed strategy. Respond to the prompts completely and be sure to include specifics about the diverse segments that your CDFI plans to target, the other organizations that you will work with, the outcomes you hope to achieve, and how your strategy will be sustained after the funds are exhausted.

Also, be thoughtful and strategic about when you submit your interest form. This is the second of six rounds. Think about initiatives and efforts planned, or in process and how they could impact your organization and influence the timing to submit an interest form. Given the competitive environment, submit your interest form when your organization is in the best position for success.

Late last year Mike Rizer shared with OFN some insights into how the program came to be and why Wells Fargo is making CDFIs the cornerstone of this program. You can read that interview here.

Read about how Main Street Launch used their DCC award to help a small business owner expand in Oakland, CA.

 

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