November 4, 2015 (CDFI Connect)—On Monday, Wells Fargo and OFN announced the launch of the Wells Fargo Works for Small Business®: Diverse Community Capital program.
The three-year Wells Fargo initiative will deliver $25 million in grant funding for CDFIs to build financial, operational, and human capacity, and $50 million in debt capital for CDFIs to build lending capital to serve diverse small businesses. Diverse Community Capital also provides social capital programs—including mentorship programs, knowledge networks, consulting, and other collaborative efforts—to CDFIs to help increase their capacity to lend to diverse small businesses.
CDFI Connect spoke with Mike Rizer, executive vice president and head of Community Relations for Wells Fargo, about the program’s origins, what else Wells Fargo is doing to help diverse small businesses, and more.
How did this program come to be?
Wells Fargo commissioned a national Gallup study to help us better understand the experiences of diverse small business owners, in particular regarding the use of credit. The study (conducted in 2014) surveyed owners across diverse segments, including race, ethnicity, gender, veteran status and sexual orientation.
Gallup called more than 3,000 small business owners nationwide, asking questions designed to give us insight into their perceptions and experiences when working with banks and how the banking industry in general, can better serve diverse small businesses. The study covered six segments: African American, Asian American, Hispanic, LGBT, military veteran, and women.
As a result of this study, we developed a four-point action plan to address key findings around the challenges diverse small business owners face, especially when they’re starting or growing their businesses. The Diverse Community Capital program is one part of this plan.
How does the program define “diverse small business?”
The definition guiding us in this program for diverse small businesses includes those small businesses majority-owned by someone who is Black or African American, Asian/Pacific Islander, Native American, Multiracial, Hispanic, Latino, female, a veteran, or LGBT. They must be for-profit businesses that range in size from microenterprises, with five or fewer employees to businesses with a max of 500 employees.
What were some of the study’s key findings?
Wells Fargo has a history of focusing on diverse communities, yet we also recognized there was a lot we didn’t know. So the study was really interesting and gave information we needed to develop a road map for moving this work forward.
Some of what we learned is that African American, Asian, and Hispanic small business owners are more likely than the general population to experience credit challenges, and be declined for business credit. And African American small business owners in particular are more likely to not reapply for credit after being declined. African American-, women- and LGBT-owned businesses are also more likely to have annual business revenues of less than $50,000. Additionally, African American, Asian, and Hispanic businesses are more likely to be in the startup and growing stages. With these revenues, and at this early stage in business, they may not qualify for many conventional bank loan products.
We also found that diverse small business owners are very interested in learning how to build a strong business credit application.
Tell us about the plan that came out of this study.
First, we recognize the unique opportunity CDFIs have when working with small businesses in general, and diverse communities in particular. They’re great at taking on risk and working with people who haven’t been able to get mainstream financing. So, with this plan, which covers access to capital, education, and capacity and network building, we want to help CDFIs make an even bigger impact and help more small businesses start and succeed.
The Credit Coaching Program offers individualized support for small business owners who have been denied business credit products offered through our retail banking stores and is designed to help business owners understand how credit decisions are made in order to help them become credit-ready.
Then there’s the Chamber Training Institute which expands leadership capabilities of diverse business owners through collaboration with chambers of commerce that specifically serve and represent African American, Hispanic, Asian American, and LGBT business-owner interests. The new chamber program provides training to the leaders of these chambers on various topics, such as access to business credit and business planning, and expands Wells Fargo’s partnership with these organizations.
And increase access to credit through a referral network to the U.S. SBA’s Community Advantage program in communities nationwide and expanded online resources. Wells Fargo is establishing referral relationships with more than 20 participating nonprofits and other lenders across the country in the U.S. SBA’s Community Advantage program. The program provides hands-on guidance to small businesses, and offers credit to qualifying businesses.
And, finally, the Diverse Community Capital program focuses on distributing $50 million in debt capital and $25 million in grant capital over three years to CDFIs that serve diverse small businesses.
You have partnered with OFN and CDFIs on this program. What makes CDFIs and OFN ideal partners for ensuring that you are financing your target market? And what is OFN’s role?
CDFIs are natural partners for us. They have a long, unique track record of financing small business so they know this work and the market. And, as mission driven lenders, they already work in and with underserved and diverse communities.
OFN, as the leading CDFI network, is in a perfect position to help us with this program—they know, from experience, how CDFIs can change lives and communities. They worked with us to develop Diverse Community Capital and will assist us in executing the program over the next three years. They’ll also be delivering the social capital component of our program. With all of the organization’s experience and expertise in creating and delivering capacity building and peer learning programs, especially in collaboration with partners, we couldn’t find a better partner.
How can CDFIs learn more?
Visit wellsfargo.com/cdfi to learn more about the program, download program guidelines, and apply. Also, Wells Fargo is hosting two information session about the program, one at the OFN Annual Conference in Detroit next week and one online on November 17. Details are on the website.
Learn more about Diverse Commnuity Capital with a Webinar on November 17 at 4:00 PM. Register now as space is limited.