At its core, impact investing is about deploying capital with the intent to bring about some socially desirable outcome with the expectation of a financial return.
There are two key elements:
An Investment with the Intention to Do Good
An expectation of Financial Returns
Baked into this definition is some subjectivity. Specifically, what may be a socially desirable outcome for one person may not be the same for another.
Nonetheless, generally, the social outcomes investors seek are unlikely to face much dispute even from the most critical investors. Some of the causes impact investments often support include; lowering greenhouse gasses, eradicating poverty, increasing economic opportunity for underrepresented communities and feeding the hungry. The expectation of financial returns is significant because it is what separates impact investing from philanthropy.
What else should I factor into the definition?
In addition to the two basic elements, an intention to do good and expectation of financial returns, some institutions add a third factor, impact measurement.
The thought is if you intend to do good, you should measure how much good you’re doing. We explore measurement in more detail later.
Within these 3 elements, there’s a lot of wiggle room, often guided by individual investor’s goals and personal interests, their priority on returns vs social outcomes, and the methodology they apply to outcome measurement.
The Fluidity of the Definition of Impact Investing
Given that impact investing is a relatively new concept, its definition can vary based upon who you ask. McKinsey explains this well:
“‘Impact investing’ means different things to different people. Some see it as a strategy for beating financial benchmarks, because businesses that target unmet social or environmental needs can be profitable but easy for investors to overlook. Others are happy to accept lower financial returns for the sake of backing enterprises whose main interest is creating social benefits.”
As suggested above, impact investing can be associated with an acceptance of below-market returns. While this is certainly true for some products, many impact vehicles now work to meet or beat market returns.
How Do Industry Participants Define Impact Investing
One of the leading voices in impact investing, The Global Impact Investing Network (GIIN) defines impact investing as “Investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.”
Michael Drexler and Abigail Noble of the World Economic Forum define impact investing as “an investment approach intentionally seeking to create both financial return and positive social impact that is actively measured.”
The Financial Times also includes measurability in its definition, “Impact investing is generally accepted to describe investing that intentionally seeks measurable social and environmental benefits.”
As you can see there are some common threads within the definition. As the industry matures, it is likely a standard definition will be accepted by all stakeholders.
How does CNote define Impact Investing?
At CNote we agree with the generally recognized definition that impact investing involves deploying capital with the aim of creating some measurable positive social outcome with the expectation of financial returns.
Where we diverge is our belief that every investment is actually “impact investment.”
Why?
Because whether or not you are targeting a social outcome when investing, your investment decisions will have consequences on society. This is because the flow of capital will incentivize or disincentivize actions by entrepreneurs and businesses on the aggregate–intentional or not, your money has an impact.
Ultimately, the important question we should ask before we make any investment is: What social outcomes does this investment support, and are those outcomes aligned with my goals and values?
The question then is one of intentionality; are you being conscious about what your money is doing and are you aligned with the outcomes it is supporting? This is extremely important knowing that even small investments in the aggregate can drastically shape industries, corporate behavior, and societal outcomes.
In recognition of the notion that every investment choice has a consequence, our hope is that in the long term, impact investing as a standalone term becomes redundant and will just be called “investing.” As impact investing matures and becomes more standardized and measurable, many of the “niche” metrics we use now to measure impact may become as essential as metrics like the Price/Earnings ratio.
Why does the definition of Impact Investing matter?
How and where you invest is important. Understanding how the industry and individual participants approach impact investing can help you ask more informed questions and ultimately make better choices for where you want to put your money to work.
Impact investing, as a movement, is still evolving and seeking standardization. It is important to understand how various industry leaders define the term and how it affects their approaches and methodologies–which can vary widely.
At CNote, we want you to make the most informed investment choices. Hopefully, this article leaves you with a better understanding of how to approach impact investing as an investment strategy.
Impact Investing Metrics and Themes
The GIIN (Global Impact Investing Network) has created Impact Reporting and Investing Standards (IRIS) metrics to provide a standardized way to compare different investment options. While the GIIN is highly regarded, there are over 500 metrics and applying and making sense of these metrics can be challenging for the unfamiliar and can be cumbersome for even experienced impact investment practitioners.
Another route towards standardization is by aligning investments with the United Nations Sustainable Development Goals (SDGs). The 17 SDGs were adopted by all 193 UN Member States as part of the 2030 Agenda for Sustainable Development. These goals are an urgent call for action to solve the world’s greatest development challenges, ranging from an end to poverty and reduced inequality to tackling climate change.
Many impact investors are now aligning their goals and investments with the SDGs. The general consensus is that they are a useful framework and common language through which we can all communicate broader sustainability efforts. It is also generally appreciated that alignment is an ongoing process with most still trying to figure out how to get it right.
As a result, there are movements by impact investors and measurement institutions to incorporate the SDGs into their impact measurement frameworks. Toniic institute has developed the SDG Impact Theme Framework and the IRIS metrics have been aligned with SDG indicators that they deemed appropriate for investment. Moreover, IRIS is launching, IRIS+, which should include a more comprehensive look at the SDGs.
Another group working on this is the Impact Management Project, a forum of 2000+ impact investing practitioners. Having just completed Phase 2 of the development process they are looking to build consensus on ‘how to measure, report, compare and improve performance.’
The complexity of these metrics highlights another issue, the approach to impact investing depends on who the investor is.
To illustrate, large institutional investors may specifically require; risk models, impact measurement audits and put in place other restrictions that a retail investor may not. Moreover, a retail investor may want to see tangible short-term outcomes; homes built or jobs created, among other metrics, whereas an institutional investor may have a longer time horizon or seek outcomes that are harder to quantify. Understanding the audience and their expectations will radically shape how one views a given impact investment.
History of Impact Investing
The term ‘Impact Investing’ was created in 2008 at meetings convened by the Rockefeller Foundation in Italy. Although the definition is relatively new, the tradition of Socially Responsible Investing (SRI) is not. Religious communities have been practicing SRI for thousands of years and it can be traced to biblical times, as outlined in Jewish and Sharia law. This SRI involved making no investment in alcohol or tobacco, which is today regarded as negative screening. United-States-based SRI can be traced back to the 18th Century to the Methodists who also employed negative screening, extending it to include gambling as well, and to the Quakers who banned investment in slavery and war.
The modern roots lie in the Vietnam and Civil Rights Movements notably with South African Apartheid and divestment from the country. In the 1990s and 2000s, this shifted from negative screens to positive screens. The term broadened and in the preceding decades impact investing as it is today was born.
Today, impact investors can be, but are not limited to; fund managers, development finance institutions, foundations, government agencies, NGOs, pension funds and insurance companies, religious institutions, and individuals. Recently there has also been a rise in the number of online impact investing platforms, like CNote, which have made impact investing widely accessible to all individuals.
Impact Investing Approaches
The existence of impact investing highlights the current paradigm shift in how the business and investment community is thinking about; place, planet, product, and processes. This shift materialized as the double bottom line approach, which is measuring performance in terms of not just financial considerations but also social impact, and triple bottom line which adds environmental impact into that discussion. This evolved into SRI, and the introduction of negative screening, and ESG which incorporates Environment, Social and Governance factors into the investment process.
Socially Responsible Investing (SRI) vs. Impact Investing
Socially responsible investing is focused on deploying investment dollars in a responsible and positive way. Typically SRI involves the use of negative screens or filters when selecting investments. Often these screens ensure that a fund avoids investing in certain things the fund manager deems undesirable like companies that produce weapons, tobacco, and oil.
In contrast, impact investing actively seeks out investments that will create a positive economic, social, or environmental impact. Another way to think about this is as “do no harm” for SRI versus “do good” for impact investing.
What about Environmental, Social and Governance (ESG) Investing?
ESG investing is about critically viewing an investment target’s environmental, social, and governance practices in the due diligence phase of investment. The key difference between ESG and impact investing is that ESG typically serves as a screen to weed out companies with unacceptable practices, whilst still prioritizing the maximization of financial returns.
For example, let’s say an institutional investor was evaluating investments in multinational clothing companies, they may view supply chain practices as a key ESG metric because they want to make sure any target companies avoid the use of child labor and ethically source their raw materials.
ESG is most commonly used in the context of public market investing, where one is evaluating the environmental, social and governance structures of a given company and evaluating whether that entity is taking sufficient steps to meet or exceed specific areas of corporate responsibility.
Some research suggests these ESG-focused investments can actually lower the riskiness of an investment. To illustrate, if you know a target company maintains an ethical supply chain, the risk of damaging headlines about child labor practices (and an associated drop in stock price) are greatly reduced.
Impact Investing Across Asset Classes
Impact Investing occurs across asset classes and with a broad range of financial instruments. The main asset classes include; fixed income, real assets, public and private equity and private debt. The majority of impact investments are currently in private equity and private debt. There are ongoing discussions by many in the field about whether impact investing could emerge as its own asset class because it drives development and uses specialized metrics and benchmarks, but this is yet to be seen.
Returns will vary greatly based on the type of investment and the market size related to the social issue. While the market for improving crop yields in developing countries is likely large, both in terms of potential financial and social rewards, the same may not be true for addressing something like increasing societal interest in the arts.
What to expect for financial returns depends solely on the strategy and philosophy of the investor. Anyone considering an impact investment, or any investment would be well served to ask the fund manager or company, about what their priorities are, how they measure success, risk, and other non-investment outcomes.
How popular is Impact Investing?
What many don’t realize is that impact investing has grown to become a serious force in the investment world which dictates the flow of billions of dollars in capital each year. In 2017, according to GIIN’s Annual Impact Investor Survey of 225 companies, the total amount invested in impact funds was at least $114 billion. This is up from 2015 and 2016 when the impact investing market totaled $7.1 billion and $15.2 billion, respectively.
Financial giants like Goldman Sachs and Zurich Insurance are now earmarking $13.7 billion toward impact investing. BlackRock, the world’s biggest asset manager, has created a division solely devoted to impact investments. There is also attention from international organizations like the UN which has gathered over $62 trillion USD from more than 1,500 asset managers to fund the Principles for Responsible Investment.
While the chart above only reflects those surveyed by the GIIN, the chart below from the US SIF: The Forum for Sustainable and Responsible Investment, shows that over $12 trillion in assets have been deployed across ESG, SRI and other impact-focused strategies as of 2018.
Established institutions aren’t the only ones interested in impact investing. Since 2008, Google search reports for “impact investing” have increased significantly. The trend does not show any likelihood of tapering.
In a recent survey of over 1,300 financial advisors and analysts, the CFA Institute found over 50% considered ESG integration a major priority and were taking steps to include it in their analysis.
Moreover, the world is about to see a massive transfer of wealth from baby boomers to millennials. By 2020, millennials will have an estimated cumulative wealth of $24 trillion, and surveys show a whopping 76% of them believe how they invest can have an impact on responsible investing. Further studies show that millennials are 2x more likely than the average investor to invest in companies with social or environmental goals. Explore more statistics indicating the rising trend at Morgan Stanley.
Why Impact Investing?
Here are just a few reasons to impact invest. This list is not exhaustive, and what moves one investor may ring hollow for another.
Align your investments and your values – because impact investing does good and generates financial returns, investors can support the causes they care about whilst putting their capital to work.
Increase Portfolio Stability – A Morgan Stanleystudy, of over 10,000 equity mutual funds over 7 years, found that, on average, impact investing funds had lower volatility than comparable non-impact funds.
Expand your network – The impact investing community includes ppolicymakers entrepreneurs, human rights activists, and development experts, all dedicated to utilizing capital in pursuit of tackling important societal issues.
Critiques of Impact Investing
The world of impact investing is not without faults. Like any booming industry, there are those who would co-opt the concept for profit. Impact investing is having a golden moment of rapid growth and popular support and, according to Business Wire, is expected to grow to $307 billion by 2020 (2x what it was in 2017). As a result, some investment vehicles ostensibly use the “impact investing” label without actually committing to the underlying strategy, in an effort to attract investors.
Sometimes this is referred to as ‘greenwashing’. In the impact investing industry, there are many that are concerned that mainstream asset managers are increasingly promoting and marketing ‘impact strategies’ without sufficient evidence that they are following through with these claims, measuring and reporting towards them. Unfortunately, this means that impact investors must carefully review investment documents and scrutinize impact measurement practices to assure that the product they are investing in accomplishes what it claims to do.
Another potential pitfall of impact investing is a lack of understanding or analytical rigor around quantifying the effect an investment has on a specific issue (like affordable housing). For example, with microloans, lenders track number of borrowers, repayment rate, and business growth. However, knowing this information doesn’t necessarily capture the true impact, or what that community would look like without its microloans. In some instances, measurement may be too difficult given a myriad of variables, in other cases, it may simply be impossible to fairly measure a given investment’s impact.
Another popular critique is that impact investing is skewed towards the wealthy and, by allowing for positive social impact and market-rate returns, keeps the concentration of wealth with the already well-off.
Conclusion
Whether you actively seek to align your dollars with your values, it’s clear that impact investment is rapidly growing and is changing the status quo of capital allocation. Traditionally, funding and loans were only available to people with great credit or leverageable assets. Impact investing changes this dynamic by looking beyond financials and seeing whether your investment will generate positive social returns, not just financial ones. Ultimately, impact investing breaks down the perceived wall that exists between capitalism and social good. We can have our cake and eat it, too.
Let us know what you think about this piece! What information do you wish we included or what questions do you still have? Email hello@mycnote.com
Additional Reading
There is an ever-growing library of resources for learning more about impact investing on the web. Here are some good resources if you’re looking to dive deeper on impact investing
The GIIN site includes resources for continued learning about impact investing, including case studies and research: https://thegiin.org/
CNote Launches Wisdom Fund to Close Lending Gap for Women
New impact investment vehicle provides funding to underserved women of color and low-income women entrepreneurs across the country
OAKLAND, Calif., March 20, 2019 — Women are the fastest-growing group of entrepreneurs in the U.S. Yet less than 5 percent of small business lending—only $1 in $23—goes to women. CNote aims to fix this disparity with the Wisdom Fund, a new impact investment opportunity launching today.
Created in partnership with mission-driven lender CDC Small Business Finance and four innovative nonprofits, the Wisdom Fund funnels money from accredited investors—institutions, funds, foundations, family offices and individuals—into business loans for low- to moderate-income women and women of color. The loans are provided by nonprofit community lenders with decades of experience delivering the capital and resources that women small business owners need.
Fixing a social injustice
“We hear a lot about the gap in venture capital funding for women, but the vast majority of women who need capital are not forming hyper-growth startups; they are starting small businesses to pursue economic freedom, flexibility and independence. The financial system is not serving them well, and we’re very much failing women of color in particular,” said Catherine Berman, CEO and co-founder of CNote, an impact investing platform whose mission is to close the wealth gap in the U.S.
“With the Wisdom Fund, we’re taking a major step toward fixing a huge injustice—women’s businesses receive far less funding than they deserve,” said Berman. “We’re working with an amazing group of nonprofit community lenders nationally to entirely rethink lending to women.”
CNote is also already earning support from major corporations as well as nonprofits. “Access to capital is one of the top challenges female small business owners face and we’re excited to see CNote working to combat this with the introduction of their Wisdom Fund collaboration,” said Amy Neale, vice president and startup engagement lead for Mastercard Start Path, which supports high-potential startups around the world, including CNote. “At Start Path, we look forward to helping CNote scale their business to ensure a more inclusive economy, because when you invest in women the returns are priceless.”
Collaboration drives scalability and impact
During a three-phase build-up, Wisdom Fund partners will collect, share and act on data about what works for women entrepreneurs. In the first eight months, participants will fill in the knowledge gap, gathering information on how women interact with the loan process, what hangs them up and what eases their path. In phase two, the partners will experiment with new ways to serve women that remove barriers. Around the one-year mark, the focus will shift to scaling the program by continuing to add new lending partners, increasing investment and implementing best practices across the network.
“There’s lots of data on how women are shut out of venture capital. We don’t know as much about why women are shut out of debt capital,” said Allison Kelly, senior vice president of strategy and innovation at CDC Small Business Finance. “What are the product-level needs? Who are the business owners and what barriers are they experiencing? Why are women opting out of taking on debt? The whole financial system is set up to serve a certain segment of the population. Maybe we need to rethink the distribution of capital and how we assess risk. The Wisdom Fund is an opportunity to create new debt products by working collaboratively with the women we aim to serve.”
CDFIs are an under-the-radar impact powerhouse
Community development financial institutions (CDFIs) like the ones CNote is working with are perfectly positioned to take on this work. They’re distributed across the country, they have always invested in financially underserved communities, and they have enormous unrealized potential for financial and impact returns.
“We looked at the trends and realized that CDFIs are undercapitalized,” said Kelly. “The sources of capital were mismatched to CDFI needs—it was all big capital sources deploying larger chunks of capital to fewer and fewer CDFIs.”
That’s where CNote comes in. Since its September 2017 debut with a product for retail investors, the fintech startup has invested more than $18 million in underserved communities through a growing CDFI network covering more than 35 states. Those investments have helped to create or maintain over 2,000 jobs and fund more than 400 small business loans.
Investors can start funding women-owned businesses now
Investors in the Wisdom Fund will earn an estimated 1 percent annual return, over a 60-month term, on a loan portfolio that’s diversified across established CDFIs. Email info@mycnote.com to learn how you can help fund more women-owned businesses today.
Women seeking loans should contact a participating CDFI. Partners in the Wisdom Fund’s first phase include:
Carolina Small Business Development Fund, which provides small business loans and financial training to startups, existing businesses and community organizations in North Carolina.
LiftFund, a Texas-based organization that empowers underserved entrepreneurs with capital and support services in 13 states.
TruFund, a national nonprofit organization that provides affordable capital and business development services to small businesses and nonprofits in Alabama, Louisiana and New York.
In addition, Pacific Community Ventures will match all borrowers from the Wisdom Fund with pro bono business advisors. Pacific Community Ventures, a Bay Area–based CDFI, invests in small businesses in California that are past the startup phase and creating jobs, and manages a national network of pro bono expert advisors who mentor small business owners on any topic, challenge, or opportunity.
About CNote
CNote is an award-winning, first-of-its-kind financial platform that allows anyone to make money investing in causes and communities they care about. With the mission of closing the wealth gap, CNote directs every dollar invested toward funding female- and minority-led small businesses, affordable housing and economic development in financially underserved communities across America.
About CDC Small Business Finance
CDC Small Business Finance is a leading small business lender, award-winning nonprofit and advocate for entrepreneurs. Over four decades, it has provided more than $18 billion in funding to over 11,000 borrowers…and counting. Its lending also plays a role in bolstering economic development, and has helped to create or preserve more than 200,000 jobs in California, Arizona and Nevada.
The presenters highlighted some of the investment options currently available, tools for measuring impact, and some unique advantages that come with an impact investment strategy.
CNote’s CEO, Catherine Berman, presented for CNote and answered attendee questions about CNote’s offerings and how CNote is helping to mobilize more community investment.
The webinar is worth a listen if you’d like to learn more about impact investing.
Webinar Recording and Slides
If you weren’t able to watch the webinar live you can watch the recording at your leisure. You can also download and review the slides here.
Join CNote’s Mailing List To Get Updates About Future Webinars
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Financial Professional Looking For More Information?
If you’re a financial advisor looking to offer CNote to your clients, visit our Advisor page to learn more about how CNote can help you deliver strong returns and impact to your clients. There, you can also start a conversation with one of advisor onboarding experts.
As you may have noticed, our quarterly job creation numbers are trending upwards along with our allocations across key demographics, like women, minority communities, and LMI communities.
In Q4 2018, our members helped create/maintain 430 jobs!
Over 65% of all invested capital was deployed with minority-led businesses!
We are extremely proud of our Q4 results and will be releasing our full 2018 Impact Report shortly. In the interim, check out our 2017 Annual report.
That idea is embedded in our social mission of closing the wealth gap and building a more inclusive economy for everyone.
Our team thought it was only natural we formalize that commitment by becoming a Certified B Corporation®. Now CNote’s commitment to profit with purpose becomes even more clear for our investors, members, and partners.
We’re excited to join a growing list of companies that are working to build sustainable businesses along with a better world.
B Corps were 65 percent more likely to survive the great recession in 2009
What B Corp Status Means
CNote was certified by the non-profit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency. That required us to evaluate how our practices impact our employees, our community, the environment, and our customers.
“Think of it this way: USDA certifies organic foods, and Good Housekeeping puts its seal of approval on quality products, like washing machines and skillets. And since 2006, a nonprofit organization called B Lab has been certifying corporations it deems to be concerned about their communities and the environment.” – NPR
Certified B Corporations® are a new kind of business that balances purpose and profit.
They are legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment.
This is a community of leaders, driving a global movement of people using business as a force for good.
The entire CNote teams is excited to be a part of this movement!
Join us on Wednesday, Feb. 27, 2019, featuring leaders in income and impact — Cat Berman, CEO of CNote; R. Paul Herman, CEO of HIP Investor; and Sonya Dreizler, CEO of Solutions with Sonya.
The webinar will be emceed by Sonya Dreizler, who helps advisors and financial experts pursue impact Investing, and how to better manage your RIA, Mutual Fund, and Broker-Dealer.
Please join us for an insightful exploration and deep discussion on Income + Impact, along with active Q and A along the way.
What We’ll Cover
This and much more:
Portfolio options that generate Income and Impact across multiple asset classes, including strategies involving muni bonds, real estate, cash alternatives, and other asset classes
How you can invest in community development and increase capital access for women and people of color
How to structure a portfolio to target UN Sustainable Development Goals (UN SDGs) across both U.S. and Global markets
When
Feb 27, 2019, at 1:00 PM in Pacific Time (US and Canada)
A tie can say a lot about its wearer. The first ties marked out the court members of Louis XIII, a French king who had admired the neck accessories of the Croatian mercenaries and adapted them as mandatory attire for royal gatherings.1
In the following 300 years, ties evolved into the more simple and streamlined form we know of today, but through subtleties in color and pattern they continue to provide distinction to their wearer. A red tie, for instance, can signal charisma or authority, while a tie covered with hotdogs might send a different message altogether.
Product offerings at Knotty Tie Co. in Denver, CO
That said, a tie is an accessory you want to get just right. Knotty Tie Co. makes it easy to do just that.
From its chic and accessible e-commerce site, customers can select and order ties from the comfort of their own homes. With over 350 patterns and 560 color options, they can design just the right tie, bowtie, or scarf for any occasion: from themed wedding attire to workplace swag, to a thoughtful gift for a loved one. They can even customize from scratch, entering their ideas on the website, which the company’s graphic designers will then mock up for them.
It’s a unique company that creates unique ties. But even more distinctive is the story behind it.
A unique business model derived from an altruistic mission
When we asked what he did to make his customers happy, President and CEO Jeremy Priest mentioned the phrase Made in America.
“For us, Made in America isn’t just a reason to buy…”
What this means is that his company produces every tie in their facilities in Denver, Colorado. With equipment they bought and painstakingly learned how to operate, they print the patterns customers select onto quality fabric. Then they sew the fabric into ties — completely by hand.
Employee operating textile cutting machine at Knotty Tie
This allows them to produce small batches of customized ties in a relatively short amount of time, something their competitors, many of whom manufacture overseas, cannot deliver on.
“For us, Made in America isn’t just a reason to buy, it legitimately gives us a competitive advantage,” said Jeremy. Later he added, “It’s incredible how the mission [of the company] weaves into that.”
And it’s the mission of Knotty Tie Co. that truly makes it stand out. Surprisingly, it has less to do with customized ties, and more to do with the people who make them. The employees who sew the final product by hand are all refugees who fled various conflict countries to start a new life in the US.
Refugee employees at Knotty Tie
And CEO Jeremy Priest’s mission is to provide them, and other refugees, with meaningful employment opportunities.
The birth of a mission
“The mission of the company is to create meaningful employment opportunities for refugees…”
Like most people, Jeremy didn’t initially enter adult life with enough belief in a cause to build an entire company around it. Instead, his convictions grew gradually through life experiences.
The first of these was a military career of six years, four of which were overseas. “One of the things I witnessed in my military duties…was that people were yearning for economic inclusion and economic opportunities.”
Inside the store of Knotty Tie Co.
This inspired him to study economics and get an MBA in entrepreneurship. At the same time he was pursuing his studies, he saw that there was a population with economic need in his very own community: the 2,000 refugees who set roots down in Colorado each year.
“I really recognized that there were enormous barriers to employment and that society generically wasn’t really recognizing the barriers, and wasn’t recognizing the dignity of the arriving population and the contributions they could make,” Jeremy said.
One of Knotty Tie’s employees intent upon his work
Instead, many refugees had to take random jobs with odd hours as they struggled to transition to their new lives.
Thankfully, there were non-profit programs that helped refugees transition, providing English classes and developing their job skills. Jeremy volunteered for one of those programs. But a key interaction in 2011 convinced him his clients needed something more.
“To me it seemed like there was just something missing…”
He was training two refugees in janitorial skills when they told him they had 20 years’ experience in sewing and a lifetime of experience in farming. In “a crisis of his conscience,” he realized he was training them in the wrong skills.
“I appreciated the resettlement agencies…But to me it seemed like there was just something missing — and that was the connection between [the refugees’] existing skills and the employment pathways we should be putting them in touch with.” And that made it less meaningful for them.
Employee cutting tie
Thus began an effort to convince the non-profit to not only train the refugees in basics, but employ them in their existing skills, namely sewing. But when Jeremy realized this was outside the scope of the program, he began to take matters into his own hands.
Scrapping it
Raising up his own enterprise to employ refugees in meaningful work was no easy task. In the beginning, it was just Jeremy and his undergrad classmate and co-founder Mark — and they had to scrap it.
Knotty Tie co-founders Mark Johnson and Jeremy Priest
“Truth be told Mark and I were just so broke that we didn’t have cars,” Jeremy told us when talking about the early days of his company.
“Our first office was in an artist collective and we had to be able to walk there.” During their Kickstarter campaign in 2013, the two frantically produced ties, Mark in the afternoon after his shift at a cafe, and Jeremy all day before his night classes.
As the company took shape, they sought investors who would fund them despite them not having a high credit score. Thankfully an impact investor gave them seed funding of $40,000, and with it the valuable affirmation that their idea was worth all those long hours. This enabled them to hire two refugees with sewing experience and purchase some equipment to scale their efforts. It also qualified them to receive a loan of $10,000 from Colorado Enterprise Fund, a CDFI in CNote’s network.
“CEF was really an angel at the time in which nobody one else was willing to consider us on paper…”
With the money, Jeremy and Mark were able to meet payroll and purchase more equipment.
Later, when Jeremy showed CEF they could cut costs by two-thirds by manufacturing in-house, they provided a second loan of $100,000 to buy their own textile machinery. It was through CEF that Knotty Tie was able to fully implement its Made in America business model.
Knotty Tie’s textile printing machine
“CEF was really an angel at the time in which nobody one else was willing to consider us on paper,” Jeremy reflected. “They were willing to altruistically evaluate why we’re doing what we’re doing and what we were able to accomplish to date.”
Meanwhile, Mark, who was talented in technology, had taught himself graphic design and e-commerce and taken classes in full-stack web development, all of which equipped him to make the beautiful storefront website we see today.
Future plans for Knotty Tie
Mark and Jeremy in front of their storefront
With his signature eloquence, Jeremy told us of his future plans. His vision–both lofty and inspiring–includes developing business models to employ refugees even in camps overseas.
“These are refugees, but they are self-sufficient.”
In general, he wants to spread his mission of refugee employment to other for-profit enterprises, changing the global narrative from refugees who are helpless, to “These are refugees, but they are self-sufficient.”
But for now, he is focusing on the tie company, which he hopes to make a shining example of refugee resettlement enterprises to the world.
Marc Munyakabuga, production manager
We think he’s doing a good job of it. To date, Knotty Tie has a formal board of manufacturers consisting of seven members. Additionally, it employs six sewing refugees, two of whom have started college courses to pursue careers in fashion design.
One Congolese refugee named Marc currently serves on the board as production manager. In the future, he wants to start his own small business.
Learn More:
The Colorado Enterprise Fund, was founded in 1976 and is a non-profit lending institution that offers loans to entrepreneurs and small businesses unable to get traditional bank financing. For over 40 years, Colorado Enterprise Fund has been helping people realize their dreams of starting and growing their own businesses.
CNote – Interested in helping create another success story? CNote makes it easy to invest in great CDFIs like the CEF The Colorado Enterprise Fund, helping you earn more while having a positive impact on businesses and communities across America.
Our mission at CNote is to create competitive financial products that make money for our investors while building a more inclusive economy.
Seriously.
We know its a big goal, but big goals can create big change.
Some Exciting News
Occasionally, we’re lucky enough to receive industry recognition or build partnerships that help push us towards our goals and remind us that the work we’re doing resonates with a broader audience.
This week is one of those weeks for our team.
We wanted to briefly mention a few highlights we’re proud of.
It’s a long-running program with a track record of helping startups build key partnerships and gain broader access to customers, investors, and ecosystems.
Nearly 200 companies have participated in the program, and we’ve connected with nearly 10,000 of the world’s smartest startup founders to build the future of commerce together.
Thanks to the entire Mastercard team for their support!
We were previously invited to their Demo Day event, and given CB Insights’ growing reputation as a key provider of business intelligence and predictor of trends, we’re grateful they think our impact-focused Fintech company is worth a mention.
If you’re interested in Fintech or just enjoy lots of charts, their 2019 report is worth a look. The slide (p. 77) mentioning CNote is excerpted below.
Credit: cbinsights.com
We’re hoping 2019 is filled with even more milestones like this. Learn more about CNote.
It’s October 1st, 2013, opening day for Nail Glam Studio and Yahaira Caraballo is nervous. After months of grueling effort, her south Bronx-based nail salon is finally ready and open to the public.
The only problem? The public didn’t come. Not on the first day, at least.
Like everything that brought her to this point, however, Yahaira’s persistence soon paid off. Although Nail Glam Studio, in her own words “didn’t make a dime the first day,” it did manage to turn a profit by the end of the first week and has only grown since.
Nail Glam Studio Founder, Yahaira Caraballo
While Yahaira’s determination enabled her to push past a number of obstacles, it took the help of many other hands to effectively turn Nail Glam Studios from a vision in her head into a thriving business.
One primary source assistance came from CNote’s CDFI partner, the Pursuit Lending, which provided essential guidance in the early stages of forming the business, along with the funds to make the necessary upgrades to comply with new regulations and to expand operations.
The other essential ingredient in Yahaira’s small business success story is family. From her brother helping to build and repair the shop to her husband providing the painting expertise, she was not short on support from those closest to her.
Yahaira did not just receive help from family, however, but was able to provide something even more important to her sister, Onaney Caraballo. In fact, one could say that Onaney was the driving force behind the idea to open Nail Glam Studios all along.
The Origins of Nail Glam Studio
Yahaira was sure that she wanted to start a business since she was young but just couldn’t find a place where she could make an impact. Despite taking on a full-time job in New York City, she still never lost her entrepreneurial ambition and continued to look for ideas and ways that she could turn her dream into reality. In the end, her sister provided the inspiration to finally take the steps towards forming a small business of her own.
Nail Glam Studio Team
Following a move to New York City from their native Dominican Republic in 2003, Onaney quickly established herself as a stylist, gaining recognition at local nail salons and practicing on Yahaira in her spare time. Seeing her sister’s talent and looking to finally realize her own dream to be a small business owner, Yahaira cleared her savings account and began to take the steps necessary to open Nail Glam Studios.
Nail Glam Studios soon become more than just a business for the two sisters. In fact, it became a way for both to live out their respective dreams and come together in a way they never previously imagined. Where Yahaira could fulfill her ambition of owning and operating a small business, Onaney could finally have the kind of stable and supportive working environment that enabled her to focus on improving her craft without worrying about working hours or other issues that usually come with freelance and studio work.
The idea was in place. Now Yahaira just needed funding to get Nail Glam Studios off the ground.
Getting a Loan
Yahaira first sought to get a personal loan from Chase Bank. Such loans come attached with high interest rates on repayment, but Yahaira was dedicated to seeing the idea of opening a nail salon for her sister through to completion. While she was refused for the loan on the grounds because that local branch did not invest in small businesses of Nail Glam’s size, she was given referrals that culminated with her collaboration with Pursuit.
Pursuit helped connect Yahaira with the right experts, who were able to walk her through the intricacies of operating a small business. For example, they taught her how to complete the required paperwork, including a fully-formed business plan, that were required to apply for a loan. Along with the business advice and guidance, Pursuit provided the loan necessary for Nail Glam Studio to comply with the aforementioned state regulations, as well as enable the hiring of two additional staff members to expand the business with new pedicure and manicure stations.
Success and Community-Centered Growth
Since that first day without a paying customer, Yahaira estimates that they see more than one new customer every day simply through word-of-mouth. She credits this to a number of factors, including her focus on providing quality service at an affordable price. However, the emphasis on building a strong community is what really sets Nail Glam Studios apart from other nail salons in the area.
To that end, Nail Glam Studios holds community events every three months, usually corresponding with public holidays like Mother’s Day and Thanksgiving. Yahaira sees the events as a way to give back to those who are a vital component in the nail salon’s success.
Yahaira particularly enjoys Customer Appreciation Month, held every October to commemorate Nail Glam Studio’s founding–and that first nerve-wracking day–where she provides free goodie bags filled with nail-care products to customers.
A Family Success
Yahaira with her brother and sister
While building a community of happy customers in the south Bronx makes Yahaira proud, the most meaningful impact comes from much closer to home. A great example coming in the form of a text message from her nephew. In that message, he thanked his aunt for providing a place for his mom, Onaney, to practice nail styling and pursue her passion. This display of gratitude touched Yahaira and served as proof that she had achieved in what she set out to do–both professionally and personally. After all, none of this would have happened without Onaney, and now the sisters have succeeded in building a thriving business together.
Looking Forward
What began as a three-person operation has, with the help of the SBA micro-loan from Pursuit, now expanded to a staff of seven. For her part, Yahaira says that she is grateful for the loan and all support she has received until now from Pursuit. “I’m speechless with everything I’ve gotten as result of submitting this application. They have a lot to offer.”
Yahaira is now paying forward the help she was given by Pursuit in her own way, assisting other small business owners in the south Bronx as they seek to overcome the inevitable struggles encountered while striving to their own entrepreneurial dreams. She also has ambitions to open another store in the future to create even more employment in the local community.
Her story underscores the commitment of CNote and the Pursuit to helping ambitious women like Yahaira receive the support they need to turn their dreams into reality and enable local communities to thrive as a result. If you, too, would like to make a difference, please consider investing in CNote today.
Pursuit – A leading CDFI based out of New York and the CNote partner that provided the loan and technical assistance that helped make Nail Glam Studio a reality
CNote – Interested in helping create another success story? CNote makes it easy to invest in great CDFIs like the Pursuit, helping you earn more while having a positive impact on businesses and communities across America.
(And Why You Shouldn’t Take Financial Advice from Twitter)
The face behind most of the financial advice you’re reading online.
Today we’re going to have a bit of fun looking at the highs and lows of financial advice available on the internet.
Don’t take this post too seriously, but nonetheless, we’ve actually tried to include some useful resources along with clearly useless advice you’ll see below.
The Bad
What happens when roughly eighty percent of people in a country have access to the internet but as many as two-thirds of them cannot pass a basic financial literacy test?
Tweets like this:
If I had a million dollars I’d invest it all in penny stocks
As we’ve grown more accustomed to having approximately the sum total of all human knowledge one click away, it is tempting to set aside rational thought and expect the top Google search results or social media will provide us the definitive answer on a topic.
While this works fine when learning innovative origami techniques or the perfect method to boil eggs, talk is cheap and uncritically trusting unsolicited online advice can be hazardous to your financial health.
For instance, you might encounter reasonable-looking money management advice like the following:
12-15% of each check should go into savings & Buy a (at least) $500 CD at your bank.
But with 6-month CD rates hovering around one percent, this means locking $500 into a CD would roughly earn a whopping… drumroll, please… $5. And even that is on the better end of what you could reasonably have expected over the past decade in what has been a uniquely low-interest-rate environment. Not bad advice, just maybe not the best advice for your situation.
Believe it or not, there are actually a lot of places to find great advice. You just have to know where to look and make sure that its a trusted source. Generally, let common sense be your guide.
One great crowd-sourced option is the Personal Finance subreddit. Not only does this community curate some of the best topical financial advice, but the admins and active users have created a great “wiki” page that answers many common financial questions and provides life-stage financial advice based on your age (25-35 example).
They also cover the fundamentals in a comprehensive way, from things like building an emergency fund, prioritizing the debts you pay off, and 401k matching suggestions (hint, contribute the % your employer will match, at a minimum).
This really basic flowchart from that subreddit provides some key guideposts on building savings and retirement investments for someone who has no idea about money:
Finally, r/personalfinance has a great reading list that can help you get started on a lifetime of financial success.
Even Twitter has the occasional gem, you just have to dig through all the junk.
If I can’t afford three, I cannot afford one. My mom would make me tell her the price of something was three times more expensive to make sure I was comfortable spending that amount. & never give into impulse buying. Think things through, if you really want it it’ll be there.
All fun aside, here are a few key qualities that distinguish the most helpful online financial advice from the not-so-helpful.
All of these criteria do not necessarily make a piece of advice useful, but you should look for at least one or two to be present before taking what you’re reading seriously.
Helpful financial advice should be:
1) Accessible
What good is financial advice if you can’t actually use it?
The most useful financial advice will be relevant to your situation and actionable. You also might ask yourself whether your financial goals match the advice on offer. If not, pay extra heed not to get sucked into an overblown get-rich-quick scheme, possibly in the form of unsolicited email newsletters alerting you to the “investing opportunity of a lifetime” in some “little-known industry” poised for “incredible gains.” If nothing else, at least such emails give us an opportunity to be thankful for spam filters.
On a positive note, there are a number of blogs that are excellent sources of accessible financial advice on topics ranging from paying off debt to building credit to first time home buying. Some examples include Money Under 30, Get Rich Slowly, and Debt Roundup, just to name a few, but you should search for the resources that best cover your particular financial needs. Just look for clear writing, up-to-date information, and a set of concrete steps that you can take to follow.
2) Authoritative
As with anything in life, it’s nice to know that advice is coming from someone who knows what they’re talking about. For instance, if you have the (ill-advised) aim to get your financial inspiration from Twitter, the odds are more in your favor if you follow the advice of Mark Cuban rather than @catluvr411invest. This doesn’t mean that celebrity investors like Cuban are always right or that anonymous Twitter users are always wrong, but it’s best not to put too much stock in the musings of strangers with little in the way of credibility.
On the topic of Twitter, there are actually some top-notch accounts run by finance experts like Meb Faber and Roger Ma that are accessible to everyone. However, Twitter is generally regarded as a good way to follow real-time financial news rather than a platform to receive actionable financial advice.
It’s important to know who’s giving you the advice.
If you like to know that the financial advice you receive is from someone who has actual qualifications on the subject, you can search the CFP or FINRA databases to check the credentials of the financial professional in question. There are also specialty websites such as Brightscope that can help you quickly and effectively find the financial planning advice you are looking for.
3) Well-Sourced
Good sources of financial advice will provide plenty of links to support any claims made, encouraging you to do your own independent research. This also signals increased credibility, although make sure you actually click the links to verify the information presented.
Creditability is especially welcome when dealing with crowdsourced platforms. For example, the personal finance subreddit mentioned above includes valuable resources and recommendations on commonly-searched topics such as budgeting and saving for retirement, even if the posters have little in the way of proven qualifications–the fact that hundreds, if not thousands of people have critiqued and reviewed the advice means its likely to be more reliable. Nonetheless, it still pays to be wary of any given forum post or comment, but there is no denying that there are occasionally some user-created gems like this personal income spending flowchart.
Conclusion
While the above tips are hardly exhaustive, sources that contain some combination of accessibility, authority and verifiability are much more likely to help you find high-quality financial advice that you are looking for.
Information on the internet can serve as a great compass or a ticking time-bomb depending on who is giving it. Clearly defining your goals in advance and bringing a measure of critical awareness to bear is key when searching for and choosing to follow online financial advice.
After all, there’s plenty of good financial advice out there on the web for those who know how to look.
In the end, the best advice is to build a foundation of personal knowledge so you can make well informed and independent decisions.
Some of y’all are getting big mad like I’m Suzy Orman & I’m supposed to be the finance Oracle. Bruh, I answered a question. Take a financial literacy class, diversify your money, & keep it gangsta pic.twitter.com/TFC0Qp1qa7
2018 was a time of significant growth for CNote. The total number of users on our platform grew substantially and we took on institutional investments from amazing partners like the Sierra Club Foundation.
This influx of capital meant we were able to deploy more assets to our network of non-profit lenders across America. Those CNote-investment dollars funded loans that helped individuals pursue their dreams of starting small businesses, helped build affordable housing, and helped to bring economic development to communities that need it most.
Our intention is to continue to deliver competitive financial returns while generating measurable and significant positive social impact. To that end, we’ve roughly doubled our impact metrics from 2017, across the board. While pleased with the 800 jobs created/maintained in 2017, we are thrilled that we nearly doubled that number to more than 1,400 in 2018.
Additionally, our growing network of partners that now covers 37 states, allowed us to deploy capital with even more intention in 2018. This meant that for every dollar you invested in CNote we were able to deliver significant targeted impact. To illustrate, historically around 4.4% of all small business funding goes to women-owned firms. 2 Meanwhile 43% of CNote’s investment dollars were deployed to women-led businesses, almost 10x the norm. It is radical shifts in capital access like this that will build a more inclusive and robust American economy–which is our overarching mission at CNote.
Finally, on the financial front, starting in January 2019, the rate of return on all CNote accounts will be increasing to 2.75%. This is in furtherance of our goal to prove that impactful investing can be profitable as well.
*Note that pro-forma numbers were updated to final impact numbers on March 6, 2019, after receiving finalized impact data from our CDFI partners. Previously, the above numbers were pro-forma calculations based on Q3 performance and the total capital deployed in Q4.
There’s a saying that goes, “If you bought it, a truck brought it.” That may only be true 73.7% of the time, but either way, there are a lot of truckers out there in the U.S. delivering the things that we use and rely on every day. Over a million, in fact.
Marley Transport & Trucking is one of those trucking companies. Yet, when we interviewed founder Shavon Marley, we found the incredible story behind this company is what makes it stand out from the crowd.
Shavon Marley, Owner & Founder of Marley Trucking
A family-operated business
True to its name, Marley is largely a family-operated business. Shavon Marley started the company. Later, her husband took the primary role as head of operations and dispatch. Her dad was the first driver they hired, bringing decades of experience and industry connections to the table. Her uncle, who had gotten involved in trucking through her dad, is their second driver; and their third and most recent, added due to a higher volume of work, is a friend of a friend.
Marley may be one trucking company out of millions, but it’s more than a business, it’s a family, both literally and figuratively. Needless to say, this small company, which continues to grow, is not only having a significant impact on Shavon’s family but her community as well.
Marley Trucking Team
For Shavon and her husband, it was a dream long in the making. Originally Shavon worked full time in sales, and her husband in cable and satellite installation, a demanding job that required him to work six days a week outdoors. “My husband and I were high school sweethearts also,” she told us. “…We always had this thing where one day we would figure out how to have our own business and set our own schedules, and be able to travel and be able to work from wherever we travel.”
That was the dream. But it was not until the onset of some difficult and unexpected circumstances that Shavon began to take action, turning her dream into a reality.
The above image is of a therapy session occurring in a hyperbaric oxygen chamber. In 2016 Shavon would find herself spending a lot of time in these tanks: she was diagnosed with breast cancer in April of that year.
Others may have balked in the face of such hardships, but Shavon made the most of it. Her treatment allowed her “a lot of time away from work, and also a lot of time to think,” she told us with a laugh. Therapy sessions would last 7 hours each and occur 2-3 times a week — all without the distraction of electronics. She used the time to ruminate at length about the business she and her husband had always wanted to start.
“I’m picking up on inspiration everywhere.” -Shavon Marley
But she didn’t only think. She found herself engaging in conversation with some other patients. “I’m in this tank with all old people — but a really good group of old people.” This included business owners, people experienced in the trucking industry, and even a woman who had started a welding business and could provide advice in thriving in a male-dominated industry. “I’m picking up on inspiration everywhere,” Shavon told us. “So I’m going into this tank with my pen and paper, and I’m getting my questions answered.”
For some specific concerns, however, the people she was close to didn’t have all the resources she needed. “I didn’t really have immediate people within my trust circle I could go to and say, ‘How do I do this? What do I need to know? Does the loan make sense?’…I just didn’t know what to do.” Meanwhile, there was an increasing source of pressure in her ever-growing absence away from work, and her husband’s own job whose hours were long and kept them apart at such a challenging time.
Marley Trucking, a story of teamwork
But her father, a seasoned trucker, always believed in her. “He’d always tell me, ‘You’re a big girl, you’re smart, you can figure it out, you can figure anything out…’ — Okay, well, if I figure it out,” Shavon recounted, “then I solve all these problems.” With some help, she did.
One big part of the equation was assistance from Carolina Small Business.
Figuring it out with Carolina Small Business
When Shavon first connected with Scott Wolford of Carolina Small Business Development Fund, the business she had in mind was a dump truck business. Eventually, this would evolve into the transport and trucking business of today. Needless to say, there was extensive thinking, collaboration, and planning along the way, but Scott’s guidance helped see her through.
Scott found a driven, hardworking client in Shavon. “I think he could tell I’d never written a business plan before,” Shavon recounted. “But I think he picked up on the fact that I’ll research any and everything until I figure it out.” He directed her energies by coaching her on writing the business plan, providing tools and resources, and bringing certain costs and considerations to her attention — “all the things that you really have to kind of put some time into forecasting when you’re starting a business.”
In April of 2018, all of the hard work came to fruition. Shavon received a loan which was able to support her new business and fund insurance for the trucks in her growing enterprise. On April 30, 2018, Marley Transport & Trucking pulled its first load. Since then Marley Trucking has continued to grow and establish itself as a reliable transportation option across North Carolina.
The fast-growing fleet
Conclusion
There were still challenges after launch, such as finding brokers, meeting a high volume of work, and navigating the logistics of intermodal hauling. But Shavon used her trademark grit and research abilities to pull through. Now Marley Trucking has three drivers and does intermodal hauling from the Port of Wilmington.
Recently, Shavon and her husband took a trip to Mexico. Her husband would check his laptop in the mornings, but the afternoons would be devoted to hitting the beach. Working from wherever and whenever they want — their dream had finally come true.
“I don’t think we could’ve done any of that…without the funding,” Shavon told us. “We certainly wouldn’t have been able to grow.”
Learn More
Marley Trucking is based out of Raleigh, NC. If have transport needs in North Carolina, they can be reached at 919-757-5425.
Carolina Small Business fosters economic development in underserved communities through access to capital, business services, and policy research. Since 2010, the non-profit community development financial institution has invested more than $50.7 million through 661 loans to small businesses across North Carolina helping to create or retain more than 2,267 jobs.
CNote has always been committed to delivering tangible social impact while providing competitive financial returns. In 2019, we’re increasing the return on all CNote accounts to 2.75% as we work to prove that investing in a better world can still be profitable.
Impact + Financial Returns
We’ll continue to deliver the same great impact along with assuring that the capital we provide our non-profit partners is affordably priced and will continue to support sustained economic development in communities across America. CNote’s ultimate mission is to help close the wealth gap in America by increasing access to capital for communities that were commonly cut off from traditional funding sources.
Maria Harrington, Owner of Casa de Español, a CNote small business success story
As CNote’s CEO Catherine Berman noted, “For a long time, doing something good with your money wasn’t always the smartest financial decision. We’re challenging that thinking. In 2019, we’re making it even more financially rewarding for our members to invest with their values. If you’ve got extra cash sitting in an account paying you next to nothing, an investment in CNote is a great way to make your money work for you in 2019.”
Next Steps
Existing members don’t have to do anything and will see the increased earnings reflected in their account dashboard for January.
New members can sign up today and enjoy the increased rates starting January as well.
Additionally, CNote members can increase the APY on their accounts up to 3.00% by referring friends and family. You can learn more about the bonus requirements when you log into your secure dashboard.
Note: This is a guest post was authored by Sahil Vakil, CEO of MYRA Wealth. MYRA Wealth provides personal finance services for international and multicultural families in the United States.
What is investment risk, what shape does it take and how does risk affect your personal financial planning? Investment risk is a complex topic, but every investor should have at least a basic grasp of investment risk in order to make wise investment decisions. In this article, we cover the basics around investment risk and explain how and why your approach to investment risk should adjust over time.
Defining investment risk
Investment risk is the likelihood of a financial loss that is caused by an investment. FINRA (The Financial Industry Regulatory Authority) defines investment risk as uncertainty with respect to your investments. It is the probability that upon selling an investment you will receive less than you originally invested, or that the investment return on an asset fails to meet your expectations.
Low risk means a relatively predictable outcome, high risk means that there is a lot of uncertainty about your investment outcome. It is important to understand that investment return and investment risk is directly related.
How much risk you are willing to take is subjective, but you should make an informed decision
Investments with higher returns are also often investments carrying higher risk. The market rewards investors willing to accept a higher probability of loss in return for the opportunity to see a high return. However, some investment risk can be mitigated. By mitigating investment risk you can ensure your portfolio is located on the ‘efficient frontier’. In layman’s terms this means that you get the highest returns for a given level of risk, or are exposed to the minimum of risk for a desired level of investment return.
Types of investment risk
Investment risk can be classified under an almost countless number of categories, but when investing your own money it is worth looking at investment risk from two perspectives.
Systematic (or Non-Diversifiable) risk
Some risks are very difficult to avoid because they are intrinsic to the financial system, or indeed to a specific asset class. It may be difficult to avoid systematic risk, but you can reduce your risk exposure by changing the asset class, or by adjusting your financial planning. Some examples of systematic risk include:
Inflation risk
Locking in a high savings account rate may look attractive, but it can cost you if inflation rises. Though the outlook for inflation is generally stable, investors should consider the risk of rising inflation as inflation can rapidly reduce the value of your money.
Market risk
Entire markets can swing, leaving every asset in an asset class such as stocks nursing heavy losses. The strong downturn in the stock market after the 2008 financial crisis is one example of market risk.
Exchange rate risk
In some countries, exchange rates can rapidly change, devaluing investments held in that currency. The opposite can also happen: if you plan on moving back to your home country from the US you may find your dollar-denominated assets can suddenly lose relative value if your home country’s currency stages a recovery.
Systematic risks cannot be fully avoided but a degree of planning can compensate for systematic risks. Systematic risks are also worth staying ahead of so that you avoid underestimating your overall investment risk.
Unsystematic (or Diversifiable) risk
Some types of investment risk affect individual assets such as specific stocks rather than entire markets. Also known as unsystematic risk, these diversifiable risks can be mitigated by spreading your investments across multiple assets. Diversifiable risk includes:
Regulatory and business risk
Governments can put large companies out of business rapidly, or at least reduce their ability to produce profits. Just think about environmental regulation, for example. Likewise with regards to competition, consumer preferences and technological advances all of which can quickly reduce the prospects of a corporation.
Debt risk
Corporations use debt to finance their activities, and for the most part, this causes no problems. However corporate debt can suddenly spiral out of control, leading to difficulties repaying debt and a contraction in profits or in the worse cases, default, and collapse of the corporation.
Event risk
Unexpected events can impact the ability of a company to maintain growth and profits. Examples include natural disasters, a customer service fiasco or large hacking attacks that lead to financial loss or data loss and the associated bad publicity.
Diversifiable risks are highly unpredictable, but by holding a range of assets (such as a basket of stocks in an ETF) you can reduce the impact of any one stock that suffers large losses. It is worth diversifying not only across companies but also across industries and asset classes.
Adjusting your risk exposure
One of the laws of investing is that returns even out over time. This is known as ‘mean reversion’ – your investment returns will tend to match average returns in the long run. What you lose during one period you will probably later gain over another period – if you invest wisely, of course. In time frames stretching decades chances are you will have the opportunity to make up for losses, so you can take risks.
You must understand and control the risk you take, otherwise you’re just gambling
Deciding how much risk you take on when investing your personal finances depends in part on when you’ll need access to your money. If you have no looming large expenses such as a mortgage deposit, children’s college fees or indeed retirement you can take bigger risks with your investment funds.
On the flipside, if you will need your funds in the near or medium term you need to lower your risk exposure as you may not have enough time to make up any losses suffered by your investment portfolio.
Investing with your life goals in mind is called ‘goal-based investing’, in other words you focus on attaining specific financial goals such as saving for your children’s school fees, rather than investment goals such as maximizing returns or beating market performance.
Other risks relevant to personal investment
Adjusting a personal investment portfolio to adequately take account of all risk factors is difficult, compounded by the risk factors faced by individuals. For one, your investment horizon can be abruptly shortened due to an unforeseen event, such as a loss of employment or a medical condition. This so-called ‘horizon risk’ matters because it can force you to endure big losses on investments you were not expecting to sell.
Personal investors also face another, often ignored risk: that of ‘longevity risk’. What happens if you outlive your savings? Or indeed, if you pass away before you can fully utilize your savings, in the absence of an heir?
Getting advice on personal investment risk
It should be clear by now that the risks faced by personal investors are varied and complex. On top of that, you need to adjust your response to investment risk over time. Juggling this intricate set of rules and facts can be a challenge and expats (including international families) have additional factors that they need to take into account.
Qualified, experienced personal financial advisors should help you navigate the risky waters. Typically financial advisors will try to understand your risk profile by asking you a set of questions or having you complete a survey in order to craft a portfolio that meets your needs and goals, on a risk-adjusted basis. This objective process determines your personal tolerance to risk, mapping out an investment strategy including the assets that match your risk preference. For example, Myra Wealth utilizes Prospect Theory, a Nobel Prize-winning model of behavioral economics, to conduct an individualized risk analysis for each of their clients to set transparent goals and expectations for their investments.
As much as you should consider professional advice for investment, a basic awareness of how investment risk works can help you gauge the quality of the advice you are receiving.
If you’ve tuned into financial news at all lately, no doubt you’ve heard that the United States Federal Reserve has continued to slowly but steadily “hike” the interest rate. In September 2018, the third of four planned increases on the year resulted in an effective interest rate in the range of 2.00%-2.25%, the highest since immediately prior to the financial crisis of 2008.
But what does the Federal Reserve actually do and how does it control interest rates? And, most importantly, what do higher interest rates mean for you?
The Federal Reserve
The United States Federal Reserve System, colloquially referred to as “the Fed,” is the central banking system of the United States. It is a quasi-private entity that operates within the federal government and is comprised of twelve regional Federal Reserve Banks, a board of governors, the Federal Open Market Committee (FOMC), and thousands of member banks on the state level.
Official Seal of The Federal Reserve
The Fed’s key roles are defined in its so-called dual mandate, which stresses the promotion of full employment and price stabilization as the major objectives of the Fed’s monetary policy. The responsibilities of the Fed have grown in the century-plus since its 1913 inception to include the regulation of banking institutions and facilitating foreign exchange of payments. To that end, the Fed engages in oversight and control over the entire financial system in an attempt to pursue its policy objectives.
The manipulation of interest rates is a principal tool by which the Fed attempts to control macroeconomic indicators such as unemployment and inflation. Fed actions in monetary policy have significant and far-reaching impacts, affecting everything from the cost of paying off credit card debt to the prices of goods on store shelves. Therefore, it is important to understand why and how the Fed controls the interest rate as well as the ultimate effects of their policies.
The Importance of Interest Rates
The interest rate represents the time value of money. Since humans tend to value present goods higher than future goods, lenders must be paid back more in the future in order to part with money today. The additional sum of money that the borrower later pays back to the lender is some fraction of the principle of the loan, which in percentage terms is the interest rate.
Jerome Powell, Chair of the Federal Reserve
Here’s a simple mathematical example to drive the point home. Imagine you borrow $1,000 from a bank today with the promise to pay the sum back one year later at a 10% annual interest rate. In one year, you will not only return the $1,000 you initially borrowed, but an additional $100 to compensate the bank for the value of time between receiving the cash and paying it back. While you receive $1,000, you pay back $1,100 at the end of the loan period to compensate the bank for the time value of the money you borrowed for the duration of one year.
Interest rates are thus an essential indicator of the total savings in the economy. Absent intervention from a central bank, less savings means more demand for whatever credit is available, which pushes the interest rate higher. On the other hand, more savings means that credit is more plentiful, resulting in a lower interest rate.
In that way, interests rates are the key signal for business owners and entrepreneurs to determine if pursuing a given economic project is feasible given the cost of borrowing. If credit is expensive at higher interest rates, those pursuing stable, shorter-term projects are more likely to afford the high cost of credit than those with riskier long-term projects in mind. In the event that interest rates are low from a genuinely high pool of real savings, entrepreneurs who otherwise could not have been able to afford the cost of borrowing might now be able to acquire the capital required to kick off their projects.
The Fed and Interest Rates
So why does the Fed bother with the interest rate in the first place? The answer lies in the aforementioned dual mandate. The Fed believes that it can use the interest rate as a lever to pursue its policy objectives of both low unemployment and low inflation.
In simple terms, the Fed’s basic operating theory states that the interest rate should be lowered in times of economic distress to encourage the availability of cheap credit and thereby increase aggregate borrowing and investment. Conversely, when there are fears of an “overheating” economy, the interest rate should be raised to act as a speed-bump in containing a potential outbreak of inflation above the Fed’s target of around two percent.
To hear in the news that the Fed is raising interest rates may evoke the idea that the FOMC simply declares a new rate to be in effect. This is partly true, but there is an actual mechanism by which the Fed exerts pressure on interest rates beyond simply declaring what they would like to see.
How the Fed Controls Interest Rates
The federal funds rate (FFR) is the overnight interbank lending rank. Every night, each bank and depository institution must meet the reserve requirement ratio set forth by the Fed. Banks with reserve ratios in excess of the current requirement will lend at the FFR to banks who are short in cash balances.
This is where things become quite technical, but don’t worry if you find it difficult to follow the exact mechanism. The most important thing to understand is that the Fed does manage to control the interest rate as they intend and that these manipulations have very real consequences on main street, which will be discussed in the next section.
First of all, the Fed will set a federal funds target rate, such as the 2.00-2.25% range of September 2018. This is the number that is commonly reported in the media but is not the precise interest rate at any given time. In order to actualize the target rate, the Fed will engage in reverse repurchase agreements with money-market mutual funds, selling treasuries with the promise to buy them back on the next day at a certain rate. That repo rate is the lower bound (2.00%) of the federal funds effective rate. The Fed will then set a higher rate on the interest they pay on excess bank reserves, which serves as the upper bound (2.25%) of the federal funds rate range. The federal funds effective rate is the resulting interest rate that borrowing banks pay to lending banks to maintain adequate reserves.
If the effective rate at which banks lend overnight reserves to each other diverges from the federal funds target range, the Fed will then use open-market operations to change the supply of money in the economy and subsequently bring the interest rate in line with their target rates. It is called expansionary monetary policy when the Fed makes large-scale purchases of treasuries, thereby increasing the supply of money in the economy and pushing down interest rates. Conversely, contractionary monetary policy occurs when the Fed sells treasuries back into the market and sucks dollars out of the economy, raising interest rates as money supply decreases.
The Fed is likely to employ expansionary monetary policy when there is an economic downturn and unemployment is rising. Since lower interest rates mean a lower cost of borrowing, it follows that more borrowing and subsequent economic activity will occur than would have otherwise. In the event of a booming economy with low unemployment but fears of increasing price inflation, the Fed will enact contractionary monetary policy to restrict economic activity and “cool down” the economy, so to speak.
Consequences of Rising Interest Rates
As previously mentioned, rising interest rates usually lead to a contraction in economic activity. Since it becomes more expensive to borrow money, fewer projects will be economically feasible and macroeconomic metrics such as employment and GDP will tend to be lower as a result. The stock market also takes a hit, as the higher costs of both taking on and paying down debt works against corporations. At the same time, consumers are likely to save more than before in response to higher money-market savings rates and consequently spend less on goods and services. Finally, the increase in Treasury rates attracts investors to low-risk government bonds and leaves corporate bonds comparatively in the cold.
A higher federal funds rate also impacts the micro-economy in a very real way. Following an increase in the prime rate, the interest rate that banks extend to their most credit-worthy customers will also increase. Many variable-rate loans signed under a low-interest rate environment may become untenable as rates rise and the cost of carrying the debt exceeds the capacity for the borrower to cover the interest payment. Such credit defaults significantly decrease the value of any collateral behind the now-defunct loans as well, which can be economically crippling if major sectors, such as housing, suffer in a systematic fashion.
There is yet another very serious impact resulting from a change in interest rates, although there is little any single person can do about it. Given that the substantial national debt already assumed by the US government is increasing by the second, an increase in interest rates also increases the cost of the interest payments required to pay down the outstanding debt. As the burden of maintaining the national debt increases, fewer Federal funds are available for such outlays as infrastructure or education, which can have a very real impact at the local level.
The Effects of Rising Interest Rates on You
As already mentioned, the Fed’s manipulation of interest rates affects the economy in such a pervasive way that is virtually impossible to avoid experiencing some of the repercussions. For instance, by changing the price of borrowing, the different incentives for individuals to either save or consume leads to changes in demand and, consequently, the prices of consumer goods. These higher prices can appear anywhere from the gas pump to the grocery store, although financial assets like stocks seem to be most strongly correlated with Fed activities.
Since most credit cards charge a variable interest rate, any change in the federal funds rate also ends up affecting the cost of borrowing on a credit card. For that reason, it is usually advisable to lock in the terms of any credit repayment before an expected increase in interest rates. Otherwise, you might find yourself facing a higher interest rate when paying down any accrued debts.
Rising rates can have a significant impact on home affordability and mortgage rates
In fact, anything that has a variable interest rate attached, such as many automobile loans or lines of credit, are likely to be affected by Fed policy. Conversely, fixed-rate loans like home mortgages will remain unaffected by changes in the interest rate, although homeowners looking to purchase a new mortgage will certainly be affected, for better or worse.
Conclusion
While the process by which the Federal Reserve manipulates interest rates is complicated and somewhat esoteric, the effects are significant and felt by everyone. If you hold any variable rate debt, changes in the interest rate brought about by the Fed might make all the difference between comfortably paying it off over time or squeezing every penny to keep up with the interest payments. While the boon to savers is nice, those who have made a habit of borrowing extensively in a low-interest rate environment will be in for a shock as projects that initially looked appealing no longer seem economically feasible and must be abandoned.
One more rate hike on the year is expected to come out of the December 18-19 FOMC meeting, but only time will tell if the Fed will follow through with it in the face of the recent turmoil in the stock market. We can be sure, however, that whatever decision they come to will have very real consequences for millions of Americans.
Our network of CDFI partners continues to grow along with our capital allocation thanks to investments from members like you.
Members like you helped create/maintain 675 jobs!
You’ll be happy to know that your money went directly to underserved communities with over 83% of all invested capital going to minority-led businesses!
We are extremely proud of our Q3 results and look forward to delivering even more impact in Q4 and beyond.
The Camp Fire is the deadliest and most destructive wildfire in California’s history. The fires have charred an area the size of Chicago, razing over 14,000 residences, taking 85 victims, with hundreds more still missing. (source)
Given that CNote is an Oakland-based company, we wanted to support our neighbors to the north, that have been through so much, for #GivingTuesday Read More
From Coin-Op to Hundreds of Employees – The Story of Julia and Keith Pooler
Often, we profile small businesses that may be solo operations or just have a handful of employees–yet the entrepreneurs that run those companies will always have a grand vision for just how big they can grow their companies. For many their benchmark may be focused on the number of customers they serve or the number of employees they have–but you can always be sure that the vision is ambitious. Read More
The markets have been quite volatile over the last few weeks. Navigating wild price swings and the emotions that come with them can be a challenge, we wanted to share this brief note from the CNote CEO on what this volatility means for your investment in CNote. Read More
It has been 30 years since Congress passed the Women’s Business Ownership Act which increased capital access for female entrepreneurs and ended discriminatory practices like requiring a man co-sign a woman’s business loan. Read More
The goal of investing is always to end up with more money than you started with. But what if a positive return on investment does not actually increase your overall wealth? Read More
Everyone knows that small businesses play a critical role in our economy. What some may not understand is how big of a role women play in small business growth. Read More
Compared to feature films, short films don’t get nearly as much attention. At 40 minutes or less — the technical definition of a short film — they can still tell a beautiful story, move you emotionally, and leave a lasting impression. Read More
Catherine Berman, CNote CEO stopped by the “basement” to have a chat with Joe, the beloved host of the wildly popular Stacking Benjamins podcast.
If you’re looking to learn more about CNote and how it works, then this interview is worth a listen. We highly recommend you check out the entire episode, but if you just want to get to the CNote part, skip to 23:30.Read More
This Sunday, August 26th is Women’s Equality Day. It’s a celebration of the adoption of the Nineteenth Amendment in 1920 which gave women the right to vote. Read More
Throughout my career in financial services, I was frequently the only woman in the room. I know all too well how it feels to be talked over, ignored, or simply excluded. I also know how different it can be – I feel lucky to have allies and mentors who made it clear that the bad experience is “on them” and definitely not because something is wrong with me.Read More
While the topic often invokes images of offshore tax havens and the management of large family estates, it is an outdated misconception that only those with a significant stockpile of cash can get access to top-tier financial advice. Read More
SHARED SF is founded on the apparent contradiction that 1 + 1 = 3. But as you’ll see, the math adds up.
Doing more together
What doesn’t fly in mathematics, can be irrefutable in the currency of community: When people work together, they can accomplish more than the sum of their parts.
And synergy is what SHARED SF is all about. “SHARED is a shared workspace for creative people. So that’s anyone who builds, designs or invents something,” explained founder Marilyn Yu. “It is based in the belief that together we can create greater things than we could individually or in isolation,” she states.
A space for entrepreneurs and creators
Indeed, if you take a walk around the premises, you can see how the physical layout of the place reflects that vision. From office spaces to fabrication spaces, communal tools and equipment, and lockers, SHARED provides just the right amenities to design anything from a motorcycle jacket to a website for an emerging startup.
There are larger spaces that allow people to “make a mess,” and small, quiet spaces “for work that requires a lot of thought and/or concentration.” There are also hangout spaces for members to discuss innovative ideas or just get to know one another.
Though the rooms vary in functionality, the place is decorated throughout in sleek, modern style, with black and white photos, dark wooden floors, and matted glass panel rooms. It reflects the values of creativity, innovation, and collaboration that are prevalent throughout this community space.
Nurturing Collaboration and Creativity
SHARED’s members — and there are 60 to 80 of them at any given time — are as diverse as the space that was created to support their aspirations. “We have a pretty broad range of people here,” Marilyn told us. From fine artists to genome sequencing companies and AI companies, to Marilyn herself, who designs women’s motorcycle jackets, there is no shortage of diversity in terms of craft. The common ground is that everyone is a small business, and everyone is passionate about what they do. It’s this kind of fire that is contagious amongst the members and fuels their work.
The common ground is that everyone is a small business, and everyone is passionate about what they do.
“I like being around people who are really passionate about what they’re doing,” Marilyn told us earnestly. “There aren’t people here who just come here because it’s their job. Everyone’s working on something that they feel very strongly about, and that’s really nice, to be around that kind of energy. ”
History of SHARED
“I think it’s pretty common for people to share a space with two or three other people — I mean people do that in their living situations as well,” Marilyn said when we asked how she got the idea of SHARED. Indeed, sharing space is normal and even necessary, as anyone who lives or works in an expensive city like SF will tell you.
Marilyn, working at SHARED
But when Marilyn conceived of the idea of SHARED, she was thinking about more than just saving money. Recognizing the invaluable synergy that comes from working with other creative people, she wanted to establish and maintain a reliable and affordable space for that.
Getting Support For Her Vision Wasn’t Easy
It was difficult in the beginning, though. To create the special space she envisioned, she had to have a building she could call her own. And to buy the building, Marilyn had to apply for a large loan. The application involved securing multiple positions on the loan, both from a local bank and CNote-partner, and mission-based lender, CDC Small Business Finance. “We went through a lot of hurdles for that,” Marilyn confided. “Shared workspaces, they’ve been around for a decade or two…but more risk-averse businesses like banks, like the federal government — they’re not really in on the latest business structures.” It took a lot of convincing to get the bank and SBA to believe in SHARED enough to invest in it.
“That’s where the CDC [CNote-partner CDC Small Business Finance] came in, because they were packaging the loan for the SBA,” Marilyn explained. With the help of CDC’s research alongside her own, Marilyn was able to help The SBA see the relevance of shared workspaces and to secure funding. In 2010, she purchased 739 Bryant Street; and after renovating the place for 90 days, she turned her vision into a reality.
More of a Community Than a Business
Now it’s fair to say that in the past 7 years, a unique little community has emerged out of SHARED. Unlike other shared workspaces, it has become something more than a workplace to its members. “It’s kind of like an extension of their home. They’ll leave their computer and their phones out, and they’ll go grab a bite to eat. It’s very familiar….I think maintaining a safe space for people to feel comfortable is very important,” said Marilyn when we asked her what she did to make her clients happy.
Another thing she does is hand select her members, looking for people who are both “professional, meaning that they’re serious about whatever business idea they have,” and a good fit for the existing members. Her carefulness has ensured that SHARED remains a place of synergy both professionally and personally, and it has really paid off for her and her members. “I love just seeing people meeting other people…Often, members will then collaborate and work on projects together. Or they become friends…” One member even officiated another’s wedding.
SHARED’s members are so close, that forced events like happy hours aren’t even needed. “I think people didn’t think they were very necessary…which is kind of a good thing” Marilyn mused. “They feel comfortable talking to someone outside of a structured mingling time.” Why bond in a bar when mutual passion, hard work, and a general openness and friendliness has already bonded you in the workplace?
Conclusion: 1 + 1 = 3
Just as this proposition describes what’s going on within SHARED, it describes what’s going on in the world of impact investing. Everyone has something to bring to the table. However small, it can make ripples of impact for others. Marilyn conceived an idea to create a space that will help small businesses get on their feet and thrive and the impact has been tangible and positive. CNote’s partner CDC, by offering their time, research, and innovative thinking did their share. And every small business that has gone through SHARED will, in turn, make their own impact.
You can make our own impact and help write more stories like SHARED’s by investing in CNote. Learn More.
People often think they can compartmentalize various parts of their life. We may think that the way we eat doesn’t impact the way we feel, or that our financial situation won’t have an impact on our health or relationships. While for some it’s possible to keep everything separate, oftentimes challenges in one area of our lives can bleed over into other areas as well. Read More
On Friday, May 11th CNote sponsored a discussion at Stanford about impact investing, the evolution of finance, and how students could get involved both personally and professionally. Read More
CNote commissioned a survey to understand how people plan to use their tax returns this year. We also asked those same people whether they thought the recent tax law changes would benefit them. Read More
We don’t think of schools as small businesses in the traditional sense. But consider the private school. Like any small business, it is often forged from one person’s vision, supported by the time and intention of dedicated educators, and sustained by capital from both investors and students. Read More
October 2019 Update: Mr. Long is no longer with Carolina Small Business Development Fund (CSBDF). He was recently recognized for his financial inclusion work by The African-American Alliance CDFI CEOs.
Today we’re excited to share our interview of Lenwood V. Long Sr. He is the former CEO and President of Carolina Small Business Development Fund (CSBDF), a Community Development Financial Institution (CDFI) and statewide nonprofit organization based in North Carolina. The mission of Carolina Small Business is to foster economic development in underserved communities by providing capital, business services, and policy research to support small businesses.
Lenwood was gracious enough to share his vision for community finance and some of the challenges he sees that still must be addressed. Lenwood is an industry Change Maker who has dedicated his career to community finance and increasing financial inclusion. This interview is will give you insight into what truly motivates all the people like Lenwood, who work at CDFIs across the country and are building a more inclusive and fair economy one community investment at a time.
Well, I grew up in rural North Carolina, a little place called Bayboro, North Carolina. Proud to be a product of that rural America, and I grew up in time of segregation. I grew up at a time where I never thought a guy from Bayboro, North Carolina, would not only be a CEO of a community development financial institution. But really never imagined that I’d be in a position to help people fulfill their dreams, realize their aspirations, and be an advocate for change. And this whole movement towards decreasing the wealth gap that we see in this nation among people of color. And I’m excited to be on this mission.
In his role as President/CEO of CSBDF, Lenwood has led the organization through a period of transformational growth. In 2009, under his leadership, the organization went through a strategic shift and rebranding, establishing its direct small business lending program. Within five years, loan volume totaled over $30 million.
Lenwood has more than twenty-five years of experience in community economic development, human resources, and business management. He has held leadership positions in a variety of organizations, including statewide economic and community development agencies, national consulting firms, and nonprofit organizations.
Lenwood’s professional accomplishments are rivaled by his personal achievements, having served in the United States Army (Viet-Nam Combat Infantry Paratrooper) and received an Honorable Discharge as Sergeant (E-5). Lenwood has also has served as a bi-vocational Senior Pastor of New Bethel Baptist Church in Rolesville, North Carolina since 1996. In 2016, Lenwood was awarded The Order of the Long Leaf Pine. This is among the most prestigious honors awarded to North Carolinians who have made a significant impact through their exemplary service to the state and to their communities.
CNote and CSBDF recently announced a partnership where CNote will serve as a capital source for CSBDF’ as they continue to provide loans to underserved small businesses across North Carolina. The entire CNote team is extremely excited to partner with Lenwood and the Carolina Small Business Development Fund team. Now, on to the interview.
If you’d like to listen to the full audio of the interview, click play below. Additionally, you can skim the interview highlights below or the read entire transcript below the highlights.
Interview Highlights
About Carolina Small Business Development Fund:
Carolina Small Business Development Fund is a small business lender. Our mission statement is to provide capital business services and policy and research to support small businesses. So the focus is really upon small businesses throughout the state of North Carolina, although we do provide some lending in South Carolina. So the main focus, small business, augmented by business services with policy and research as a focal point to become a current leader as relates to small businesses, especially in North Carolina.
And the communities that CSBDF serves:
A way to look at it is we are a very diverse lender. If you look at our lending across the state of North Carolina, you’ll find that roughly 57% minorities, or people of color. I’m very pleased that over 38% of our lending is to women entrepreneurs, gratified that 18.5% of our lending goes to veterans across this state, as well as about 41% to startups. And let me sort of say that the reason startups are so high is that we are an SBA approved community advantaged lender, which is a pilot program developed by SBA to allow CDFIs to participate in the R7A program. But they renamed it because of the focus to underserved community advantage. And then about 34% are to low income. So as you can see, the lending is very diverse and has reached that underserved market that typically banks, while strong supporters, do not serve because of [1] the risk level of some of our borrowers, [2] credit issues, and [3] size of loans. Those tend to not be accessible for underserved communities and people of color.
On defining what CDFIs do, they “focus on providing capital or housing support services to underserved communities, and primarily those communities that have a high percentage of poverty, especially persistent poverty. And so the mandate coming from the CDFI fund itself is really serving the truly underserved across this nation. And we’re proud to be a part of our mission and vision, and the vision bringing greater economic opportunity for our people.”
How Carolina Small Business works to measure the impact of its community lending activities:
We do an impact assessment analysis of our lending through our borrower survey. We even partnered with the Center for Budget and Tax here in the State of North Carolina, in the City of Raleigh, and developed a sort of matrix, a form of looking at indirect impact. We’d say that when you look at multiplying impact, it’s says that for every loan we make there’s an indirect impact in that community. And I think that’s somewhat abstract, but when you begin to look at it from a simpler model that we developed, it’s simply this; as we make loans, those borrowers hire people, so we add to the employment of those communities. Two, that the borrowers, they pay taxes so you’re adding to the revenue base of those communities. And third, those borrowers are people who buy services and goods, which helps the economic ecosystem of that community, and so as we make loans not only are we helping the borrower to move forward, we are actually helping to build the economy of local communities.
On how being so close to the community helps Carolina Small Business better evaluate risk:
I think that’s very important. You’ve raised an important point because one of the things we like to do is get to know our borrowers and our borrowers get to know us. And so it’s not that we can scale and trying to scale the loans approved or the number of borrowers. But our mission is to see those borrowers succeed. And so we want to work with them, exactly where they are and that rating would tell us based upon a number of metrics that we’ve developed to do that. How much and what level of technical system that borrowers need? Because, let’s face it, when you serve in underserved markets, sometimes they may have great business plans, they make cash flow but there may be some management issues they have to deal with. Because you can be good at your industry but perhaps not good at managing, perhaps not good at fiscal management. And so in order to see you succeed, we can assess that. And from that assessment we’ll say that, “Okay, this borrower needs some assistance.” and market that. “This borrow needs some assistance with financial management.” I may be management. And so we can tell a program for that borrower. And I do think larger financial institutions and banks have a sense but they don’t have the time. Their business model is to provide that technical assistance to those borrowers in that category. Banks give you a loan, you’re on your own.
Talking about addressing the core issues of why African-American business owners are underfunded:
For example, one of the things that I looked at, was that I was lending, I saw the denial rate for African-Americans being higher than the other groups we were serving. And I asked the question, “Why is denial so high?” We found out there were four reasons. One was credit, the second was equity, lack of equity, the third was collateral. Equity and collateral sort of go together because it speaks to… And as broad as this societal gap in wealth, if you don’t have any wealth, if you don’t have any capital, you can’t afford to invest any property, invest in loans. The other thing was the business management. So we designed a program to meet those four areas.
On some special initiatives Carolina Small Business is working on related to veterans and historically black colleges:
One is this whole initiative around small business for veterans. We have a special program, and we’re piloting with two other CDFIs, people out of Texas and Main Street Launch out of California, design a national program for veterans around best practices. How do you effectively lend to veterans, and what metrics are you using to measure impact and success, so we’re proud of that. And we also talked to Bank of America about a program that’s in the design stage. The other piece is that I’ve had this strong interest in women entrepreneurship, and so not only do we operate a women business center, but we have a partnership with historically black college and universities to try to use university resources to extend outside of the walls, into local community trying to build a capacity, and we develop a women entrepreneurship center with a predominately black university and the state African-American university and the state.
The Full Text of CNote’s Interview with Lenwood
00:02 CNOTE: Lenwood, I want to thank you for taking the time to talk with us today. We’re extremely excited to have Carolina Small Business as a CNote partner.
00:13 Lenwood: Oh, delighted.
00:15 CNOTE: Excellent. And I was hoping for people that may not understand or know much about Carolina Small Business, can you tell us about it and its core mission?
00:26 Lenwood: Sure. Carolina Small Business Development Fund is a small business lender. Our mission statement is to provide capital business services and policy and research to support small businesses. So the focus is really upon small businesses throughout the state of North Carolina, although we do provide some lending in South Carolina. So the main focus, small business, augmented by business services with policy and research as a focal point to become a current leader as relates to small businesses, especially in North Carolina.
01:19 CNOTE: How long has Carolina Small Business Development Fund been around?
01:26 Lenwood: Great question. Actually, Carolina Small Business Development Fund started in 18… I mean, [chuckle] 18. 1989, as the North Carolina Minority Support Center, with a focus for providing capital, tactical assistance to a community development credit union. And then we rebranded in 2008 as the Support Center, with a primary mission towards small business lending. Later rebranded in 2016 to Carolina Small Business Development Fund. And the reason for the second rebranding was that we felt the Support Center… People were getting it confused. They thought we were a support agency, and so we think the alignment with the new name, logo… Nothing changed in the mission, on the vision. Just an alignment with the name with the mission.
02:39 CNOTE: Can you tell us a little bit about the communities you serve, and kind of your focus or goals?
02:50 Lenwood: Sure. Sure. A way to look at it is we are a very diverse lender. If you look at our lending across the state of North Carolina, you’ll find that roughly 57% minorities, or people of color. I’m very pleased that over 38% of our lending is to women entrepreneurs, gratified that 18.5% of our lending goes to veterans across this state, as well as about 41% to startups. And let me sort of say that the reason startups are so high is that we are an SBA approved community advantaged lender, which is a pilot program developed by SBA to allow CDFIs to participate in the R7A program. But they renamed it because of the focus to underserved community advantage. And then about 34% are to low income. So as you can see, the lending is very diverse and has reached that underserved market that typically banks, while strong supporters, do not serve because of [1] the risk level of some of our borrowers, [2] credit issues, and [3] size of loans. Those tend to not be accessible for underserved communities and people of color.
04:46 CNOTE: You said a magic word in that response, which was CDFI. And you know, I think a lot of people hear that acronym…
04:58 Lenwood: Right.
05:00 CNOTE: And they don’t really know what it means.
05:00 Lenwood: I know, I know.
05:01 CNOTE: And since you’re an expert, can you give us your one or two sentence explanation of what a CDFI is?
05:07 Lenwood: Yes. Yeah, yeah. Well, you know, one of the things that many people… And I think across the nation, they hear this word CDFI and they wonder, “Well, what is that?” Well, actually an acronym, Community Development Financial Institution, that is certified rather by the Department of Treasury to focus upon providing capital or housing support services to underserved communities, and primarily those communities that have high percentage of poverty, especially persistent poverty. And so the mandate coming from the CDFI fund itself is really serving the truly underserved across this nation. And we’re proud to be a part of our mission and vision, and the vision being greater economic opportunity for our people, it sort of captures the served and the underserved.
06:18 CNOTE: Excellent, yeah.
06:20 Lenwood: Sure.
06:21 CNOTE: So, you talked a little bit about the community you serve, and I was just wondering, when you make these loans do you see kind of secondary effects on the community? And how does that play out?
06:43 Lenwood: Yes. We do a sort of impact assessment analysis of our lending through our borrower survey. We even partnered with the Center for Budget and Tax here in the State of North Carolina, in the City of Raleigh, and developed a sort of matrix, a form of looking at indirect impact. We’d say that when you look at multiplying impact, it’s says that for every loan we make there’s a indirect impact in that community. And I think that’s somewhat abstract, but when you begin to look at it from a simpler model that we developed, it’s simply this; as we make loans, those borrowers hire people, so we add to the employment of those communities. Two, that the borrowers, they pay taxes so you’re adding to the revenue base of those communities. And third, those borrowers are people who buy services and goods, which helps the economic ecosystem of that community, and so as we make loans not only are we helping the borrower to move forward, we are actually helping to build the economy of local communities. Because in the aggregate across this nation, over 85% are small businesses, so what drives this economy and we cannot forget are really small businesses across this nation. And I think sometimes we forget that, and when you talk about small businesses nationally they always talk about regulatory reform being the answer, but no, it’s access to capital that’s being the number one issue. And two, when you look at, when you make a loan it’s more than just a loan to a borrower. Think about all those impacts that I referenced in terms of tax, in terms of savings, in terms of spending, and it all leads to what we say a healthy and resilient community. And so that’s the way we sort of spin it.
09:06 CNOTE: Gotcha. No, excellent points you make there. So one thing I was wondering is, the common conception a lot of people have is, when a small business gets a loan from a bank or something, they get a check and then they get a pat on the back and they say “Good luck” and that’s about it. [chuckle] But my understanding is that a lot of these community lenders like Carolina Small Business Development Fund, they also do other things to assure that the small business or entrepreneur succeeds. Can you talk a little bit about how you work with the people that you serve?
09:44 Lenwood: Sure, sure. One of the things that… We have this premises, that we make a loan, we want to see that borrower’s success story. As a part of that we develop a, sort of a risk rating of every loan we make, and with that risk rating we will establish whether or not this is a borrower that we need to be supportive through our business services, technical assistance support, and so with that we are able to sort of follow our borrower from the time that borrower receives a loan, and to check on that borrower to make sure that they are meeting not only their target goals, but also they’re not experiencing any problem with markets and cash flow, because at the end, we certainly want to see the borrower pay us back, but more importantly we want to see that borrower succeed. Because when you think about it, when that borrower succeeds, look at the economic benefit it plays to that local community. And so it’s more than just giving a borrower a loan, it is really being that partner and trusted business guide with that borrower.
11:08 CNOTE: Excellent. So kind of a shared success model where if they do well and then…
11:13 Lenwood: Yeah, right, right, right. So the borrower does well and you look at the model providing capital to small businesses throughout the state, as those borrowers succeed and pays back, that money is recycled for lending to other borrowers. And so it’s a revolving loan fund, and when revolving say that it turns around, and that’s important for us because we want to see you not only succeed, but help other borrowers in paying back the loan that you received from us.
11:56 CNOTE: Excellent. So you used a word that stood out to me. You used the word risk in your answer before, and I wanted to ask you a little bit about riskiness of loans. And do you think that as someone, as a community lender, as someone who’s really close to the community and the people you serve, does that give you an advantage over big banks as far as understanding the riskiness of your borrowers and the loans that you may issue.
12:26 Lenwood: I do. I think that’s very important. You’ve raised an important point because one of the things we like to do is get to know our borrowers and our borrowers get to know us. And so it’s not that we can scale and trying to scale the loans approved or the number of borrowers. But our mission is to see those borrowers succeed. And so we wanna work with them, exactly where they are and that rating would tell us based upon a number of metrics that we’ve developed to do that. How much and what level of technical system that borrowers need? Because, let’s face it, when you serve in underserved markets, sometimes they may have great business plans, they make cash flow but there may be some management issues they have to deal with. Because you can be good at your industry but perhaps not good at managing, perhaps not good at fiscal management. And so in order to see you succeed, we can assess that. And from that assessment we’ll say that, “Okay, this borrower needs some assistance.” and market that. “This borrowers needs some assistance with financial management.” I may be management. And so we can tell a program for that borrower. And I do think larger financial institutions and banks have sense but they don’t have the time. Their business model is to provide that technical assistance to those borrowers in that category. Banks give you a loan, you’re on your own.
[chuckle]
14:21 CNOTE: Yeah, and that can be challenging.
14:26 Lenwood: It can be, but look at… I wanted to draw this parallel. Look at who banks lend to, small business-wise. They are probably a more seasoned business, more likely not to be a startup, more likely to have been in business, more likely to have demonstrated the capacity to repay, more likely to have demonstrated the capacity to manage and perhaps more likely not have credit challenges. Look at the borrowers that community financial institutions, or CDFIs, typically lend to. Those borrowers are typically underserved, they did not meet the metric requirements of banks, and more often than not, perhaps do not have as much management experience. So they need some independent, undergirding to help them to be successful in the work they do.
15:34 CNOTE: Gotcha, and then that’s where lenders like Carolina Small Business Development Fund and other CDFIs try to come in and, not only help provide capital.
15:45 Lenwood: But also the business services or technical system, which is vital to the success of those small businesses.
15:54 CNOTE: So a little bit earlier, you were talking about this imbalance in capital flows to underserved communities. And at the end of last year, December of 2017, there was a study that the New York Federal Reserve did that something like only 20% of small businesses with employees are owned by women. And then there’s obviously a lot of other statistics related to minority business ownership. In your mind, what are some of the big things we can do as a society to work out these imbalances?
16:32 Lenwood: Great questions. I wanna draw your attention to a commission study that Wells Fargo did. And they did it looking at access to capital, and they found out and they didn’t have to hire researchers. The research firm that did this study, that people of color, primarily African-Americans, Hispanic, Latino, women, and veterans tend to have difficulty accessing capital. Take a rocket scientist to figure that one out, right?
[chuckle]
17:14 Lenwood: And so they developed a program around addressing those disparities. And I think that while they were very effective in doing that, they missed it in some categories. Mainly in that CDFIs, particularly those that are managed by people of color, tend to suffer from some of the same problems and issues that the borrowers they have, that’s around access to capital. And so when you look at those groups, African-Americans, Latino, Hispanic, and women entrepreneurs, and veterans, they do tend to have challenges as relates to accessing capital.
18:05 Lenwood: I think if you would slice each of them out, that they would face different challenges. For example, one of the things that I looked at, was that I was lending, I saw the denial rate for African-Americans being higher than the other groups we were serving. And I asked the question, “Why is denial so high?” We found out there were four reasons. One was credit, the second was equity, lack of equity, the third was collateral. Equity and collateral sort of go together because it speaks to… And as broad as this societal gap in wealth, if you don’t have any wealth, if you don’t have any capital, you can’t afford to invest any property, invest in loans. The other thing was the business management. So we designed a program to meet those four areas. But, in terms of what the larger society can do, and pay attention to trying to… We sort of gloss over these indices, and we do not meet them head on with this whole issue of capital, specifically targeted for the groups that have difficulty accessing capital. We dance all the way around it, but we never directly face it. And until we directly face this issue, we will always be talking about this disparity, between accessing capital for these groups that have that difficulty.
20:03 CNOTE: Absolutely, that’s a great point. And so obviously people like yourself, and funds like Carolina Small Business, certainly play a big role in that. But I wonder if some people don’t fully understand, or maybe don’t appreciate the work you do. I was wondering if you face or notice any common misconceptions about community lending, and is there anything you’d like to clear up, or just clear the record of?
20:37 Lenwood: Yeah, I think you raise important issues. There is a misunderstanding. I think the misunderstanding comes from misinformation, and time to understand these challenges that CDFIs face across this nation. We look at them as being another vehicle to just provide capital for the housing, lending, some other areas, as a support organization. Not as an organization that’s really helping the economy, as well as people within underserved communities. And so, instead of valuing that contribution to the larger economic impact, we tend to devalue the work. And it’s manifested in public policy, where you have public policy around allocation of resources that literally does not put money in for CDFIs, and a proportion needed to address some of the great problems facing underserved communities.
22:00 Lenwood: We put money in infrastructure, we put more money in symphonies than we do in CDFIs, serving the economies and people, these various communities. And so if you look at nationally, for example, and the CDFI fund itself, where the administration is trying to cut funds out. And when you cut funds out to allow agencies that’s been working for years trying to address inequality, then you’re making a statement that you’re devaluing the work of these CDFIs. I think one, there’s not enough time to understand the work we’re doing, the contribution, and building a strong ecosystem within local communities. And thirdly, more importantly, we tend to devalue the work they do, and not value the contribution in building access to capital, building strong communities, whether it’s in housing or job creation. That’s my platform. You hit a nerve for me.
[laughter]
23:19 CNOTE: Well yeah, you’ve got it down. You’ve certainly convinced me. And I think one thing that maybe some of our policy makers maybe overlook is that my understanding, and maybe you can speak to this a little bit more eloquently than I can, but I think the return on investment is extremely high for these programs. So if you’re at building a freeway, or maybe the RIO is higher for some these CDFI support projects, right?
23:47 Lenwood: Yeah. Well, how do you measure that? And I don’t think people ever think about the measurement of return on investment. When you look at a number of housing projects in underserved communities, that that would not have been there unless that CDFI had put it there. Or the borrower whose life has been made much more fuller by resource of capital to start a business. And then you look on the return investment about the money you put in and the benefit that goes in those local communities. And I don’t think we really have accurately captured the total return on investments within local communities, or the return on investments that CDFIs yields to the greater economy across this nation and the various communities they serve in various state. It’s just huge. When you look at some CDFIs that are in new market tax credit, that are scaling businesses. If you look at CDFIs that are doing housing projects, that are creating new housing alternatives for low income neighborhoods. Look at CDFIs that are providing lending like Carolina small business. Some [small business owners] who had dreams and are able to fulfill their dreams, that’s why we call ourselves ‘being dream catchers’ because, we think, that one of the things we do is help people realize their dreams. So, you brought up an interesting point, that is the return on investment, very important, underestimated, not accurately captured.
25:46 CNOTE: Yeah. So, my interview with you today is part of our Change Maker Series. So, I can’t let you off the hook, I wanna ask you some questions about yourself.
26:00 Lenwood: Sure.
26:01 CNOTE: And for those listening, just to remind everyone, we’re talking to Lenwood V. Long, the CEO of the Carolina Small Business Development Fund. But I wanted to ask you a little background, where did you grow up, and did you ever think that you’d be doing what you’re doing today?
26:20 Lenwood: Well, I grew up in rural North Carolina, a little place called Bayboro, North Carolina. Proud to be a product of that rural America, and I grew up in time of segregation. I grew up at a time where I never thought a guy from Bayboro, North Carolina, would not only be a CEO of a community development financial institution. But really never imagined that I’d be in a position to help people fulfill their dreams, realize their aspirations, and be an advocate for change. And this whole movement towards decreasing the wealth gap that we see in this nation among people of color. And I’m excited to be on this mission. And I must confess, another part of me is ministry, that I’m an ordained minister and a pastor at church, so I’m not ashamed of that. And so that’s another area that I never thought I would be in but I believe in this saying of “Divine destiny”, and so I think both of ’em goes hand in hand. This mission work, I call this mission work, of helping the underserved as well as spiritually nurturing people as well.
27:56 CNOTE: Oh, that’s excellent, really inspiring. Obviously, you’re doing fantastic work, it looks like kind of with everything you touch. My understanding is that Carolina Small Business Development Fund is done extremely well under your leadership, and I was just wondering if there were any specific accomplishments that you were most proud of personally.
28:23 Lenwood: Well, again, yeah, I’m really proud of the team that I’ve been blessed to help me carry out this mission of serving the underserved, through the organization that we’ve been blessed to lead. And the accomplishment for me is this team spirit that we have. And I don’t take credit for anything. Everything I’ve been able to accomplish is through a great team that I’ve been blessed to have. So I guess I would frame the accomplishment around this team that we’ve assembled to make this impact in local communities across the state.
29:19 CNOTE: That’s a great way to look at it. You know, it takes a big group of people to do big things, and it sounds like you guys are doing that there.
29:28 Lenwood: Yeah, it does. It does. It does. It really does. And other thing is, I’ll always, I’m proud of being a Vietnam veteran, that I can also inspire other veterans to go for it. Try to follow your dream, follow your passion, be risk takers, make things happen. So, never allow whatever you are scared of be your destiny. Try it, move it. You feel it, move on it.
30:05 CNOTE: Excellent. Yeah, well that’s great advice. Actually, that makes me want to ask you another question I like to ask people. If you could go back in time and give twenty-year-old Lenwood some advice, [chuckle] what would that look like?
30:24 Lenwood: Oh, man. It would be, “Lenwood, grow up.”
[chuckle]
30:32 Lenwood: Yeah. You know what, I would tell him, “Follow your passion around where you would like to go.” Because one of the things you understand, Lenwood at 20 years old was fighting a war and had no idea why he was fighting that war, and I learned this out of survival in a war setting. And that taught me life lessons in many ways. Left some scars, sure, but it taught me some things, too, that I will forever cherish about life.
31:12 CNOTE: Wow. Yeah. I was gonna ask you, you talked about being a veteran and if I recall correctly, I think you guys may be doing some special initiatives, or is there anything…
31:26 Lenwood: We are, we are.
31:28 CNOTE: Yeah, so what are those initiatives that Carolina Small Business Development Fund’s working on right now?
31:34 Lenwood: Well, we have a… There’s two. One is this whole initiative around small business for veterans. We have a special program, and we’re piloting with two other CDFIs, people out of Texas and Main Street Launch out of California, design a national program for veterans around best practices. How do you effectively lend to veterans, and what metrics are you using to measure impact and success, so we’re proud of that. And we also talked to Bank of America about a program that’s in the design stage. The other piece is that I’ve had this strong interest in women entrepreneurship, and so not only do we operate a women business center, but we have a partnership with historically black college and university to try to use university resources to extend outside of the walls, into local community trying to build a capacity, and we develop a women entrepreneurship center with a predominately black university and the state African-American university and the state. And then we’re doing another, sort of piloting one with the YWCA. We call it the Coast of Veteran Women’s Center, and it’s all around trying to be a leverage and partnership with underserved sectors that we need, and this is a passion area of ours and our HBCU initiative, that is working with historically black colleges and universities throughout the state, piloting programs where you can have sustainable impact in local communities. And another trademark is the Innovation Entrepreneurship Center that we developed with Shaw University, which is a historically black college and university. Sort of unique, sort of different, but it is outside of the box thinking to address disparities that we saw within local communities. We see a need and we are brazen enough to address it. And we’re not afraid to do some things that are different.
34:14 CNOTE: Yeah, well, I think for big problems you have to take creative approaches, so it sounds like you’re testing everything you can and trying to find…
34:22 Lenwood: Oh we can. Yeah, you’re right. You’re right, absolutely right. We’re proud of those initiatives.
34:29 CNOTE: Excellent. I was gonna say that all of these initiatives you’re doing sounds like a big undertaking, but I was wondering too, if you had any big goals for the next five to 10 years for things you’d like to do with Carolina Small Business Development Fund, or…
34:47 Lenwood: Well, one of the great challenges of CDFIs, and especially CDFIs managed by people of color, is sustainability. And my goal over the next two or three years is trying to develop equity for Carolina Small Business Development Fund, to increase its sustainability ratios, to decrease the dependence upon grants and from state or federal government to survive. Because as we know, that with government being less responsive to community needs, then there is this reluctance, again, policy decision, this reluctance to invest in community development financial institutions, especially those managed by people of color. And you hear a lot of folks, “I’m not racist,” but their policies have racial impact because they are designed to not increase the wealth creation opportunities in local communities that are in need, but they decrease and devalue those communities. I keep using this word ‘devalue’ because I think that’s what’s happening. We devalue the work of CDFIs, we devalue small communities, underserved communities, by not investing in them. And so, this is this, we talk about wealth gap. The gap between investments is still strong in this country and in many states. While we’re saying politics sort of being oblivious to these community needs, and it’s racial politics as far as I’m concerned, that’s another form of gerrymandering that we don’t even talk about. You got mental soapbox. [laughter]
37:04 CNOTE: Hey you’re really close to these issues, and you’re touching them and seeing how that impacts lives on a daily basis, and I think it’s good to share your perspective with people. Like me, I’m in California and I don’t necessarily see what you see, so it’s always good to get other point of view. I don’t wanna take too much of your time, but I do have a couple, kind of practical questions that I wanna end on. And also, if you have anything to add, please. It’s great talking to you, but I think, one thing I wanted to ask you is, you talk about CDFIs needing help and support, and so, for those looking to support CDFIs like Carolina Small Business Development Fund and other CDFIs across the country, what recommendations would you make to someone, and how they can help?
38:01 Lenwood: The recommendation that I make is, look at the mission of CDFIs such as Carolina Small Business Development. Sort of meditate on that mission. Chew on that mission for a moment. And then, when you go through the vetting process, vet not only the financial information that rightfully you need, but flavor that vet and… With the fact that these organizations are serving people that would not be served but for. And that but for is very important. But for the services Carolina Small Business Development Fund, over the past eight years or nine years, over 600 businesses probably would not have been served. For the moment, $44 million would not have been disbursed to small businesses across the state but for Carolina Small Business Development Fund.
39:22 Lenwood: And so, the fact that it provided loans to individuals and categories and sectors that are unmet, and when you vet that temper it with all those factors, and perhaps your vetting would be a little different. I understand that the risk rating that you have to do. I understand the responsibilities, but I don’t think there’s enough attention paid to the mission and the work they’re doing. Sometimes they get overshadowed by the fact that, “Can they pay back?” Right? We get that. We understand that. Wanna be responsible for that, but I guess there’s a holistic approach that I think that need to be taken.
40:19 Lenwood: The other thing I would say is this, CDFI managed by people of color tend to, and I’ve said this before and I keep saying it, tend to suffer from some of the same problems that the borrowers they serve so well, suffer from, and that is access to capital. If you look at the balance sheet of CDFIs managed by people of color, and look at balance sheets of those that are not people of color, I guarantee you, if you look at the time they started and the time they are now, most of them would be great or larger, would not suffer from capital needs as much as CDFI managed by color. And so again, there’s allocation of resources to CDFIs, there’s inequity. And so I don’t think that has been addressed. We say we’re committed to CDFIs, but not really to all of them in the same magnitude. And that’s, again, something that, nationally, that I’m addressing and I’m not bashful about addressing it.
41:37 Lenwood: I’m convening along with couple other people, a group of CDFIs that led by African Americans, to begin to address this issue and looking at all alternative financial. That’s why we invited Catherine to be a presenter at this meeting, so that CDFIs managed by people of color, African-American, understand and we understand that what we go through the [capital acquisition process], we get vetted out many times. We are not looked at with the same lenses as other CDFIs. So that’s saying a lot there. But those things that I would ask people to look at when they look at CDFIs like Carolina Small Business Development Fund. Look at that mission and meditate on that.
42:35 CNOTE: Excellent point about viewing the issue holistically and looking at everything that you can look at. And just to clarify, if someone’s listening, Lenwood’s talking about Catherine Berman, she’s the CEO of CNote, which is a financial technology company that is working to be a new capital source for CDFIs, like Carolina Small Business Development Funds. That’s a partnership we’re really excited about. And hopefully can be a long-term source of capital and help you guys do the great work that you’re doing. One more practical question I have for you, is let’s say someone in rural North Carolina happens upon this interview somehow, or somewhere else in the country. And they have a small business idea. And they’re an entrepreneur. And they wanna secure a loan. What do you tell them, or what kind of advice can you give to them to embark on that journey and make it more plausible that they end up succeeding in their mission?
43:45 Lenwood: If they’re a small business and happen to run across this interview and become intrigued by what they’ve heard and wanna fulfill their dreams, I’ll say what, go for it. You can go to our website, Carolina Small Business Development Fund. Just put that in and it’ll pop up, and you’ll see on our website how to apply on each page at the top of the page. That is how to apply for a loan. And when you tap that, click that button, it will take you through the application process. Or more likely, we have regional satellite offices throughout the state. And a few in the Charlotte area, there’s a satellite office, a few in Nashville, a few in Fayetteville, a few in Greenville. They tend to work the region. And so go to that website. And you will find it. And if all else fail, I tell them to call me. And I will certainly put you in the right direction. And you’d be surprised at the number of people that call me or email me. And I don’t know how they get my email address, but they get it.
[chuckle]
45:12 Lenwood: But one thing they can always say, Lenwood responds.
45:18 CNOTE: Nice.
[chuckle]
45:20 CNOTE: Well, I don’t want to take up anymore of your time, Lenwood. It’s been an absolute pleasure to talk with you and learn more about you and Carolina Small Business Development Fund and all the great work that you’re doing. And on behalf of everyone at CNote, we’re really excited to be working with you and helping you along with your mission, because you’re really where the rubber meets the road. And you’re doing amazing work to increase economic equality in the United States.
45:49 Lenwood: Well, I hope I was able to one, provide you with kind of information you need about Carolina Small Development Fund. And two, perhaps you got a glimpse of me as a person as well.
46:02 CNOTE: Great. Well, thank you so much, Lenwood.
Visit CNote and learn how you can use your dollars to support the mission of CDFI’s and change makers like Lenwood as they work to build a more inclusive economy across America.
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