Mountain BizWorks (MBW) is a CDFI that provides business loans and coaching to small businesses in Western North Carolina. MBW has a particular focus on businesses that are often unable to access financing from banks and other traditional sources, especially low-income, minority, women, and immigrant entrepreneurs. MBW pairs its small business loans—--ranging from $1,000 to $250,000—--with highly customized, peer-to-peer business coaching by successful local business owners.
But even as a CDFI, Mountain BizWorks still must adhere to underwriting requirements in its lending. “What that means is that there are still business owners in the community that we want to be able to lend to, but who don’t quite meet our requirements. Some, for instance, might not have sufficient collateral to secure the loan they need.” says, Moriah Heaney, MBW’s community investments manager.
So the City of Asheville and Buncombe County stepped in to help MBW, along with two other local CDFIs, to make more loans to lower-wealth borrowers and entrepreneurs of color, who tend to suffer the most by having insufficient collateral, regardless of promising business ideas. The city and county came together to create the Mountain Community Capital Fund, a loan guarantee fund that protects lenders against default on 85 percent of higher-risk loans (up to $75,000) to business owners with less collateral. A modest fee of one percent of the loan amount is charged to the borrower to cover administrative costs associated with maintaining the guarantee fund.
"As a CDFI we constantly have to balance community impact and asset quality with our portfolio, to ensure we can continue to make a meaningful impact over a sustained period of time," Heaney says. "This is why the Mountain Community Capital Fund is such a game-changer because it allows us to significantly increase the amount of impact we are able to have in low-wealth communities of color while remaining fiscally prudent." Since the fund launched in August 2019, MBW alone has closed four loans to business owners that otherwise would have gone wanting. Six months into the guarantee fund’s availability, that’s already 2.5 percent of MBW’s loan portfolio.
What caught UMA’s attention was not the credit enhancement tool, per se, but the fact that it was a collaboration among several community lenders and government. In this case, the public sector wanted to advance a policy goal of improving equity in small business lending. They are contributing the capital to the guarantee fund while partnering with the organizations—--local CDFIs—--best positioned to mobilize it in lower-wealth communities and among business owners of color. UMA aims to use our Communities of Practice to seed this thinking among partners across the country and begin putting capital to work in communities more equitably. It took almost three years to pull the Mountain Community Capital Fund together; working with government sometimes means things take longer as things wend their way through approval processes. But now that fund is in place, it should be a model for how CDFIs and local governments in other areas can replicate it.
This case study was co-authored by Mark Foggin and Johnny Magdaleno and published in 2020 as part of the Urban Manufacturing Alliance’s “Forging Fairness: How community-based lenders are centering both inclusion and manufacturing to promote equity [link to report].” This report highlights the work of practitioners in UMA’s Pathways to Patient Capital cohort and how these leaders are helping entrepreneurs of color – including makers and manufacturers – access to the capital and know-how they need to realize their business ideas and plans at scale.