Philadelphia community aid groups and commercial banks have partnered to fund a new loan program for black and brown business owners in the area, with a goal to lend $ 100 million over the next four years.
According to Varsovia Fernandez, executive director of the Pennsylvania CDFI Network, which co-organized the new fund, the Philadelphia Growth, Resiliency, Independence, Tenacity (GRIT) Fund has received a total of $ 13.5 million in loan commitments and grants to date.
“It’s the first phase in a four-year program,” she said on Tuesday.
The new fund is the brainchild of around 30 financial institutions, including the Federal Reserve Bank of Philadelphia and the Urban Affairs Coalition, who have joined the Greater Philadelphia Chamber of Commerce’s Recharge and Recovery initiative to help mitigate the impact of the pandemic on small businesses .
The group became the Greater Philadelphia Financial Services Leadership Coalition and the fund was launched.
“Despite efforts over the past year, aid to small businesses has not met their needs, especially minority businesses,” said Dan Betancourt, chairman of the Pennsylvania CDFI Network and CEO of the Community First Fund.
“This effort is unique – we don’t know that leading financial institutions on this scale are coming together.”
The money will initially be disbursed through 11 municipal development finance institutions known as CDFIs, which the federal government has used to distribute PPP and other emergency programs since the beginning of the COVID-19 crisis.
The CDFIs will receive the funds first, then turn around and grant around 1,000 loans over the next four years.
Why the intermediaries?
“Many small businesses lack confidence in financial institutions,” said Betancourt. “We’re helping them get into mainstream finance over time. This building of trust is important. “
Loans vary in size and term.
“Having more flexible terms will help prepare small businesses better,” said Sue Lonergan, director of mid-market and specialist commercial loans at Fulton Bank and co-chair of the group.
“In order to grant these loans, CDFIs need to keep a healthy balance sheet. Generally banks do not support these organizations so this is unique in this program, ”said Lonergan. “Coming together in this way to support CDFIs is a new model for us and we hope we can build on it over time.”
So far, efforts have attracted regional banks like Customers Bank, Univest, and WSFS, as well as minority custodians Asian Bank and United Bank of Philadelphia. Larger institutions like Bank of America, Citizens Bank and PNC Bank have made direct capital commitments to individual CDFIs, but details have not been available.
“Some [banks] have committed to multi-year grants and that capital will grow over time as the CDFIs issue loan funds, “Fernandez said. For example, a small CDFI can “take $ 2 million from the bank this year, issue it in 2022, and then take another $ 2 million. A big CDFI can take $ 5 million, put it out, and then take more. “
Smaller CDFIs get money first: Beech Capital, Entrepreneur Works, Enterprise Capital, Women’s Opportunity Resource Center, Impact Loan Fund, Neighborhood Progress Fund, and VestedIn. They will receive $ 10 million in capital for loans and over $ 1 million in balance sheet, operational capacity and technical support, including professional advisory services, from 100 Chamber of Commerce volunteers.
In the next phase, the Community First Fund, the PIDC and the Reinvestment Fund will receive money from the new fund.
For small business owners, a loan from a community development finance institution can make all the difference in whether they survive or fail. Trina Worrell-Benjamin, owner and founder of TWB Cleaning Contractors, received her first loan from a local CDFI called Beech Capital which “helped us stay in the commercial, construction and public space cleaning business”.
“As a minority and small business, access to capital is a critical issue. In the beginning it is often difficult to gain access. For us, beech is a source of advice and financial stability. As black entrepreneurs, we have faced many challenges. We needed equipment, payroll, staff training. And we were able to ensure that with Beech. “
TWB Cleaning was founded in 2014 and secured a big six digit cleaning contract in 2016, Benjamin said, and “I went to credit unions and banks and tried to take out a loan against the contract. To my surprise, I was turned down. I spoke to Beech Capital and even though my credit rating was low they said, “We’re going to help you. But you need to get your credit fired up. ‘ They gave me a loan and a year later we secured another contract. We spent another six months on the equipment, ”which Beech Capital then borrowed and paid back on time.
“That might not sound like a lot. But it was a defining moment for a small business owner. The loan helped us grow. We still keep these two contracts. “
Q: where does the money come from?
A: Contributions are from banks and the Philadelphia Foundation’s Frances P. Kellogg Fund.
Q: who decides who gets it?
A: The Pennsylvania CDFI Network administers the program and distributes the balance sheets and operations to the CDFIs. Strengthening these areas is needed to support the small business loan and assistance.
Q: Who secures or guarantees the loans against loss?
A: Banks give credit investments directly to CDFIs. For example, a CDFI can raise $ 2 million in capital and then borrow it to the small business. CDFIs raise capital based on their balance sheet capacity and ability to secure loans.
Q: Is the program revolving (new loans are funded with previous loan payments)?
A: As with all loans, a customer who wants to refinance – the interest rate may be lower at that point or they may need to increase the loan amount for working capital or the purchase of a building – can refinance.
Q: How are the loans secured? Do borrowers need to have or provide property as collateral for the loans? Unsecured loans like credit cards or student loans are much riskier than secured loans like mortgages, where property can be seized if payments are stopped.
A: Some are unsecured, some are secured. It depends on customer and small business needs and credit structure.
Q: Can this be compared to other programs in other cities?
A: We believe this is the only program of its kind in the country where banks have come together to work collectively for the benefit of black and brown small businesses. It’s the only one in the state.