ESG Investing

Patience and Flexibility: How CDFIs Support Social Entrepreneurs in Crisis


Social enterprises are for-profit businesses that address social and environmental challenges. In light of recent market volatility, social entrepreneurs across the US are facing cash flow shortages as revenues dry up across industries.

Some of their challenges are regulatory; social enterprises that receive government funding may only be able to unlock all of the capital available in the loan or grant if they hit certain milestones that the government may or may not waive in a crisis. Fortunately, community development financial institutions (CDFIs) are uniquely positioned to help these organizations weather the COVID-19 pandemic.

Reinvestment Fund

First Step Staffing, a nonprofit social enterprise staffing company supported by Reinvestment Fund.

CDFIs Offer Patience and Flexibility

CDFIs offer responsible and affordable lending to low-wealth communities, and they are well-positioned to offer crisis support for social entrepreneurs. During the Great Recession and natural disasters, CDFIs are often the entities providing capital on the front lines.

“The hallmark of the CDFI field is that we are patient and flexible lenders, and this is that moment,” says Don Hinkle-Brown, CEO of Reinvestment Fund, a CDFI with offices in Philadelphia, Baltimore, and Atlanta. “This is the core of who we are. We can restructure as business plans change, and we can be patient.”

Some CDFIs can serve as channels for emergency funding from the Small Business Administration (SBA). They are also disproportionately exposed to businesses that have lost revenues, meaning their support is not without risk. CDFIs did not receive additional funds in the fiscal stimulus package passed in late March, but many are urging that they receive federal assistance in upcoming stimulus rounds.

CDFIs are well-positioned to offer crisis support for social entrepreneurs and are often the ones providing capital on the front lines.

3 Ways CDFIs Support Social Enterprises in Crisis

The most immediate needs social enterprises are facing are ones that CDFIs can meet.

1. Catalytic Capital

CDFIs can leverage their government-backing to attract other types of investors. As intermediaries, CDFIs have relationships with public, private, and philanthropic investors. Thus they have the investor networks to raise capital in times of crisis. For example, the Reinvestment Fund is keeping childcare services afloat in Philadelphia by working with the William Penn Foundation and Vanguard’s Strong Start for Kids Program™ to channel capital into COVID-19 relief funds. The Reinvestment Fund is also supporting funders and intermediaries in other cities by establishing emergency funds to maintain the supply of home-based childcare.

Reinvestment Fund

Ann Kids Palmetto, early childhood education provider supported by Reinvestment Fund’s Fund for Quality. Photo Credit: Steve Levato.

2. Bridge Loans or Lines of Credit

Some CDFIs are licensed by the SBA to sponsor applications for payroll loans and other forms of immediate credit. The Opportunity Finance Network, a national association of CDFIs, recently partnered with Google to offer bridge loans with favorable terms to small business owners in distressed communities.

3. Patient Capital

CDFIs are well-capitalized intermediaries whose mission is to support low-wealth communities. As a result, “the investor community gets the benefit of our strong balance sheet in these crisis moments,” explains Hinkle-Brown. “We don’t have stern regulators encouraging us to retract, nor do we have quarterly earnings reports that push us to liquidate our borrowers or collateral.”

All of these tools and more will be necessary to carry social entrepreneurs and other small businesses through the current crisis. Fortunately, CDFIs are already hard at work doing exactly that.

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