In a new blog, Steve Hall, EOCF National Director and LISC Vice President of Small Business, explores what’s next for the Entrepreneurs of Color Fund as it hits its $500 million goal—ahead of schedule. Hall describes a borrower-informed strategy for the next three years that will build on and leverage climate resiliency and artificial intelligence efforts to expand loan products and get more capital into the hands of entrepreneurs who need it.
Top photo: Steve Hall (2nd from left) presents the Most Valuable Partner Award to Pacific Community Ventures, an EOCF partner, during OFN’s 2024 conference. Pictured with Hall, from left: PCV’s Bulbul Gupta, Bob Porter, and Casey Bell. Pictured with Hall are, from left, PCV's CEO Bulbul Gupta, Bob Porter, Director of Lending and Casey Bell, Chief Impact Officer.
Earlier this year, when it was clear that the Entrepreneurs of Color Fund (EOCF) would meet its $500 million lending goal, we took a look behind the numbers to determine what comes next.
We talked to the 23 community development financial institutions (CDFIs) that are part of the EOCF network, in addition to LISC, and we connected with our philanthropic funders to understand their priorities and their expectations for impact. They contributed critical insights about our experience to date, including work in 10 metro areas.
But the most persuasive information came from our borrowers and their 9,500 loans--businesses that would not have been able to expand operations, hire staff, purchase equipment and grow their revenues if it weren’t for EOCF. They are retailers, construction companies, restaurants, small manufacturers, and more. Some have just one or two employees; some have dozens. But they all contribute to the well-being of their owners, workers, customers and communities.
The strategy that emerged from those conversations is guiding EOCF’s efforts for the next three years, from efforts connected to artificial intelligence (AI) and green to an expansion of partners and loan products.
First, we are doubling our capital deployment. We plan to grow the EOCF portfolio to $1 billion in loans, while we also maintain our emphasis on the “but for” additionality that is so central to our work.
That means we will remain focused on business owners who are serving communities of color and who otherwise would not have access to appropriate financing—even if they have promising business models or strong track records of success. By extending financing to them now, we can support their immediate plans for growth and help them build a history of financial performance, so they are better positioned for conventional financing opportunities down the road.
Second, we are deepening our work on systemic change. From the beginning, our goal was to both address capital gaps and to break down the barriers that created those gaps in the first place. (Read more about that here.)
Take AI, for example. For years, we have noted that automated underwriting approaches utilized by conventional lenders that are meant to increase efficiency often create roadblocks for borrowers who don’t fit neatly within traditional risk-return profiles. That is particularly true of businesses serving low-income communities. Because there is no direct involvement of loan officers, these applicants are often rejected, over and over, which also impacts economic opportunity in the communities where they operate. In contrast, CDFIs have typically taken a more high-touch approach, which is more equitable, but also more time-consuming.
Now, we want to take what works from both strategies to improve outcomes for underserved entrepreneurs—helping CDFIs take advantage of the efficiencies of AI but embedding equity in the process. In doing so, we can improve “speed to market” and provide credit alternatives that make room for nontraditional borrowers, avoiding underwriting approaches that end up being discriminatory.
For example, we are eager to implement promising tools, like machine learning predictive analytics, which will help CDFIs effectively evaluate repayment risk even when they utilize nontraditional underwriting standards. It will make the process more efficient for both applicants and lenders, and it will ultimately help more capital reach more businesses. We hope this approach can be replicated beyond the EOCF network, including among conventional lenders, to both expand valuable lines of business and benefit entrepreneurs more broadly.
Third, we want to help small businesses take advantage of the move toward a green economy. It is clear, especially given the massive federal investment in green efforts, that the country will need more solar installers in the coming years. It will need more skilled staff to work on electronic vehicles. It will need experienced contractors to lead energy-efficient retrofits and support green building strategies. The list goes on, and that doesn’t even count the opportunity for business owners to save on their own energy costs through upgrades to their facilities.
EOCF can help support a “just transition” that reflects these opportunities. We can provide loans and technical assistance to owners so they can develop new lines of business and seed innovative projects, all while creating quality jobs. It is another way that LISC is working to deliver the benefits of decarbonization and climate resilience to underserved people and places. It is a huge opportunity for impact.
Finally, we want to expand the capacity of local CDFIs and national partners that are part of the EOCF network. EOCF can help them reach deeper and further into their local markets, with products that meet a range of financial needs—whether real estate financing, working capital, or microloans.
In all of this, I think we should recognize the realities of the marketplace right now. We are in a roller coaster moment for entrepreneurs and many of the local CDFIs that support them. The economic upheaval of recent years continues to impact small business growth, particularly for enterprises without ready access to affordable capital. And, at the same time, many local CDFIs have seen a fall-off in philanthropic support, limiting their reach in low-income communities and communities of color, where capital constraints are most pronounced.
Fair, responsive lending can address many of these issues. When we strengthen the economic infrastructure of small businesses, we strengthen the outlook for families and communities as well. It is a strategy for equity, opportunity and growth.
About the Author
Steve Hall, Vice President, Economic Development
Steve Hall is responsible for providing lending solutions and personalized business coaching to entrepreneurs to enable them to start or grow their businesses. At LISC, he has supported the development of LISC Economic Development Lending and supports our new SBA 7a affiliate “immito” and LISC's other lending offerings. Steve loves small businesses because he has owner or invested in several. As an entrepreneur, Steve has owned a moving company, promotional company, t-shirt company and a snow cone stand. The snow cone stand was the most profitable and generally supported Steve’s other ventures.
@SteveLISCSB
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