Next Street Launches New Capital Practice for Small Business Capital Enablement

By October 16, 2019 News

Next Street was founded to revolutionize how capital is provided to small businesses and entrepreneurs to unlock a better future for small businesses. Today, over 52% of small businesses have unmet financing needs. Capital Enablement is our solution. That is why I’m thrilled to announce the launch of Next Street Capital – to go from a world that is capital constrained to one that is capital enabled.

The Challenge

Meet Yetunde, an immigrant entrepreneur from Nigeria. Three years ago she started a clothing business, Ray Darten, that now successfully employs 10 people in the US and nearly 100 additional people in her manufacturing facility in Nigeria. She was looking for a $250,000 loan to purchase inventory for her fast-growing business. After being turned down by several banks and turned off by high rates from alternative funders, she met our team at the Lower Manhattan Business Solutions Center. We connected her with additional nonprofit lenders, but she heard time and again that they couldn’t fulfill her full loan request or make as many loans as they wanted to. They didn’t have enough funding themselves. We see this story all the time, where business owners and funders are equally capital constrained.

Yetunde Olukoya of Ray Darten

Later that month, I was in a meeting with a money manager who told me that his clients are increasingly demanding socially responsible investments with a competitive financial return, but he was struggling to find opportunities to invest.

Why can’t Yetunde get funding from that money manager?

There are many others like Yetunde who struggle to access responsible capital in communities across the United States. In small business alone, we estimate the financing gap to be $87 billion. This unmet demand exists today because there’s a disconnect between how funders access capital and how financial investors deploy capital.

Funders often lack the data, structuring expertise, and relationships to develop scalable capital solutions. They are focused on meeting the needs of small business owners effectively, and typically lack the resources to build capital markets functions in-house that can analyze and synthesize data, develop structured products, and maintain relationships with a broad investor base.

On the other hand, financial investors are increasingly searching for investments that provide financial return coupled with positive social impact, applying the same rigor that they use to diligence traditional portfolio investments. While investors have ample capital to deploy, they remain on the sidelines due to the lack of appropriately structured deals.

We believe this disconnect is stifling the flow of socially responsible capital.

Capital Enablement

Capital Enablement is the act of providing financial institutions with the knowledge, tools, and structures to manage their capital effectively. The goal of Capital Enablement is to deploy more capital, more easily, and for its highest and best use.

We envision a world where Yetunde can access the capital she needs to grow her business, where funders can access the capital they need to meet the demand they see, and where investors and investment managers can access the investment products they need to meet their financial and social goals.

Why can’t Yetunde get funding from that money manager? We believe she can.

Next Street Capital

Next Street Capital is revolutionizing how financial institutions provide capital to small businesses and entrepreneurs by providing them with the knowledge, tools, and structures to manage their capital effectively.

Earlier this year, Next Street Capital structured a partnership between Opportunity Fund and KeyBank to provide new loans to truck drivers operating their own businesses. We provided end-to-end coverage to ensure successful execution of the deal, including structuring terms, modeling financial performance and pricing, and managing workstreams. Through our work, Opportunity Fund and KeyBank were able to expand Opportunity Fund’s existing trucking lending program into the state of New York. It is anticipated that the partnership will deploy $140 million in trucking loans to owner-operators, many of who are minorities or low-income borrowers with limited access to responsible capital.

This partnership is an example of Capital Enablement in action. CDFIs, like Opportunity Fund, are effective at building quality loan portfolios through thoughtful and high-touch underwriting and servicing (including technical assistance), and their access to credit enhancement tools like loan loss reserve programs. Investors, like KeyBank, are increasingly motivated to deploy capital towards opportunities that have financial and social returns that can be fully validated through rigorous diligence. The support that we provided enabled the flow of capital by helping create a commercially viable structure and providing each party with the tools and knowledge necessary for successful execution.

Next Street is uniquely positioned to drive Capital Enablement for small businesses:

  • We understand the needs of small businesses through our advisory work and 4,000 small businesses served annually
  • We recognize the needs (financial, social, governance, regulatory) of both financial markets and funders
  • Our technical expertise in financial markets and structures combined with our track record of working across financial institutions focused on small business puts us in a powerful position to help build the future of Capital Enablement
  • We are committed to equipping community development financial institutions, online lenders, banks, alternative funders, and investment managers, with the tools they need to move money into small businesses

We believe we must enable the flow of capital to all small business owners to build a thriving and more inclusive US economy.

Contact us to learn more: