NXST Up: Connecting the Dots between Alternative Lenders and Community Organizations

By January 7, 2020 NXST Up

On December 5th, 2019, Next Street hosted a breakfast in New York to kick off our NXST Up series of events. The topic for the breakfast was Connecting the Dots between Alternative Lenders and Community Organizations.

We had a full room – 25 attendees in total – of some of the fastest growing and innovative alternative lenders and impactful community organizations in New York to discuss how together they can further equitable small business growth via capital access and responsible lending.

Persistent capital gaps remain for small businesses. While banks and Community Development Financial Institutions have been working to close the gaps, with responsible underwriting and community partnerships to develop trusted sourcing relationships, alternative lenders can also enable access to capital to businesses that otherwise would be capital constrained.

Gaps in access to capital.

In our own work with small businesses across the United States, we see a consistent funding gap for loans between $25K to $250K, commonly sought by businesses with revenue under $1M. Broadly speaking, this funding gap disproportionately impacts women-owned and people of color-owned businesses.

Alternative Lenders are stepping in.

Small businesses, especially MWBEs, are turning more frequently to alternative lenders for capital solutions.

Alternative lenders are an increasingly important piece of the jigsaw to plug the $87B gap in unmet small business capital needs that we see and to further unleash the potential to drive small business growth. And while it is still early in the policy making process, the small business lending landscape could evolve further with the proposed Community Reinvestment Act changes raising the threshold on lending from $1M to $2M in revenue.

Working together alternative lenders and community organizations can increase the number of small businesses that can access capital, increase the volume of capital that small businesses receive, and diversify the financing products available. During the conversation, a few themes emerged and/or were reaffirmed.

  1. A need for education. Small businesses need guidance on alternative lending products. Community organizations – which are centers of trust for small businesses – are faced with evergreen changes in the fast-growing “non-traditional” lending sphere.
  2. A need for simplification. Closely tied to a need for education, is a need for simplification. Organizations are inundated with new players daily. A curated and current list of responsible players will help community partners navigate through the myriad of rapidly evolving lending options available to small businesses.
  3. A need for systematized partnerships. Alternative lenders and community organizations need to partner to help solve unmet small business capital needs.

With certain introductions made and initial conversations had, we now need to be more intentional about pursuing solutions.  We are looking forward to hosting the second event in the NXST Up series in the spring to do just that.

If you’re interested in attending future NXST Up events, please contact us at contact@nextstreet.com