Momentus Capital hosted a roundtable discussion highlighting efforts to increase access to capital and wealth building in underestimated communities and small businesses through Community Development Financial Institutions (CDFIs).
The discussion included a variety of government officials, community lenders, public-private coalition leaders, and small business owners. Participants included:
- Mark Warner, United States Senator from Virginia; Co-Chair of the Senate Community Development Finance Caucus
- Wally Adeyemo, Deputy Secretary, United States Department of the Treasury
- Leah Fremouw, President, Virginia CDFI Coalition
- Chris Weaver, Executive Director, Economic Opportunity Coalition
- Ellis Carr, President and Chief Executive Officer, Capital Impact Partners and CDC Small Business Finance (part of the Momentus Capital branded family of organizations)
- Caroline Nowery, Chief External Affairs Officer, Locus
- Sharita Denise Walker, Executive Director, Let’s Be a Kid Childcare Center
- Juanterria S Brown, Owner, Kidz with Goals
Below you will find excerpts from that discussion which have been amended for clarity and brevity.
Opening Remarks
Mark Warner, United States Senator from Virginia; Co-Chair of the Senate Community Development Finance Caucus:
Thank you all. I want to start by thanking Ellis Carr for hosting us here at Momentus Capital. He and I have crossed paths many times over the years. It’s great to be in your digs. Thank you all for joining us today on this CDFI Roundtable. This is a really significant event.
But CDFIs, as my friends at Locus know, go back. It was a passion to me when it was called Virginia Community Capital in 2005 when we started. I have always felt this sector, while small, is a critical part of our financial system.
And frankly, we needed to do so much more during COVID. We got $12 billion even under Trump, $3 billion in grants, $9 billion in tier-one capital. We are trying to see how we can continue to broaden this.
We’ve got a CDFI caucus that is bipartisan, co-led by Senator Mike Crapo of Idaho, 13-13, 13 D’s, 13 R’s. We’ve got legislation up that would create a digital tax credit for patient capital. We’ve got a plan to try to start a secondary market, which I think will be critically important. Ellis is probably going to address that. We are trying, as well, to do as many creative things as possible.
In the aftermath of the murder of George Floyd, corporate America made a lot of big promises. $300 billion. Unfortunately, they have not fulfilled 97-98% of that; about $5 billion has been paid out. So Chris [Weaver, Executive Director, Economic Opportunity Coalition], who worked for Wally [Adeyemo, Deputy Secretary, United States Department of the Treasury] – I managed to steal him for a year, came over as we were doing a lot of this stuff with CDFIs. His work through the Economic Opportunity Coalition [EOC] is an attempt to try to go to some of the large corporate America companies and others and say, “This could be a way that you could meet your promises in an easier manner, a one-stop shop, and a lot with patient capital.” And Wally will talk about what they’ve done, but also a series of other initiatives on how we make sure that workforce contracting and other issues, including what corporations could do to make sure that who they do business with looks more like the individuals in this room, than just folks looking like me.
And I think the work of the EOC has a great, great opportunity. But a lot of this would not have happened if the Deputy Treasury Secretary would not have embraced this. Wally has done a great, great job, and anything that’s been happening in not just the CDFI space, but in terms of trying to push an agenda that is more inclusive beyond just capital access issues, is all due to him. So I will stop and turn it over to my friend, Deputy Secretary of Treasury Wally Adeyemo.
Wally Adeyemo, Deputy Secretary, United States Department of the Treasury:
Ellis, thank you so much for hosting us. You’ve been such a great partner to us in all of this.
But I do need to tell those of you who live here in Virginia that you are very lucky to have Mark Warner as your senator. He’s both a leader in your state, clearly, but also a leader in the country. And frankly, he was the first senator to seek me out when I was nominated, and he took me to dinner with my predecessor. And he started, at that point, talking about the importance of investing in communities that have been left out and left behind, and told me that he wanted to partner on this work. And frankly, lots of people throughout my career have said, “I care deeply about these communities. I want to do work on it.” And then a few months later, they don’t come back.
But that is not Mark Warner.
Within days he was following up with me asking, “What are we going to do here?” And he has not only been a partner who talks, but he walks the walk, in terms of building this coalition that includes Republicans and Democrats who are supportive of CDFIs. And in a city where you often don’t see bipartisanship, you are seeing bipartisanship in this space. Because what we’re doing is investing in communities throughout the country, rural and urban, where not only finance hasn’t gotten to, because traditional banks don’t serve, but frankly opportunity hasn’t gotten to.
And what we’re doing with the Economic Opportunity Coalition is taking that bipartisan spirit, and we’re calling on corporate America to partner with us and make sure that resources get to those communities. We’re doing it through CDFIs. And I would say that CDFIs punch well above their weight class, frankly, in terms of their ability to help businesses in our country, to help housing in our country, in places where we don’t have enough of it.
And today, one of the things that excites me most about what’s happening in America is that we’ve seen the creation of 18 million small businesses over the last three years, which is a record. We’ve seen a doubling of small businesses owned by Black Americans, a 40% increase in small businesses owned by Latino Americans.
But the challenge these businesses have when I talk to them, and I sit down with them on a regular basis, is they need two things. They need access to capital: they need someone to believe in them enough to give them money. And two, they need access to customers: they need people to buy what they’re selling. And ultimately a CDFI or minority-owned depository institution is far more likely to give a loan to that local small business, to that woman who’s decided that she’s going to go out by herself with this business idea, to this person of color who has a new business, than any large institution. Because they know this person, they know their story, they know their community, they understand their business better.
And we’ve been able to make sure that these CDFIs were able to do that because of the work that Senator Warner did to make sure that they got a historic amount of capital at the end of the last administration, that we’ve deployed. But as the financial institutions of this room know, it’s great to have capital, but if you don’t have deposits, you can’t unlock it. And that’s what we’ve been focused on now, getting the private sector to actually provide deposits.
And we’re happy to announce that of the billion dollars of deposits that we’ve gotten through the EOC, $850 million have been deposited in the hands of these CDFIs, and they’re now getting out the door to those small businesses. We’re in the process of raising another $2 billion working with the EOC, so that these CDFIs and minority-owned depository institutions can do even more.
But in addition to making sure that we’re working on the capital, we’re also focused now on the customer side. And the best customer a small, medium-sized business can get is a large corporation. And that’s why we’re calling on large companies who are part of this coalition that are committing to making sure that small businesses in these underrepresented communities are part of their supply chain, so that they have the types of customers that are going to last for a long time.
Because ultimately I think the thing that we know about Senator Warner is, he is committed to this work. He was committed to it when he was governor, helping to create one of the CDFIs that are in the room today. But he’s been committed to it as a champion for this cause in the Senate, and there’s no better champion who speaks about the importance of them investing in it. So I’m going to kick it off with the first question to you, Ellis, to talk a little bit about the work you do here at Momentus Capital, and to tell everyone in the room about it.
Roundtable Question & Answer Session Excerpts
Momentus Capital Overview
Ellis Carr, President and CEO of CDC Small Business Finance and Capital Impact Partners (part of the Momentus Capital branded family of organizations):
Welcome everyone, and thank you Senator Warner and Deputy Secretary Adeyemo. I appreciate all the work that you all have done. Thank you all for allowing us the opportunity to host this important conversation.
For those of you who don’t know, my name is Ellis Carr. I’m president and CEO of CDC Small Business Finance and Capital Impact Partners. We are part of the Momentus Capital branded family of organizations that also includes Ventures Lending Technologies and Momentus Securities.
Momentus Capital is a family of companies that came together in 2021 to support more holistic community and economic development across the country, focusing on how do we help drive inclusive and equitable communities. And since that time in 2021 that we came together, we’ve invested about $2 billion across the country, and nearly $200 million in the Washington, D.C. region alone. Part of coming together with CDC Small Business Finance in 2021, we were really excited because it built on the history and track record and the trust from Capital Impact Partners, but we also could bring a small business lending component to this region.
Senator Mark Warner:
How did that get funded, was that SSBCI [State Small Business Credit Initiative] funds?
Ellis Carr:
So these were two 40-year-old nonprofits that came together to really take charge of the moment, and to really capture some of the opportunities that Deputy Secretary Adeyemo just talked about in terms of small business start-ups.
Part of what we were hearing in the beginning with Capital Impact Partners, because we focused on community development efforts, was access to healthcare, housing, education, and healthy food. But what we heard from folks was, “We need jobs and we want opportunity. We want the opportunity to build wealth and entrepreneurship. Go.” So leveraging our trust across the country, and particularly in this area, and then bringing the small business component has been invaluable.
So just in terms of our work and how we support small businesses in this particular environment, we think about three forms of capital that we provide.
The first is knowledge capital, and that’s really about how do we get people capital-ready? So we provide programs – capacity building programs and one-on-one business advising – so we can really meet the needs of the entrepreneurs in which we’re working with. So that could be an entrepreneur that has a great dream and needs some help actually getting the business plan done, or needs some help actually getting and filling out financial spreads so that they can actually present that package to a CDFI like the ones in this room.
The second area that we focus on is around creating social capital. And both of you alluded to this. We all know that it’s not necessarily about who you know, it’s about who knows you, and making sure that we can create opportunities and access to networks of committed individuals who are committed to the success of those entrepreneurs. We have Lauren Counts, who runs our national programs in the room, who really has leadership over a number of programs, from diverse real estate developers and connecting them to mentors and a network of individuals who are committed professionals who are invested in their success, to a public-private partnership called Nourish DC that we’re working with food entrepreneurs in the D.C. area, and connecting them to opportunities. So we make sure that we provide them with access to those social networks that can really help and support them.
And lastly, we focus on financial capital, which we’re here today talking about in large part. And that’s really providing loans and investments in a continuum of capital, to meet entrepreneurs where they are depending on their cycle.
And to give you all some perspective of the types of capital that we provide, I’ll give you two examples of two local businesses that we supported most recently.
One was a small business, a woman-owned small business, where we provided a $45,000 SBA Community Advantage loan to really start her business. And that business is to create and manufacture waterproof baby carriers. And she’s a registered nurse, she’s a doula, and a mother. And so through her lived experience, she created a product that she now is selling. I’m happy to report that that is just one of the types of businesses that we provide financing for.
As I mentioned, we’re a SBA Community Advantage lender. We’re the largest in the country, and 50% of our production in the SBA Community Advantage program are for start-ups. Our average loan size is under $200,000. So we’re doing a lot of loans to get to the $80 million production target that we have for this year.
Secondarily, we’ve created, because we recognize that debt is not always the answer, we created an impact investing group in 2022. Through that business line, we provided a blended capital stack to two veterans who have corporate experience, to acquire a government contracting business that’s currently operating, that they want to take to the next level.
We provided $16 million in debt financing and $5 million of preferred equity, which actually self-liquidates, to give them the capital they need to grow and expand. So as we’re talking about the work in the Economic Opportunity Coalition, and around getting to supplier diversity and giving the businesses the fuel, the literal fuel they need to succeed, we’re trying to provide a range of tools to be successful in that pursuit.
I’ll just end by saying again, thank you all for the work that you’re doing, because without the work from you, Senator Warner, and from the CDFI Fund and Treasury, we wouldn’t have that continual capital to continue to evolve our product suite to really meet the need of the market. And we’re trying to go in long to really take advantage of the growing opportunity for small businesses in this country.
Deputy Treasury Secretary Wally Adeyemo:
And I think the thing that you just did, which I think is really important is, we talk about these big numbers of billion dollars here, a billion dollars there, but it is always about the story of the entrepreneur. And that nurse wouldn’t be able to launch your product without you. Those two veterans who have a dream needed that help to do it.
Economic Opportunity Coalition Overview
Senator Mark Warner:
The Economic Opportunity Coalition was built out of this notion: could we get companies and organizations to do what they said they want to do, in a way that was simple. Chris, why don’t you talk about EOC, what our goals are, what the value of getting this patient capital is .
Chris Weaver, Executive Director, Economic Opportunity Coalition:
Thank you, Senator Warner. I also wanted to start by thanking both the Senator and the Deputy Secretary. That the Senator has been leading the charge and getting the EOC stood up.
For those who don’t know me, I’m Chris Weaver. I’m the Executive Director of the Economic Opportunity Coalition. We are, as the Senator said, a public-private partnership. We have 30 corporate members. We are designed to capture some lessons that were learned during the pandemic. We were created in the wake of the murder of George Floyd, in the pandemic. And that Paycheck Protection Program experience, I think, brought a lot of people around to CDFIs to understand the role that they play in our communities.
There was $15 billion set aside for CDFIs. The CDFIs went to $35 billion. Far out, it punched above their weight. And the goal of the EOC is to sort of take that magic of thinking about the public sector, private sector, and social sector all working together. That something magical happens, and we’re trying to take that and turn that into something sustainable and long-term through this coalition, working closely with the administration and our private sector partners.
Our first initiative was on the tail of the Emergency Capital Investment Program (ECIP) dollars that went out. And so for them, I think it’s a good thing to say that for the first time in history if you talk to CDFIs, they won’t say that equity is their number one challenge. But they have a liquidity challenge now. And that’s a challenge, but that’s a good thing. It’s something that we can work with and work on. We have been out with our partners, and talking to new partners about making deposits in CDFIs. As the deputy secretary said, last year, we reached a billion dollars in deposits, and have set a goal for another $2 billion this year. One of the things that I really wanted to flag that’s so important about that is that we’ve started having a conversation beyond the regular entities that are motivated by the Community Reinvestment Act. And that’s really important if we’re going to scale this work to reach more institutions.
If you add up the top 15 companies in terms of cash holdings, you quickly get to over a trillion dollars in cash. So there’s a lot of opportunity out there for us to introduce folks to this work, which is what we’ve been doing. And I’m proud to say that in the first billion dollars in commitments that we have, almost 40% of that has come from non-banks, which is a really positive term that we want to keep trying to build upon.
And then lastly, I want to highlight the importance of bipartisan support to change the narrative around CDFIs, where it’s not like an “us versus them” conversation, that this is something that’s important to the overall economy. And that messaging getting out there and seeing Senators Warner and Crapo standing together on this as we go around the country talking to people, that’s really important.
And I’ll end by just talking about two other things that the EOC has been up to. One was mentioned earlier around our supply chain work. Making sure as new investments are being made in this country, in the new economy, that small and disadvantaged businesses are part of the supply chains of those companies. So we’ve been asking our members to make the same pledge that the federal government has made, as a 15% diverse spend. And we’ve also asked them to think much deeper about more than just low-margin supply chain businesses. Historically, we think about janitorial services and construction. Let’s take it there. We’ve asked our partners to provide technical assistance to try to diversify up and down their supply chain, to bring more of the high-margin sectors into their supply chain work.
And then lastly, our newest initiative that we’ve been working on with JPMorgan Chase is that there are 3 million businesses in the country owned by baby boomers. And we recognize that there are just not enough minority businesses in the country, or even businesses from underserved communities that have a single employee. And so we have been working with them with their succession planning, to integrate into that training for entrepreneurs that can be equipped to acquire those businesses. And so in short, the EOC is more businesses, more capital, or more customers. That’s what we’re focused on, and I really appreciate the opportunity to be here to talk with everyone about this.
The Impact of Secondary Markets
Deputy Treasury Secretary Wally Adeyemo:
I do want to get back to this question of a secondary market, which you’ve been a big advocate for. And Ellis, just to get from you a sense as to, if we were to have something like this, how would it impact your business?
Ellis Carr:
Yeah, great question. I think earlier, you mentioned that small businesses needed two things, capital and customers. That is actually the same thing that CDFIs need, amongst other things.
Deputy Treasury Secretary Wally Adeyemo:
Very small businesses.
Ellis Carr:
Yeah, no doubt about it. No doubt about it. And I think, so given all the discussion we had today, and the opportunities that exist in the market around supporting small businesses, we’ve actually been pretty aggressive in setting our kind of ambitious goals between now and 2030. So specifically, we said we wanted to quadruple our production from now to 2030. A lot of that is that growth is really focused on small businesses. We believe we can get there from a production perspective, but what we need is two things.
One is capital. Our balance sheet right now is $800 million. We currently produce around $600 million in annual originations. We want to be at $2.4 billion. That can’t all be on our balance sheet and that all won’t be SBA loans either. We need to be flexible and develop new products to do that. The CDFI Fund is helpful, and through grants from the Financial Assistance Award program, we are able to create new products.
But we need constant liquidity. It needs to be two things. One, we need to expand that investor base. And I think a secondary market can do that. And what it also needs to do is that the market needs to have products where customer investors can easily invest. And so what we’ve created is a mission-driven broker-dealer and investment bank to begin to do that work. That organization is called Momentus Securities. And just earlier this year, as an example, to take it from the theoretical to the practical and concrete, they recently became an SBA Pooler. They are exclusively focusing right now on SBA Community Advantage lenders, who are funding the small mom-and-pop businesses. And what we’ve noticed is that we have investors in the market who specifically want to invest in that specific security that’s being created. And as a mission-driven organization, we’re passing those proceeds back to the originating CDFIs and CDCs, which is actually making that business proposition more profitable.
Senator Mark Warner:
Tell me the profile of the entity that wants to invest in the product of mom-and-pop businesses?
Ellis Carr:
We’re talking corporations. Because again, it’s a guaranteed security that is being sold in the market. So it’s very akin to a treasury, mortgage-backed security, etcetera. There’s an explicit guarantee for the loan, the securities that are being sold. So it’s almost a risk-free investment, and you’re also getting the social impact. We can actually fund loans across the CDFI spectrum here, and create a security for that corporation to invest in and put in their treasury. So that’s what we’re trying to do.
Senator Mark Warner:
Because these are riskier, you have to have some additional layer of capital in there. So where are you getting that?
Ellis Carr:
Right now, it’s SBA-backed loans. However, we’ve also begun to develop alternative products to the SBA Community Advantage program, because we’ve noticed that additional products are required. So we’ve created an alternative SBA 504 program, which effectively is a commercial real estate-secured small business loan, for someone who needs a loan who may not be eligible for the SBA 504 program. That currently is on our balance sheet today, but we’re working to actually develop a security to do that.
To answer your question specifically, we have philanthropic organizations who are willing to help bring down the misperception between real and perceived risk, between the actual investments that CDFIs are making. In the future, we need other participants to be able to play that role going forward. So I think to your question, both; that could be potentially a public sector play, or that could also be a private market play, as most folks understand how good the loan performance is for the CDFIs who are in this room and operate across the country.
So in short, what I think a secondary market can do is, it allows CDFIs to recycle the capital and get to scale. Because oftentimes we spend a lot of energy and effort trying to raise capital in very inefficient ways. And in some cases, we get beholden to basically the person who’s providing us the capital. And we have to provide those onerous systems to you because we’re an intermediary ourselves.
And so getting to a place where we can actually have a number of folks playing different roles in that secondary market, who are willing to take different risk profiles, creates an opportunity for us to scale beyond anything that I think we can even have contemplated.
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