New Bank of America platform connects small businesses with CDFIs

Written by Amanda

Bank of America has launched the Access to Capital Connector, an online platform to help link small-business owners and entrepreneurs in need of capital with community development financial institutions. Credit: Sergio Flores/Bloomberg

Bank of America is taking another step to connect small businesses with more financing options.

The banking giant has unveiled an online platform that links eligible small-business owners and entrepreneurs to community development financial institutions and other support organizations that provide capital, coaching and other resources. The platform — known as the Access to Capital Connector and developed in partnership with Community Reinvestment Fund USA, a national nonprofit CDFI — enables applicants to get pre-qualified for a loan by answering general questions about their business, and then connects them with CDFIs that can serve their needs.

More than 150 CDFIs around the country are available on the platform, which aims to reduce some of the barriers that small-business owners face when they don’t qualify for traditional bank loans. The CDFIs have been vetted by Bank of America and CRF, according to BofA.

“We believe this will really fill a gap” between self-funding and traditional bank-loan readiness, said Pam Seagle, senior vice president of inclusive entrepreneurship at Bank of America. “We believe this will get small businesses the capital they need, but also help them begin to build capital and a payments history to allow them to qualify for traditional bank financing in the future.”

Bank of America’s Access to Capital Connector comes three years after it rolled out a directory that allows small businesses to search for potential financing sources such as CFDIs, venture capital and angel investments, grants, loan funds and crowdsourcing. The online directory has more than 25,000 users, but it’s static like a phone book and not a dynamic tool, Seagle said.

Interested in creating something more interactive, Bank of America and Minneapolis-based CRF began talking last summer about developing a private-label product that would be based on an existing CRF platform called CRF Connect. Unlike many of its counterparts in the CDFI world, CRF has an in-house technology services team that has developed various online platforms over the years to better connect small businesses with nontraditional funding opportunities.

CRF Connect is an aggregator that collects information from potential borrowers and feeds it into an algorithm that pre-qualifies borrowers for loans and matches them with certain CDFIs based on factors such as geography, industry, size and the length of time in business.

The Access to Capital Connector works the same way, offering streamlined, direct help to small-business owners in need of capital or other assistance in growing their companies. CDFIs that are on the platform typically lend between $10,000 and $1 million, and they tend to offer interest rates between 7% and 15%, according to the platform’s frequently asked questions section.

If owners don’t get pre-qualified for financing, they will be offered other resources that can help with developing business plans and improving their credit, Seagle said.

In many cases, the tool will introduce CDFIs to business owners who may not know about them.

“This is creating visibility for small businesses that don’t know these opportunities are out there,” said Patrick Davis, senior vice president of platform and technology services at CRF. “The best way to do that is through centers of influences, and banks are one of the best avenues for that.”

CRF, as a CDFI, may get some referrals through Bank of America’s platform, Davis said. But its lending tends to be focused on larger growth-staged businesses, so it’s more focused on creating new relationships between small businesses and other CDFIs, he said.

Awareness of CDFIs as potential capital conduits for small businesses is rising, in part because of the pandemic, according to a December 2023 report by the Federal Reserve Bank of San Francisco. CDFIs played a big role in making loans quickly to small businesses, the report said.

CDFIs are “critical to closing the small-business financing gap and ensuring all small businesses, regardless of their size or ZIP code, have the capital and coaching they need to thrive,” Carolina Martinez, CEO of CAMEO, California’s statewide microbusiness network, said in an email Wednesday. “Programs that expand awareness of and access to CDFIs are welcome news for entrepreneurs and the economy,” she added.
This isn’t the first time that CRF has partnered with a bank to provide such services. It got together with U.S. Bancorp in 2018 to launch a website called Connect2Capital, Davis said.

However, activity has slowed in recent years, and it is not currently being marketed, Davis said.

U.S. Bancorp remains committed to working with CDFIs, a spokesperson said Wednesday. In 2023, the company committed $555 million to CDFIs and other organizations, according to its latest annual report. That figure includes debt commitments, grants and corporate contributions.

Bank of America provided a grant to CRF to build out the Access to Capital Connector platform, Seagle said. The $2.5 trillion-asset company, which is the largest private investor in CDFIs with $2 billion of loans, deposits, grants and equity investments, declined to say how much it gave.

In addition to the grant, Bank of America will pay an annual licensing fee to CRF to cover costs related to the platform’s maintenance and customer service capabilities, Davis said.

CRF is talking to other big banks about launching similar platforms, David added.

“For us strategically, the point is to open the channel to work with the largest banks and create more symbiotic relationships with CDFIs,” he said.

Source: finance.yahoo.com

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Hi there, I am Amanda and I work as an editor at impactinvesting.ai;  if you are interested in my services, please reach me at amanda.impactinvesting.ai