Co-authored by CNote’s VP of Business Development, Danielle Burns and CNote’s Director of Impact Evaluation, Tamra Thetford.

Women of color (WOC) entrepreneurs continue to face intersectional and systemic barriers — such as discrimination, bias, and a lack of networks — that limit their access to capital. Business ownership is a powerful wealth-building tool, and supporting WOC in entrepreneurship is a move towards closing the wealth gap. 

The CNote Wisdom Fund (WF) is a fixed income vehicle that increases capital access and lending for WOC small business owners. It was co-created with community development financial institutions (CDFIs) to bring new thinking, experimentation, and sustainable solutions to drive wealth creation. The Wisdom Fund aims to provide or support three key areas:

1. Economic Empowerment: WOC are often left out of the traditional financial system, limiting their ability to start and grow small businesses that have the potential to boost local economies.
2. Driving Innovation and Growth: WOC are a rapidly growing segment of entrepreneurs, and research has shown that the businesses they own have the potential to drive innovation and job growth. 
3. Bridging the Wealth Gap: WOC are more likely than white women to live in poverty, and face significant wealth disparities. By increasing access to capital, WOC are able to build wealth and achieve financial stability.

Bridging the wealth gap through access to capital for women of color

As of September 30th, 2022 the Wisdom Fund has provided extensive capital and business development services to help grow and sustain businesses :

• More than $16M originated in loans to WOC through the WF
• 100% of loans have been originated to WOC
• 70% of loans have been originated to low- to moderate-income women
• 71% of borrowers received business development services in addition to loan capital
• 1,299 jobs were created or retained in businesses supported by WF loans

Improving lending through the Wisdom Fund

Despite being the fastest growing group or demographic of business owners, WOC  continue to face significant barriers to success including discrimination, lack of funding, and lack of supportive business networks. Because of this, small business owners are frequently undercapitalized. In 2021, CNote partnered with Impact Experience on a Human Centered Design (HCD) research effort to better understand the institutional and personal barriers that women of color borrowers face. 

The 3 key HCD findings were:

• Access to Varied Capital Structures: WOC entrepreneurs shared a clear need for more options for financing including lines of credit to support cash flow, lower interest rates, reduced collateral requirements, and higher loan limits. 
• Rethinking how we assess creditworthiness: Alternative underwriting criteria allow lenders to evaluate creditworthiness beyond the traditional credit scoring system using rent and utility payments, lack of delinquencies, time in business and credit payment performance. Rethinking how creditworthiness is assessed opens the door to capital access to women that may have less of a financial history.
• Time and Efficiency: Lending applications tend to lack full transparency and are often not easily accessible. The research identified a need for common format loan applications, greater transparency of documentation needed to apply at the onset of a loan application process, and shared portals across CDFIs and intermediaries. 

Wisdom Fund CDFIs get busy innovating

CNote shared the HCD research findings with Wisdom Fund CDFIs that quickly got to work identifying how they could improve their products and services for women of color borrowers going forward. In 2021, with support from the Tarsadia Foundation, CNote provided grants and peer learning opportunities to support the CDFIs’ resulting efforts to strengthen their lending to women of color and reduce bias in the lending process overall. Together, Wisdom Fund members achieved great things! 

In an initial survey, WF members indicated that 78% were already offering at least one of the critical products or features identified in the HCD research as supportive of lending. A year later, 100% of members had added an additional product, feature, or service.

• 77% adjusted their product features by raising loan limits, lowering interest rates or reducing collateral requirements.
• 69% added a new product such as a line of credit, a credit building loan, or real estate acquisition financing products. 
• 46% adjusted their process by shortening the loan application or making the document requirements more transparent
• 46% added business development services such as leadership development, financial management services, and mergers and acquisitions assistance. 

Looking ahead and taking action! 

As 2022 came to a close, the economic climate of low-income communities continued to see a drastic increase in needs. More than 93% of Wisdom Fund CDFIs indicated a need for additional capital to support the growing demand of WOC entrepreneurs– in total WF CDFIs have reported more than $70M in demonstrated and unmet need. 

Investing in WOC is not only a moral imperative, it’s also a smart investment strategy. WOC are often underrepresented in the business world, despite being a growing demographic with immense potential. By investing in WOC, you not only support the growth of diverse, innovative businesses, but you also contribute to a more equitable and just society.

If you are looking for ways to support women of color

Educate yourself: Take the time to learn about the experiences and challenges faced by women of color in the business world. Read up on successful businesses led by women of color, attend events and conferences, and seek out mentorship opportunities. Understanding the unique strengths and perspectives that women of color bring to the table is the first step in investing in them. Check out CNotes impactful and inspirational borrower stories. 

Look for diverse opportunities: When searching for investment opportunities, actively seek out businesses led by women of color. Look beyond your usual networks and search for diverse communities and organizations to find potential investments. The CNote Wisdom Fund is a fixed income vehicle that increases capital access and lending for women of color borrowers. 100% of all investor dollars in the Wisdom Fund support women of color borrowers. 

Advocate for diversity: Use your position as an investor or consumer to advocate for more diversity in your professional and personal communities. Encourage the companies you invest in or buy from to prioritize diversity and inclusion, and push for policies that promote equity and inclusion.

To learn more about the CNote Wisdom Fund, click here!