Losses are possible with an investment in CNote but we have taken affirmative steps to mitigate the risk. A CNote customer can lose money in their investment if a partner CDFI has net charge off rates in excess of their loss reserves. In other words, if a partner CDFI makes a lot of bad loans, or the bulk of their investments fail to perform, then they will be faced with financial losses which they may be forced to pass on to customers.
CNote has an extensive due diligence process for evaluating potential partner CDFIs to prevent that exact scenario. Only industry leading CDFIs with a strong financial track record are selected for partnership. CNote evaluates CDFIs along multiple key performance indicators to maximize return and minimize the risk of loss.
Additionally, we diversify by investing money across multiple CDFIs, not just a single entity. That way, if there are significant charge offs at one CDFI, the whole investment portfolio will not be substantially impaired. CNote offers additional protections, such as our Triple Protection Plan (details in FAQ) that provides additional redundancy to prevent capital losses.