Wells Fargo enables CDFIs to expand their impact on small businesses

The Wells Fargo Open Fund for Business*, created with $420 million in Paycheck Protection Program processing fees, provided a lifeline to struggling small businesses during the pandemic. By offering flexible grants to more than 200 nonprofits, including Community Development Financial InstitutionsThe fund enabled them to provide crucial financial and technical assistance to 336,000 under-represented entrepreneurs, preserving and creating more than 461,000 jobs.

More than just money: the ripple effect of the Open For Business Fund

“When the pandemic hit, millions of businesses that help communities be the places we love to call home were immediately challenged – from restaurants, hair salons, nail salons, daycares, bakeries and more. Many of them were providing in-person services and, for public safety reasons, had to close,” explained Darlene Goins, director of philanthropy and community impact and president of the Wells Fargo Foundation.

Open for Business provided crucial support to small businesses affected by the pandemic, focusing on Flexible capital and technical assistanceWells Fargo donated its $420 million in PPP fees to the OFB Fund, which directed those funds into local communities to support small businesses through more than 200 business support organizations and CDFIs, enabling them to provide a variety of financial and advisory services.

The program also catalyzed significant additional investment, as organizations leveraged their grants to attract more than $2.1 billion in public and private financing. More than $1.4 billion in total was provided in loans, grants, and modifications to struggling small businesses. The capital offered included grants, no- or low-cost loans, loan modifications, and loan forgiveness, with a 3% interest rate cap to ensure affordability.

The initiative prioritized underserved communities, of which 53% were women-owned businesses and the majority of them were women of color. In addition to providing direct relief to businesses, the OFB Fund also strengthened the capacity of supporting organizations. Nonprofits could use the funding to increase their internal capacity by strengthening their balance sheets, hiring more staff, upgrading technology, and developing language capabilities, ensuring they could effectively serve their communities and continue supporting small businesses in the long term.

Importantly, OFB’s success challenges the notion that diverse entrepreneurs are inherently risky investments.

The sweet taste of success: a bakery’s resilient journey

Lila Owens, founder of Cupcakin’ Bake Shop, partnered with ICA, a CDFI that employs venture capital tools alongside traditional debt financing to foster long-term success and community wealth building in the San Francisco Bay Area. ICA was one of 200 organizations to receive a grant from Wells Fargo’s OFB Fund. In 2022, ICA made a $600,000 equity investment in Cupcakin’ Bake Shop to help Owens expand to more locations. Owens used the investment to open two new stores and create 12 jobs, adding to the 60 employees her company already had. Today, her The bakery has seven branchesincluding six in the Bay Area and one in Atlanta.

Owens’ journey began in 2007, when she started baking for friends and family. Her talent and dedication turned her hobby into a thriving business. The pandemic brought challenges, but Owens overcame them with the help of an interest-free loan and expert advice from ICA.

The support she received during this difficult time paved the way for ICA’s capital investment, crucial to fueling Cupcakin’ Bake Shop’s expansion. “She wanted the support of her network, not just capital,” Owens said. She has consulted with them on their growth trajectory, their financial needs to achieve growth, marketing, human resources, and the impact of inflation on their high-quality ingredients and profit-making.

Today, Cupcakin’ Bake Shop is exploring further expansion opportunities, including a potential partnership with a national grocery chain, franchising, adding more of its own brick-and-mortar stores, or a combination of all three. Despite facing economic headwinds like inflation, Owens remains optimistic and adaptable, leveraging her network and strategic partnerships to continue growing her business. Her story exemplifies the transformative power of flexible financing and strategic support for female entrepreneurs.

CDFI Innovation: Meeting the Needs of More Underserved Small Businesses

MoFi, a CDFI based in Missoula, Montana, has been a crucial source of funding for ignored small businesses In the Rocky Mountain West for over 40 years, the CDFI specializes in providing loans to entrepreneurs who do not qualify for traditional bank loans due to low assets, low income, lack of experience, or being a new business.

Before the pandemic, MoFi typically served 50 to 100 businesses a year, offering loans averaging $150,000 along with technical assistance to help borrowers achieve long-term financial stability and qualify for bank loans.

The onset of the pandemic brought unprecedented challenges for small businesses. MoFi quickly adapted to become a high-volume lender and processed over 5,000 Payroll Protection Program loans. While this rapid response was critical in helping businesses survive the initial crisis, it also left many in a precarious financial situation once PPP funds ran out.

The $2.1 million grant from Wells Fargo’s Open for Business Fund proved to be a lifeline for MoFi at this critical time. The grant allowed it to take on more risk and provide much-needed capital to businesses struggling to recover from the pandemic. The funding allowed it to streamline its lending process, reducing the time it took to approve and disburse loans from 100 days to just a few days. The grant also served as a catalyst for additional funding, as MoFi leveraged the initial $2.1 million to allocate a total of $17 million to approximately 250 businesses.

Lessons learned from this experience have transformed MoFi’s approach to lending. The organization has embraced technology and streamlined its loan underwriting processes. The OFB grant also highlighted the importance of flexible capital and the need for community development financial institutions to be prepared to respond quickly to emergencies.

To maintain this level of support for small businesses, MoFi President and CEO Heidi DeArment emphasizes the need for increased recognition and funding for CDFIs. She advocates for a federal funding mechanism similar to the Federal Reserve’s window for banks and credit unions, which would provide CDFIs with the resources they need to meet the growing demand for their services. By consolidating data and demonstrating their effectiveness, CDFIs can make a strong case for increased support, ensuring they can continue to play a vital role in fostering economic growth and opportunity in underserved communities.

How would your community benefit from better support for entrepreneurs?