Financial Innovations and Small Business Growth

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  • First four bullets are from SBA, last bullet comes from SMOBE
  • Bullet 1 - Bostic, Ralph and Glenn Canner. “New Information on Lending to Small Businesses and Small Farms: The 1996 CRA Data” Federal Reserve Bulletin 84: 1-21. 1998. Bullet 2 - “The Unbanked – Who are They?,” Capital Connections, Spring 2001 Federal Reserve System Bullet 3 - Dalaker, Joseph, “Poverty in the United States, 2000” Current Population Report, Census, 2001 Bullet 4- InnerCity100 Website Bullet 5 - SMOBE
  • Financial Services Used by Small Businesses: Evidence from the 1998 Survey of Small Business Finances Marianne P. Bitler, Alicia M. Robb, and John D. Wolken Federal Reserve Bulletin , vol. 87 (April 2001), pp. 183-205. Article
  • Financial Services Used by Small Businesses: Evidence from the 1998 Survey of Small Business Finances Marianne P. Bitler, Alicia M. Robb, and John D. Wolken Federal Reserve Bulletin , vol. 87 (April 2001), pp. 183-205. Article
  • Financial Services Used by Small Businesses: Evidence from the 1998 Survey of Small Business Finances Marianne P. Bitler, Alicia M. Robb, and John D. Wolken Federal Reserve Bulletin , vol. 87 (April 2001), pp. 183-205. Article
  • Financial Services Used by Small Businesses: Evidence from the 1998 Survey of Small Business Finances Marianne P. Bitler, Alicia M. Robb, and John D. Wolken Federal Reserve Bulletin , vol. 87 (April 2001), pp. 183-205. Article Each bar represents % of companies in each category that use each product. EX: Roughly 76% of firms with revenues less than $25K use liquid asset accounts.
  • Financial Services Used by Small Businesses: Evidence from the 1998 Survey of Small Business Finances Marianne P. Bitler, Alicia M. Robb, and John D. Wolken Federal Reserve Bulletin , vol. 87 (April 2001), pp. 183-205. Article
  • Financial Services Used by Small Businesses: Evidence from the 1998 Survey of Small Business Finances Marianne P. Bitler, Alicia M. Robb, and John D. Wolken Federal Reserve Bulletin , vol. 87 (April 2001), pp. 183-205. Article
  • The survey was collectd in sample census tracts w/ the median household income less than 80% of the median household income for the metro are. This explains why so little of the banked are Caucasian. Even so, the unbanked are strikingly different from the banked, on the whole. This points to methods for reaching potential customers among the unbanked are inefficient. Relative to banked the unbanked are much less educated with less than half holding a high school diploma, while the banked are more similar in educational attainment to the U.S. population. The unbanked are younger than the banked and are more likely to be foreign born, Consistent with this, they are more likely to be Hispanic. The unbanked are underrepresented in other demographic groups, such as Non-Hispanic blacks and , particularly, non-Hispanic whites. Hardly any non-Hispanic whites in the survey population are unbanked, The unbanked are far more likely to have low household incomes than the banked and much more likely to receive government benefits such as welfare, supplementary security income, women infant and children (WIC) nutrition program payments, and food stamps. Consistent with this, the unbanked are somewhat more likely to be female than male. This table was taken from “The Role of Banks and Non-Banks in Serving Low and Moderate Income Communities” by Constance R. Durham, Senior Financial Economist, OCC. PResnted to the Fed Reserve Conference on “Changing Financeial Markets and Community Development” in April 5-6, 2001. Presented in March 2001. FYI: Written on Cover - “Preliminary Findings - do not quote or cite without further permission from the author. The survey collected information from slightly more than 2,000 adults (18 years +), who represented a total of 2.6 million individuals in the survey population. An estimated 37% or 978,000 were unbanked and lived in LMI census tracts of NYC and LA County. In addition, sizeable numbers of low-income people lived in these two urban areas resided outside these LMI tracks. Thus, it is likely that NYC and LA County have over 1M unbanked individuals who are potential new customers for banks.
  • The sample of institutions selected to participate in the survey consisted of roughly the largest 500 retail banking institutions, including 400 commercial banks and 100 savings institutions, The sample was limited to the larges banking institutions because they account for the vast majority (estimated at more that 70 percent) of CRA-related lending. Survey responses were received from 143 banking institutions – 114 commercial banks and 29 savings associations. Since most of the largest institutions responded to the survey, the survey respondents are estimated to account for between 40 percent and 55 percent of CRA- related lending in each loan product category, even though the number of respondents was relatively small. CRA related small business loans were defined as any small business loan made within the banking institution’s CRA assessment area to a firm with revenues of $1 million or less (regardless of neighborhood income) or in a low- or moderate- income neighborhood (regardless of firm size) About three-quarters of the respondents reported using at least one CRA special lending program to augment their CRA lending. In about 60 percent of these banks, such programs are in distinct business units or departments of the bank. These programs are predominately for home purchase and refinance lending (72 percent of programs), with less than 10 percent of the special programs focusing on small business lending. Virtually all respondents reported that their CRA-related lending has led to new customers and additional loans along with the opportunity to cross-market products to CRA-related loan customers. Given that the intent of CRA is to encourage banks to seek untapped business opportunities in previously underserved markets, this survey seems to illustrate that the law is, in part, working toward this end.
  • Represent the percent of institutions reporting about the profitability of their CRA loans relative to non-CRA loans. That is, 82% institutions reported that their CRA loans are about as profitable as non-CRA loans.
  • National Cooperative Bank Development Corp., CRF Securitizing small business credit enhanced loans
  • SB 661 awaits amendment to allow for language that with provide a mechanism for transfer of funds from CIDFAC to the loan pool. SBA Section 8(@) Contract Receivables Securitization – Companies owned by minority/disadvantaged entreprenuers can be certified by the SBA as eligible for preferential federal procurement opportunities. The receivables on these contracts are eligible for securitization. Even where 8(a) companies have little trouble financing their federal contracts, they may encounter difficulty financing that portion of their work that comes from non-federal sources (roughly 60%). Moreover, 8(a) companies tend to be undercapitalized and in need of subordinate debt financing as a “borrowing base” for bank credit.
  • Ratings done by Moody’s and DCR/Fitch
  • Increased Bank Lending to Under-Served Communities Most small firms rely on banks as their principal source of financing. As subordinate “companion” loans, BridgeNotes absorb most of the default risk on loans to less creditworthy firms, thus making it easier and more profitable for commercial and savings banks to make loans to borrowers deemed “marginal” by conventional lenders’ rating systems. A secondary market for BridgeNotes ensures that funds are continually available to finance new BridgeNotes as minority business lending grows. As mentioned earlier, the BridgeNote program should generate $500 million in new small business lending over a five-year period. This high degree of leverage will be achieved as follows: An initial capital base of $6 to $10 million contributed by social investors should allow BridgeLine to obtain a $25 million credit line to finance $25 million in BridgeNote lending. Because securitization transactions can occur on quarterly basis, a $25 million credit line can support $100 million in an annual BridgeNote origination program. Finally, every $1 in BridgeNote financing is expected to support at least $3 to $4 in senior loans. Thus $100 million in BridgeNote lending can leverage another $375 to $500 million in bank lending to under-served, including LMI, companies. Increased Minority-Lending Capacity As research shows that as minority firms tend to hire minority workers, minority lenders are also more likely to make loans to minority borrowers. Unfortunately, less than one percent of the nation’s banks are minority-owned. In addition, the average size of minority banks is less than $500 million in assets. In short, minority lenders are too few and too small to make large numbers of loans to riskier minority firms. BridgeNotes will allow minority firms to obtain more of their financing through the capital markets, thus helping to solve this “capacity” problem. Information The other output is information. Currently there are no standard monitored indicators of minority business development. BridgeNote transactions offer a unique opportunity to collect data on thousands of loans to under-valued businesses. CEDM, which will share ownership with Bridgeline, will analyze this data, including evaluating the economic and social impacts of minority business growth (e.g., job creation, wealth accumulation, business sales and investment growth, real estate development and rising property values, increased education opportunities, etc.) Offering the information to lenders and investors will foster development of new capital access policies and credit products. By tailoring financial products to the characteristics of minority firms, and mounting a proactive outreach effort designed to increase minority loan application rates, MB-CAPI, through its BridgeLine affiliate, expects to provide financing to up to 100 firms during the pilot effort and between 3,000 and 5,000 minority firms over a five-year period. Its ultimate target audience is the entire minority business community: if only 20 percent of all minority firms with employees have unmet capital needs, BridgeLine’s national secondary market effort could benefit over 100,000 small companies.
  • Some Drawbacks of CRA : Information costs: CRA Leads banks to incur redundant costs in shifting its outreach to seek creditworthy borrowers in low-income neighborhoods. If too many banks attempt to lend in a single neighborhood, the aggregate costs will be very high leaving too many banks chasing too few loans. Discourages specialization and internalization of externalities: CRA requires geographically dispersed lending. For example, if a bank finds it efficient to concentrate lending in a particular neighborhood or community, it may focus its efforts on this community, would get to know the people, business, culture, and economy of the neighborhood, as well as gain information on the positive externalities of the community. Because the CRA requires geographically dispersed lending, banks attempting specialization and internalization of externalities run into CRA troubles. CRA Credit Swaps: Consists of Two Elements. First, all banks would be assigned an annual quota of CRA qualified loans. Second, banks would be given several options regarding how to meet this quota, including the option of transferring it, or a portion of it, to another lender. The CRA quota, or obligation, would be defined objectively and quantitatively. For instance, the annual volume of bank’s obligation could be a specified percentage of its assets or deposits. Qualifying loans would consist of loans to residents, businesses, and projects in low-income neighborhoods. These neighborhoods would be designed according to median incomes as is done under current CRA regulations. A bank could earn CRA credit by either originating or holding qualified loans. Each activity – originating and holding– would be assigned a weighting. For instance, if a 50% weighting were applied to originating a loan, the origination of $500,000 of qualified loans would earn a bank $250,000 of credit. Likewise, if a 50% weighting were applied to holding qualified loans, the holder of those loans would earn the same amount of credit. If the originating bank held its loans, that bank would earn the full $500,000 of credit. In addition, certain types of loans that are especially costly to make – perhaps multifamily housing construction loans and commercial loans, for example, might be given extra weightings in measuring credit towards a bank’s CRA obligation. Under this proposal, a bank would have several options by which it could discharge its CRA obligations. The most straightforward option for a bank would be to originate and hold the requisite volume of loans. A second option would be to transfer the CRA obligations, or a portion of it, to another lender for an agreed-upon price. To illustrate, assume BankTwo must make $1,000,000 worth of CRA qualified loans this year and that the rules of the system award a bank 50% credit for originating and 50% credit for holding a qualified loan. Furthermore, assume that BankTwo has identified $500,000 worth of qualified lending opportunities and that it both originates those loans and holds them in its portfolio. BankTwo still has $500,000 worth of CRA obligations to discharge. Countybank and DownShore Bank, two specialists in CRA-lending, each offer to accept BankTwo’s remaining $500,000 worth of CRA obligation. Countybank will take on the obligation in exchange for a payment of $20,000, and DownShore will assume the obligation for $16,000. Of the two, the DownShore offer is obviously more attractive. BankTwo would therefore compare the payment of $16,000 with its expected cost of fulfilling the remaining quota itself. If its expected cost is greater than $16,000, it will accept DownShore’s offer and transfer its remaining obligation of $500,000 worth of CRA-qualified lending to DownShore. DownShore will then have to meet its own CRA obligation plus $500,000 worth of BankTwo’s obligation. Once DownShore has accepted BankTwo’s obligation, BankTwo will have discharged its obligation for the year. Under this proposal, a bank would have several options short of transferring its obligation. It could originate loans and sell them to third parties; it could originate no loans and instead buy loans from other lenders (in the form of whole loans, participations, or securitized loans); or it could lend through a consortium. The following examples illustrate some of the ways in which a bank could use these alternatives to discharge a $1,000,000 CRA obligation, again assuming 50% weightings for originating and holding loans. If this system were implemented, other structures and vehicles would presumably be developed as well. First, a bank could originate $2,000,000 worth of home loans in low-income neighborhoods and transfer those loans to a pool (perhaps assembled by another institution) from which securitized pass-through certificates would be sold to third parties. Second, it could buy $2,000,000 in a consortium that lends in low-income neighborhoods. Fourth, it could buy a $2,000,000 million participation in a large loan originated by another bank for the construction of multifamily low-income housing. In each of these examples, the bank would either originate or hold $2,000,000 worth of loans and would therefore earn $1,000,000 million worth of CRA credit-50% of the face amount of the loans. Main Point: Great new innovation for secondary loan market. Can be applied to corporations who buy these loans in exchange for tax-credits, etc.
  • NMTC regulations was to be passed in October or November, according to Paul Pryde who saw it on CDFI site, given the events of SEP 11, priorities were shifted, but Paul spoke with someone at CDFI last week who said there were not any problems with legislation that’s pending at CDFI at Treasurer’s office. NMVC - Authorizes the SBA to guarantee up to $150 million in loans that will match $100 million in private equity for a total of $250 million and provides $30 million in technical assistance for small businesses NMTC - Spur $15 billion in equity investment for business growth in low- and moderate-income rural and urban communities NMVC & NMTC – problem is that they need to have all capital committed by Jan 2002, but regs for tax credits are not issued, so assuming that the companies do invest before the regulation for the NMTC are approved, are the tax credits retro-active? Companies selected for NMVC: Conditionally Approved NMVC Companies Applicant Name Adena Ventures, L.P. Applicant Name CEI Community Ventures Fund, LLC Applicant Name Dingman Center for Enterpreneurship Applicant Name Murex Investments I, L.P. Applicant Name Pennsylvania Rural Opportunities Fund Applicant Name Southwest Development Fund, LLC Applicant Name The Southern Appalachian Fund, L.P.


  • 1. Financial Innovations and Small Business Growth Glenn Yago Milken Institute October 2009
  • 2. Small Business are Vital to the U.S. Economy
    • 99.7% of the 5.5 million firms in the United States have fewer than 500 employees.
    • Small businesses account for 50% of private-sector output, employ more than 50% of private-sector workers, and create about 75% of net new jobs per year.
    • 2/3 of small businesses have less than 5 employees.
    • 4/5 of small businesses are located in urban areas.
    • 15% of small businesses are minority-owned; 24% are women-owned.
  • 3. Low-Income Areas Suffer from a Lack of Capital
    • From 1996 to 1999, small business loans in upper-income areas grew 13 times the rate of growth in low-income tracks.
    • Of the 9.7% of individuals without bank accounts, 50.5% generate incomes below $10,000.
    • Fifty-three percent of individuals living in poverty are racial minorities.
    • Nearly forty percent of firms ranked in the InnerCity 100 were owned by minority entrepreneurs.
    • Roughly 13% of U.S. small businesses with employees are owned by minority entrepreneurs.
  • 4.
    • The U.S. Minority population today is larger than the population of 93% of the world’s countries.
    • The Minority population will account for nearly 90 percent of the total 131 million growth in the U.S. population from 1995 to 2050.
    • The Minority population will most likely pass the non-minority population after 2050.
    • Minorities today account for $1.3 trillion, or 20% of the U.S. total $6.5 trillion purchasing power.
    Minorities Grow in Importance
  • 5. Increasing Role of Minorities in the Labor Market
    • Labor Supply Constraint
      • Since the 1970s, the U. S. workforce growth rate as been declining--from 2.7% in the 1970s, to 1.6% in the 1980s, to between 1.0-1.5% today. Projections over the next decade predict continued low rates of increase.
      • Meanwhile, by 2020, 70% of the workforce growth will occur among minorities.
      • Unless this workforce can be tapped, the lack of labor will act as a brake on economic growth.
  • 6. Small Business’ Sources of Financial Services by Sales Percent Fiscal Year Sales (Thousands) *thrift (savings institution, credit union); **finance company, brokerage, leasing company, other; ***family and individuals, other businesses, government
  • 7. Small Business’ Sources of Financial Services by Ethnic Group Percent
  • 8. Small Business’ Uses of Financial Service Products by Sales Fiscal Year Sales ($Thousands) Percent *checking, savings; **credit line, mortgage, vehicle, equipment, capital lease, other; ***transaction, cash management, credit-related, brokerage, trust and pension
  • 9. Small Business’ Uses of Financial Service Products by Ethnic Group Fiscal Year Sales (Thousands) Percent *checking, savings; **credit line, mortgage, vehicle, equipment, capital lease, other;
  • 10. Small Business’ Uses of Financial Service Products by Ethnic Group, cont. Percent *Transaction services, Cash management, Credit-related, Brokerage, Trust and pension. ** excludes proprietorships
  • 11. The “Unbanked”
  • 12. Breakdown of CRA Lending By Category in 1999
  • 13. CRA –Related Small Business Loans are Profitable
  • 14. Center for Emerging Domestic Markets “CEDM”
    • Definitive source of information, innovation, and interaction for financing Emerging Domestic Markets
      • Joint venture of the Milken Institute and the Capital Access Group, with initial funding provided by MBDA.
      • Provides information-based services and products to help investors, lenders, entrepreneurs, guarantors, regulators, universities, and philanthropic and government organizations.
      • Virtual and real-time conferences and on-going dialogues between participants.
      • A “lab” to develop and pilot market-based public policies and innovations intended to increase access to and deployment of capital for EDM businesses.
  • 15. Milken Institute Study: Purpose
    • Sponsored by the Ford Foundation.
    • Survey the small business capital access environment, focusing on pilot initiatives testing new financial innovations, and/or mechanisms that may bring existing programs to scale.
    • Analyze the situation surrounding capital access to small businesses in low income communities.
    • Make recommendations to address the disparity of access to capital.
  • 16. Milken Institute Study: Methodology
    • In undertaking the study of capital access to small businesses in low-income communities, the Milken Institute conducted the following tasks:
      • Comprehensive literature review of current studies and research in finance, economics, and policy concerning the distribution of public and private equity/debt to low-income entrepreneurs.
      • Empirical review of data sources concerning barriers to capital access.
      • Industry focus groups with industry leaders from mainstream and community financial institutions (depository and non-depository), investors, regulators, and others.
      • Telephone interviews and surveys of industry practitioners.
  • 17. Fundamentals of the Opportunity
    • Large concentration of consumers who are generally underserved
    • Significant supply of inexpensive, strategically located land
    • Large concentration of labor pool
    • Pro-growth environment
    • Existing infrastructure
    • Untapped market for investment
    • Empowerment zones, enterprise communities, and Brownfield initiatives
    • Changing demographics
  • 18. Obstacles to Financing
    • Lack of loan performance data
      • Leads to higher perceived risk
    • Lack of standardized products & sufficient deal size
      • Leads to higher cost
    • Lack of networks
      • Leads to disinformation regarding to capital sources
    • Lack of allocation of “value-chain” activities
      • Leads to inefficiency by small firms and non-participation by large firms
  • 19. The “Value Chain”
    •    Product development
    •    Marketing/origination 
    •    Underwriting 
    •    Pooling/funding 
    •    Servicing/monitoring 
    •    Packaging
    • Liquidity
  • 20. Some Consistent Themes
    • Perceived risk is higher than actual risk
      • Better data is required
    • Small businesses need access to range of capital at all stages of growth
    • Key factor is access and repayment terms, not interest rate
    • Community development financing is often not cost-effective
    • Easier for smaller financial firms to innovate; Easier for larger firms to roll out
    • Financial technology must be deployed
    • Mergers limit lending – offer opportunities for innovation
    • CRA could benefit from broader applications
  • 21. Characteristics of Successful Innovation
    • In studying the past and present innovations in economic history, we have identified several important components of successful innovation:
      • Strong leadership
      • Ability to experiment
      • Information
      • Business assistance
      • Replication and scale
      • Specialization
      • Cost effectiveness
      • Partnerships
  • 22. Categories of Innovation
    • Innovations in sources of capital
    • Innovations in financing structures
    • Innovations in tools supporting financing
    • Innovations in means of ownership
  • 23. Sources of Capital Examples
    • Insurance companies
      • Impact Capital
    • Angel pools
      • RAIN
    • Consortiums
      • NYCIC, CEDLI
    • Corporate partnerships
      • Shell Community Banking Initiative, Union Bank –Nix Check Cashing, Union Bank - WEDC
    • Community banks
      • Community Bank of the Bay
    • Pension funds
      • CalPERS’ California Initiative
    • SRI Funds
  • 24. Financing Structures Examples
    • Credit enhancement – Capital Access Programs
    • Public/private funds for guarantees and leveraging
      • Chase Rural Development and Finance Corp
    • Revenue royalties - Sustainable Jobs Fund
    • Pooling and securitization
      • Impact Capital
        • Pooling non-investment grade loans, turning them into S&P rated, investment grade securities
    • Tribal bonds
      • Southern Ute tribe gains tribal first independent AAA bond rating
    • Receivables guarantees - ACTrade
    • “ Debtquity” -CDVC Funds
    • Liquidation structures – Boston Community Capital Study
  • 25. Tools Supporting Financing Examples
    • Technology
      • FleetBank Boston’s Community Link
    • Standardization
    • Data collection – Merrill Lynch/CDTech
    • Credit Scoring
      • ‘ Count-Me-In’ and Fair, Isaacs
    • Mentoring/business advisory
      • Runners’ Club, SVCV
    • TA certification
      • CARAT Program
    • Financing professional services
      • ITAC
    • Strong networks & intermediaries
      • NCIF
    • CRA credit swaps
  • 26. Forms of Ownership Examples
    • ESOPs
      • Pueblo Nuevo – Employee cooperative offers training, living wage, benefits, growth opportunities, and profit sharing for low-income workers
    • Minority-owned banks
      • East-West Bank’s Chinese Language Web-Banking fills the demand of the Chinese immigrant community
    • Faith-based financing
      • FAME Renaissance – financing, mentoring, business assistance provided from a source familiar with the community.
    • Minority suppliers
  • 27. Packaging the Undervalued Assets of Low-Income Areas
    • Low-income communities’ assets can be packaged and developed properly to create great value and opportunity for residents and investors:
      • REITs
      • Strategically developed land trusts
      • Pooling small business loans
      • Leveraging government incentives, funds, regulations effectively
      • Capturing data
      • Creating new financial structures, tools, and products
  • 28. Innovations Small Business Finance Model Loan Sellers Non-Profit Development Org Banks SBA Loans Credit Unions Municipalities Non-Depository Financial Inst Market Rate Investors Banks Insurance Companies Pension Funds Corporations Concessionary Investors Foundations Religious Institutions Charitable Contributors Foundations Loan Pool Credit Reserve Fund DOA (IRP), DOC-MBDA, EDA, DOE, EPA, DOT, SBA (7A, 8A) Existing Government Guarantors
  • 29. Innovations Securitizing Community Development
    • Securitizing community development loans is a potentially lucrative market:
      • Variety of loan or receivable pools that can be securitized.
      • Firms are constantly exploring possible products for securitization.
      • Institutional investors may find securitization attractive.
    • Identified pools of capital for a California pilot include:
      • Contract receivables securitization.
      • Senate Bill 661 - allows for securitization of community development funds backed by funds from CIDFAC.
      • SBA Section 7(a) Loans – existing secondary market for guaranteed portion.
    • Private funds active in securitization - Impact Capital, CNL Commercial, Women's Equity Mutual Fund
  • 30. Innovations California Capital Access Program “CalCAP”
    • Loans up to 2.5 million dollars are insured by premiums paid by borrower and lender, which are matched by government and placed into loan loss reserves; total premium of 8%.
    • Verifiable 12-year history of defaults averaging 3.9%, 3.5%
      • Over time, as more and more loans are enrolled, a lender's loss reserve account grows substantially.
    • Securitization of these loans are pending
      • CNL Commercial Finance of Yorba Linda, California will securitize $100 million of CalCAP loans in the first year and $150 million each year thereafter.
      • Loans will be real estate related, with an 80% recovery history, 25-year maturity, five years non-refund, 7.75 years average life and float at prime+1.
      • Loans will be 85%-90% LTV and have coverage of 1.2 times.
      • Expectations for 90% of loans to be rated AAA and the remaining 10% to be rated A
  • 31. Innovations National Capital Access Programs
    • Support for a National Capital Access Program:
      • Currently, state Capital Access Programs (CAP) are small business-lending programs available in 22 states and two cities.
      • Over $1.2 billion loans have been issued, with losses running at 3.1% of all loan volume.
      • Off-balance sheet, risk-less 20% profit return to CAP lender on each deal after all expenses.
      • U.S. Congress authorized, but not appropriated $200 million to for a national CAP reserve, intended to replenish state portion of CAP programs.
  • 32. Innovations BridgeNotes
    • BridgeNotes are subordinate-lien, “companion” loans developed by the Capital Access Group and designed to “bridge” the gap between the amount a bank is willing to lend and the small business borrower’s total financing need.
    • Bridge Notes will:
      • Increase bank lending to low-income communities.
      • Increase community-lending capacity.
      • Increase availability of data on loans to under-valued businesses.
  • 33. Transaction Diagram ($1,000 loan) BridgeLine Company Trust Bank 1. Advances $1,000 2. Signs $750 senior note and $250 junior note; pays 2% insurance fee. 4. Gives $788 for senior note 3. Sells $750 senior note Retains $250 junior 5. Transfers $250 note and $58 fee 6. Sells bonds; gives $250 cash
  • 34. Innovations Breaking up the Value Chain: Micro-enterprise Training and Financing Program
    • USC Business Expansion Network, Liberty Hill, California Community Foundation and CalFed Bank team up to tap the untapped market.
    • MTFP will provide loans to small-scale businesses which require less than $10,000 of investment capital.
    • Utilizing Specialization
      • USC BEN has a 14-year history of cultivating entrepreneurship and will provide mentoring to the borrowers.
      • California Community Foundation covers the cost of full time staff at USC BEN.
      • Liberty Hill has a stake in promoting social and economic development in low-income communities and will share the risk with CalFed.
      • CalFed Bank is able to provide the mechanics of loan processing, securitization, funding, and monitoring.
  • 35. Innovations CRA Credit Swaps
    • CRA credits can be traded among banks much like carbon swaps in environmental trading
      • Banks specializing in CRA –related lending can “swap” with banks who are short of adequate CRA credits.
      • CRA credit swaps encourage specialization and niche lending – familiarity with the people, business, culture and economy of their CRA assessment community.
      • Banks unfamiliar with the low-income market will not make poor quality loans based on poor understanding of the market.
  • 36. Broadened Application of Legislation and Regulation
    • New Markets Tax Credit
    • New Markets Venture Capital Funds.
    • Community Reinvestment Act
  • 37. Areas for Exploration
    • Community Reinvestment Act
      • Applications
      • Weighting for Compliance
      • New Technologies
      • Unbanked
      • Privacy
    • Community Development Financial Institutions
      • Loan/Investment Performance
      • Reporting Standards
    • Tracking New Markets Initiatives
      • People versus Places