3 ways business advising can make your CDFI more successful

CDFIs have a two-decade track record of investing in and creating jobs within underserved communities, are uniquely positioned to address the troubling trend of rising wealth and income inequality by working with small businesses to focus on the creation of good jobs.

The small businesses that come to CDFIs across America are the ones creating enduring, quality jobs, with living wages and growth opportunities for these workers. "Mom and pop" businesses and entrepreneurial ventures bring stability and renewed energy to deteriorating neighborhoods. A community’s level of social capital and well-being is positively related to its share of the local economy held by local businesses.

According to the Small Business Administration, small businesses that receive three or more hours of mentoring achieve higher revenues and increased business growth. Even better, they report: “according to a 2014 survey, 70 percent of small businesses that receive mentoring survive more than five years – double the survival rate of non-mentored businesses.” The same survey found that 88 percent of business owners with a mentor say that having one is invaluable.

And yet small business owners – and particularly diverse small business owners – face challenges finding advisors. Many often want help in areas less familiar to them but don’t have access to affordable advisors or networks that can help them. For example, nearly half of women and one-third of minority small business owners lack available mentors and advisors even if they’re actively looking for one.

Small business advising and mentoring platforms, like BusinessAdvising.org for example, reduce barriers to offering technical assistance pre- and post-loan while giving you the ability to offer your clients expert advice and guidance on any issue their business is facing, without the need to hire an army of staff.

1. Reduce risk

A CDFI’s technical assistance model can be key to the overall long-term success of its loan program. Small business owners need more than capital to be successful over the longhaul, and CDFIs that match them with free business advice that directly supports their skill gaps are seeing the benefit. Technical assistance shores up a business, whether its pre-loan financial and application guidance to post-loan mentoring in HR, operations, IT, sales, marketing and other topics critical to small business growth and sustainability.

For many CDFIs who’ve had success offering technical assistance, the services go over so well that they end up a contract requirement of their loan products, and help to not only mitigate repayment risk but expand the pool of businesses you can work with. By pairing a small business owner with an expert advisor, you can help that business owner shore up an area of their business they might not be as strong in, and allow them to seize new opportunities and more sustainably grow their revenues. That also means you reduce the risk to your loans, and you can work with borrowers you might otherwise not have been able to.

2. Align your CDFI’s brand experience with your company’s mission and bottom line

Your customers are more likely to think highly of your brand if you’re constantly working to make their life easier. Your small business clients will be more willing to stick with you – and evangelize your loan program – if you have a meaningful way of engaging with their needs beyond capital.

As an example, let’s say you’re a CDFI credit union who services small business customers with checking accounts or loans. Your customers already trust you as a financial institution, and you’re in a prime position to build on that trust by offering them free advice to help them meet their business challenges. If you partner with a site like BusinessAdvising.org your small business clients can be matched with pro bono help from a wide array of advisors, anywhere in the country. And all of a sudden your credit union is more than just a credit union to your customers, but an integral part of their business’ health. You’re a partner.

3. Create a more jobs and social impact in your local community

It’s fairly easy to see the benefits that a nonprofit or charity is having right in your community. For small businesses it’s often a halo of impact. According to research from the Federal Reserve Bank of Atlanta, places with a high density of locally-owned businesses experience higher incomes and employment growth, and less poverty. The following things may sound idyllic, but they're facts:

  • Jobs at small businesses are more secure because small-business owners aren't pressured by stockholders' profit expectations, and layoffs are typically used only as a last resort
  • Small and independent businesses employ more people directly per dollar of revenue, and they’re the customers of local printers, accountants, wholesalers, farms, attorneys, etc., expanding opportunities for local entrepreneurship
  • Each dollar spent at an independent businesses returns 3 times more money to the local economy than one spent at a chain (and hundreds of times more than buying from Amazon)
  • Compared to big businesses, small businesses donate more than twice as much per sales dollar to local nonprofits, events, and youth sports teams

Small businesses who work with mentors create two, four, even ten times the amount of new jobs that comparable small businesses do. By offering skills-based volunteer advisors to your customers, you can build enormous amounts of goodwill while also creating real opportunities across multiple fronts.

Give It A Try!

If pro bono advising sounds like something that you’d like to offer your customers, we encourage you to start your search on BusinessAdvising.org. We can help you come up with a test a free or low-cost pilot.

Small businesses are the character of our communities. The bakery that makes your favorite alfajores, the store that sells those one-of-a-kind-shirts and hats you love, the hardware store that walks you through painting a room or fixing your showerhead. That list goes on and on. Small businesses make your neighborhood, town, or city unique. Small businesses employ 120,000,000 Americans (that’s one in every two jobs!) We should be empowering small business owners to increase their competitiveness while at the same time creating quality jobs with better wages and easier access to benefits. Then every community and worker in America benefits.

About the author

Patrick Duggan is a Director at Pacific Community Ventures, a nonprofit that engages small businesses, investors and policymakers to build an economy that works for everyone. To achieve their mission they provide small businesses working in underserved communities with access to capital and mentoring, test new approaches which can be scaled via partnerships, and conduct research and evaluation so that impact investors will deploy more capital more effectively to underserved communities.

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