Wells Fargo Empowers CDFIs To Expand Their Small Business Impact

Wells Fargo’s* Open for Business Fund—established with $420 million in Paycheck Protection Program processing fees—provided a lifeline to struggling small businesses during the pandemic. By offering flexible grants to over 200 nonprofits, including Community Development Financial Institutions, the fund enabled them to provide crucial financial and technical assistance to 336,000 underestimated entrepreneurs, preserving and creating over 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 that we love to call home immediately struggled, whether they were restaurants, hair salons, nail salons, childcare centers, bakeries, and more. Many of them provided in-person services, and for public safety reasons they needed to close,” explained Darlene Goins, head of philanthropy and community impact and president of Wells Fargo Foundation.

Open for Business provided crucial support to small businesses impacted by the pandemic, focusing on flexible capital and technical assistance. Wells Fargo donated its $420 million PPP fees to the OFB Fund, which deployed those funds back into the local communities to support small businesses through over 200 entrepreneurial support organizations and CDFIs, enabling them to provide a range of financial and advisory services.

The program also catalyzed significant additional investment, with organizations leveraging their grants to attract over $2.1 billion in public and private funding. More than $1.4 billion in total loans, grants, and modifications grantees were provided 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, with 53% being women-owned businesses and a majority of those being women of color. Beyond providing direct aid 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 in-language capabilities, ensuring they could effectively serve their communities and continue to support 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 that received a grant from the Wells Fargo 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 firm already had. Today, her bake shop has seven locations, including 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 navigated them with the help of a no-interest loan and expert advice from ICA.

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

Today, Cupcakin’ Bake Shop is exploring further expansion opportunities, including a potential partnership with a national grocery store chain, franchising, adding more company-owned brick-and-mortar stores, or a combination of the 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 funding and strategic support for women 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 overlooked small businesses in the Rocky Mountain West for over 40 years. The CDFI specializes in providing loans to entrepreneurs who don’t qualify for traditional bank loans because of low assets, low income, lack of experience, or being a startup.

Before the pandemic, MoFi typically served around 50 to 100 businesses annually, offering loans averaging $150,000 alongside 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, processing over 5,000 Paycheck Protection Program loans. While this rapid response was critical in helping businesses survive the initial crisis, it also left many in a precarious financial position once the 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 juncture. The grant allowed MoFi to take on more risk and provide much-needed capital to businesses struggling to recover from the pandemic. The funding enabled MoFi 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, with MoFi leveraging the initial $2.1 million to deploy a total of $17 million to approximately 250 businesses.

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

To maintain this level of support for small businesses, MoFi’s president and CEO Heidi DeArment emphasizes the need for greater recognition and funding for CDFIs. She advocates for a federal funding mechanism similar to the Fed 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 that 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?