Nonprofit financial institution lends to ‘underserved, overlooked’ Kansas businesses, communities

TOPEKA — Community development financial institutions support “underserved” small businesses and entrepreneurs who may have challenges accessing capital through traditional means, a CDFI leader says.

Ruben Alonso, CEO of AltCap, a nonprofit CDFI based in Kansas City, Missouri, talked about the importance of access to capital in for people and communities that have been traditionally underserved by traditional financing options on the Kansas Reflector podcast.

“There are about 1,500 CDFIs in the country, but all of them are really charged with supporting communities, bringing capital to underserved, overlooked communities,” Alonso said. “Some of them focus on supporting small businesses. We very much are focused on bringing capital to entrepreneurs or businesses that fall outside the financial mainstream.”

Other CDFIs may focus on financing community centers, health centers or charter schools, he said. CDFIs were created by the U.S. Department of Treasury, and its CDFI Fund division oversees the financial institutions, Alonso said.

Alonso recently attended the launch of the Kansas Small Business Office, a new division in the Kansas Department of Commerce, to share information about CDFI financing available in Kansas. He said CDFIs have “flown a little bit under the radar” in Kansas.

The U.S. Treasury reports Kansas has received 19 CDFI awards, compared to 288 in Missouri, 247 in Colorado, 215 in Oklahoma and 87 in Nebraska.

“Kansas, I think, has been a little bit of a CDFI desert,” Alonso said. “Those CDFI resources come in the form of small business loans, micro loans, like we provide. But there’s also other resources, like tax credit financing, just other kinds of grant dollars, that the state of Kansas could be getting.”

Alonso said AltCap is working with the Kansas Small Business Office to market more consistently in the state to raise awareness of CDFI funding.

The mission-driven work of CDFIs breaks into two buckets, he said.

“It’s very people-based and place-based in terms of how we’re trying to bring capital or provide capital to communities and to individuals,” he said. “On the people side, just historically there have been some disparities in lending that exist with our traditional financial institutions or traditional banking system. For example, entrepreneurs of color or women entrepreneurs have had challenges accessing capital for a lot of different reasons.”

Alonso said statistics bear that out, with data showing that when a woman receives a bank loan, she is more likely to get less than what she requested and at a higher interest rate.

“Those are disparities that we’re trying to address,” he said. “We support all entrepreneurs, but we really want to focus on those entrepreneurs that have historically had challenges accessing traditional capital, or accessing capital from traditional financial institutions like banks.”

On the place-based side of CDFI lending, Alonso said the history of redlining has made it difficult for some communities to access capital. 

Redlining was the racist practice of grading neighborhoods in terms of viability for lending money, resulting in areas that received little to no investment. The practice created disparities in social, economic and environmental conditions that continue today, according to the Digital Scholarship Lab at the University of Richmond.

“We don’t do it alone,” Alonso said. “We have great partnerships and relationships with banks to ensure that any entrepreneur or any community has the opportunity to access capital if they need to.”

Applying for a CDFI loan is similar to applying for a bank loan, but the rules may not be as defined, Alonso said. 

“We will look at a lot of the same things that banks look at, like your credit score. It’s not something that drives our lending decisions, like a lot of traditional financial institutions,” he said. “You could have a low credit score with us, and it’s not going to be an immediate disqualifier.”

A CDFI lender would dig into why the credit score was low and look at many other factors, Alonso said. 

It’s also important that businesses understand lending options so they avoid things like accessing capital through credit cards with high interest rates or through more risky options, Alonso said. 

“A lot of what AltCap does is refinance small businesses or entrepreneurs out of those online loans, because they quickly realize how expensive those loans are,” he said.