Diverse Community Capital program
Frequently asked questions
This document is based on frequent questions we’ve received since the Wells Fargo Works for Small Business®:
Diverse Community Capital (DCC) program launched in May 2015. For additional information, please visit
wellsfargo.com/cdfi or email us at [email protected].
Question
Answer
1. What prompted
Wells Fargo to launch the
DCC program?
In May of 2015, Gallup released a study commissioned by Wells Fargo on lending to
diverse-owned small businesses. The national study was commissioned to gain deeper
insight into the attitudes, needs, and motivations of diverse small business owners
related to their use of credit. Gallup conducted more than 3,000 telephone interviews
covering six segments: African American, Asian, Hispanic, LGBT, veterans, and women.
Among the study’s findings was that diverse small business owners were more likely
than their counterparts in the general small business population to:
• Report having personal credit challenges and be declined for business credit, with
African Americans being more likely to not reapply for credit after being declined.
• Have annual business revenues of less than $50,000 and to have a business in the
startup and growing stages. As a result, they may not qualify for many conventional
bank loan products.
• Be extremely or very interested in learning how to build a strong business credit
application.
Wells Fargo’s DCC program is part of an action plan to address needs identified in the
study, with a goal of helping more diverse small businesses become credit-ready and
gain access to credit.
April 2017 | FAQs
Question
Answer
2. What does the DCC
program include?
The program includes the following components:
Grant Capital: Wells Fargo will make $25 million in grant funding available to
Community Development Financial Institutions (CDFIs) to build their financial,
operational, and human capacity to serve diverse small businesses. CDFIs might
seek funding to expand their own net worth and operational capacity, to develop a
new product or products for their diverse business borrowers, or to pay for certain
operational expenses.
Debt Capital: Wells Fargo will make $50 million in debt capital available to CDFIs to
build their lending capital to serve diverse small businesses.
• Senior debt — typically for amounts of at least $3 million, floating market-rate interest,
unsecured or secured depending on CDFI’s capital structure, three- to four-year term
• Subordinate debt (equity equivalent investments, or EQ2s) — typically for amounts
under $3 million, low fixed interest rate, unsecured, up to a 10-year term
Social Capital: The program will offer activities to build effective support networks
and social infrastructure (Social Capital) among CDFIs for the purpose of increasing
lending to diverse small businesses. Social Capital activities will include mentorship
programs, peer learning, Knowledge Networks, and other collaborative efforts to
improve and increase the capacity of CDFIs to lend to diverse business owners.
Wells Fargo will offer the Social Capital activities through Opportunity Finance
Network (OFN).
3. What are the goals of the
DCC program?
The goals of the DCC program are:
• To increase lending to diverse small businesses
• To build the capacity of CDFIs to lend to and provide development services to small
businesses
• To strengthen the readiness of diverse small businesses to access capital
• To improve and transform systems for how diverse small businesses access capital
and development services
4. Can an organization
indicate an interest in
debt capital only or grant
capital only?
• Yes. A CDFI may indicate interest in participating in all three program components
(debt capital, grant capital, and social capital). We believe that DCC program goals
are best met by CDFIs interested in, and with the demonstrated financial capacity
to be awarded, all three components. These organizations will receive priority
consideration; however, Wells Fargo will continue to consider Interest Forms from
organizations interested in only debt or grant capital because of their current
capacity or structure. All awardees will be expected to participate in the Social
Capital programs offered through Opportunity Finance Network (OFN).
2
April 2017 | FAQs
Question
Answer
5. What is meant by diverse
small business?
For the DCC program, we are defining diverse small businesses as being owned by
someone who is Black or African American, Asian, American Indian or Alaska Native,
Native Hawaiian or Other Pacific Islander, Multiracial, Hispanic, Latino, female, a
veteran, or LGBT.
6. What is meant by “small”
business?
Consistent with the Small Business Administration’s definition, small businesses
refer to for-profit businesses ranging in size from microenterprises, with five or fewer
employees (including the proprietor), to small businesses with up to 500 employees.
7. How can CDFIs use grant
funds?
The purpose of the grant funding is to build CDFI capacity (capital, resources, and
knowledge) and to increase and strengthen lending to diverse small businesses,
particularly African American business owners. Proposed uses of grant funding include:
• Equity capital to increase lending capacity and manage risk, including additions to
loan loss reserves.
• Marketing, communications, and business outreach strategies and materials
(including the development of online applications) targeting diverse small
businesses, especially African American-owned businesses.
• Actions and programs to create trust and establish CDFI presence in racially diverse
communities.
• Development and delivery of technical assistance and business and financial
counseling for diverse small business owners.
• Market research and new product development targeted at increasing lending to
diverse small businesses.
• Creation of support networks for small businesses owned by people of color for peer
learning, business partnership, and business development opportunities.
• Recruitment and training (internal and external) of staff.
• Creation of credit underwriting policies and criteria for diverse small business
borrowers.
• Formation of business partnerships that work to expand CDFI capacity to increase
capital access to diverse small businesses. Such partnerships or collaborations could
involve other CDFIs, small business development centers, workforce training and
development agencies, diverse chambers of commerce, and/or other local partners
committed to increasing capital access for diverse business owners.
• Strategic planning activities.
• Impact measurement programs.
• Replication or expansion of existing diverse small business lending strategies or
programs.
• Other operational support projects/programs designed to increase lending to
diverse small businesses.
3
April 2017 | FAQs
Question
Answer
8. How can CDFIs use the
program’s debt funds?
The debt capital is to be used for lending to diverse small businesses, particularly
African American-owned businesses.
9. What are the eligibility
requirements of the
program?
• Organizations must have a primary mission of community development, with a
focus on serving low-income, low-wealth, and other disadvantaged people and
communities; be a nongovernmental entity; and be primarily a financing institution
that provides affordable, responsible financial products and services. If the
organization is part of or controlled by another corporation(s), that corporation also
must have a primary mission of community development.
• Organizations with tax-exempt status under Section 501(c)(3) of the U.S. Internal
Revenue Code. Organizations without 501(c)(3) tax-exempt status can also be
considered if they work with a fiscal sponsor with 501(c)3 tax-exempt status. A fiscal
sponsorship agreement between the two parties that outlines the responsibilities
and oversight of the fiscal sponsor must be in place and submitted with an Interest
Form. Certain organizations with 501(c)(4) tax status that meet other eligibility
requirements may also be eligible to apply for debt capital only. Please inquire at
[email protected] before submitting an Interest Form.
• Organizations must have completed at least two consecutive years of small business
lending as of the date of the application.
• Located in and serving the U.S.
10. Does my organization
need to be certified by
the CDFI Fund in order
to submit an Interest
Form?
No. Certification is not required. However, all of the eligibility requirements of the
program must be met.
11. Is membership with
Opportunity Finance
Network required?
While we are pleased to be working with OFN on this program, membership is not a
requirement to be considered for funding.
12. We are working
collaboratively with other
organizations to increase
lending to diverse small
businesses. Can our
group of organizations
submit an Interest Form?
While we encourage collaboration, the Interest Form must be completed by a lead
organization that meets program eligibility requirements. Any potential funds awarded
will be granted or loaned to the lead organization.
4
April 2017 | FAQs
Question
Answer
13. What are the selection
criteria for the program?
Wells Fargo will evaluate applicants for all three program components using the
following selection criteria:
• A compelling strategy to increase lending to diverse small businesses. Compelling
strategies will be comprehensive, leverage other resources, and result in meaningful
and measurable impact and change. Compelling strategies may have elements of
innovation (in delivery of financing, technical assistance, outreach, marketing, etc.),
scalability, and replicability. Strategies should include specific and credible projected
outcomes and an articulation of overall community impact over a three-year period.
• Acceptable CDFI financial performance in terms of capital adequacy, assets,
management capability, earnings, and liquidity. CDFIs will provide current interim
financial statements and the last three audits. Financial analysis will cover trends in
topics such as (but not limited to):
− Change in net assets/change in unrestricted net assets
− Self-sufficiency
− Net asset ratio/unrestricted net asset ratio
− Pledged/unencumbered assets
− Liquidity (unrestricted cash, months of operating cash)
− Asset-liability matching
− Portfolio performance (past dues, non-accruals, tdrs, charge-offs, loan loss reserve
levels)
− Portfolio management (policies for risk rating, borrower and overall portfolio
reviews, etc.)
− Projections and strategic plan (especially as they relate to proposed portfolio
growth)
− AERIS rating (if available)
• We will consider Interest Forms from CDFIs serving all segments of diversity (as
defined in these guidelines); we will give priority consideration to strategies which
increase lending to African American-owned businesses and to Interest Forms
submitted by CDFIs led by people of color.
• We will also give priority consideration to CDFIs located in and serving the U.S.,
with a priority on organizations located in and serving customers in states where
Wells Fargo has a retail bank presence: AL, AK, AR, AZ, CA, CO, CT, DC, DE, FL, GA,
IA, ID, IL, IN, KS, MD, MI, MN, MS, MT, NC, ND, NE, NJ, NM, NV, NY, OH, OR, PA,
SC, SD, TN, TX, UT, VA, WA, WI, WY.
14. Do we have to submit
separate Interest Forms
if our organization serves
multiple markets?
No. The Interest Form will prompt you to describe your market(s), including the
geographic scope of your work.
5
April 2017 | FAQs
Question
Answer
15. What is the size of the
grants and loans?
• The size of grant and/or loan will depend on the organization’s capacity, geographic
scope, and strength of proposal. Loan size will also depend on Wells Fargo
Community Lending & Investment’s current exposure and other underwriting
factors.
• Grants will generally range from $50,000 to $500,000
• Loans will generally range from $100,000 to several million
• Response to the DCC continues to be extraordinary and the program will continue
to be very competitive. The grant budget for the next three rounds will average about
$3 million for each round.
16. My CDFI received a
DCC award in an earlier
round. Can we submit for
additional capital?
At this time, we are unable to consider funding to CDFIs that have already received
capital through this program.
17. How does a CDFI express
interest in the DCC
program?
CDFIs that are interested in one or more components of the Diverse Community
Capital program will submit an Interest Form available at http://www.cybergrants.com/
wellsfargo/DCC/interestform.
The Interest Form will solicit responses to:
• The unmet needs of diverse small businesses in a CDFI’s market.
• The CDFI’s strategy to increase lending and other services to diverse small business,
how Diverse Community Capital resources would support the strategy, and the
projected outcomes of the proposed strategy.
• Which components of the DCC program the CDFI is interested in (grant, debt, and
social capital).
• The proposed use of Diverse Community Capital funds and how the strategy will be
sustained after the resources are exhausted.
• The dollar and number of loans to diverse small businesses in the past three fiscal
years and the projected dollar and number of loans for the next three fiscal years.
• A breakdown of lending to diverse borrowers.
• Portfolio performance information for three fiscal years, including past dues, non
accruals, restructures, and charge-offs.
• Other financial metrics for three fiscal years, including self-sufficiency ratio,
operating cash on hand, net asset ratio, and unrestricted net asset ratio.
CDFIs will also be asked to upload a copy of the last three years of audited financial
statements and the most recent interim financial statements.
6
April 2017 | FAQs
Question
Answer
18. What happens after the
CDFI completes the
DCC Interest Form?
After reviewing the Interest Forms, Wells Fargo will invite selected CDFIs to apply for
grant and/or debt capital. Note the timeframe for the program that follows. Wells Fargo
will inform all applicants of one of the following:
• The applicant is invited to apply for a grant and/or debt capital in the current round.
• The applicant is deferred to be reviewed in a future round of the program. There will
be a minimum of two rounds of awards each year for three years (2016 – 2018).
• The applicant is declined.
Social Capital activities will be determined and organized based on needs identified by
Wells Fargo and OFN and levels of interest by program applicants.
19. For those CDFIs that
are invited to apply for
a grant, what additional
information will they
need to provide?
All CDFIs that have been invited by Wells Fargo to officially apply for a grant will need
to submit an online application through the Wells Fargo Cyber Grants system. The
online application will include, but not be limited to:
• An opportunity to more fully explain the organization’s strategy for serving diverse
small businesses with Diverse Community Capital resources
• Form 990
• A detailed budget for the requested grant funds
• A borrower success story
• A list of board members with affiliations
• Demographics of the individuals serve
Full grant applications are submitted electronically. No paper or email requests will be
accepted.
20. What is the next step for
CDFIs that are invited to
apply for debt capital?
Wells Fargo Community Lending and Investing will supply CDFIs invited to apply for
debt capital with an application form that requests additional information on financial
and portfolio performance, lending policies and procedures, capital structure, and
organizational and management structure and capacity. CDFIs will submit completed
applications via email.
21. If my organization’s
Interest Form is deferred
or declined, will we
receive any feedback
about the decision?
Yes. Organizations can schedule an appointment to learn more about our review
process and the rationale for our decision.
22. How will Wells Fargo
measure the impact of
the DCC program?
In addition to standard financial reporting associated with a grant and/or loan award,
CDFIs will be asked to provide:
• An annual report for the term of the grant and/or loan that includes data on lending
and technical assistance provided to diverse small businesses.
• Two borrower success stories during the program period.
7
April 2017 | FAQs
Question
Answer
23. Does requesting or
receiving DCC program
resources impact our
organization’s ability to
request standard grant
support?
No. You may continue to submit a request as you have in the past. Visit wellsfargo.com/
donations for detailed information on Wells Fargo’s corporate giving in your area.
24. What is the timeline for
the DCC program?
We are planning three additional rounds of awards for the program through 2018.
Wells Fargo will publish the timelines for 2018 at a later date.
The timeframe for rounds 4 and 5 are:
Round 4 program opens
May 1, 2017
Interest Forms due
May 19, 2017*
All CDFIs informed of results of Interest Form review
July 21, 2017
Full Grant and Debt Capital applications due
August 9, 2017
Announcements of Round 4 awardees for Grant,
Debt, and Social Capital programs
November, 2017
Round 5 program opens
November 1, 2017
Interest Forms due
November 21, 2017*
*Interest Forms are due by Midnight Pacific Time
For additional information, please visit wellsfargo.com/cdfi or email us at [email protected].
© 2017 Wells Fargo Bank, N.A. All rights reserved. IHA-4116401