Most entrepreneurs have difficulty getting loans from banks. It’s a big deal for all founders, but especially those from marginalized communities.
That is why, several years ago, the Ewing Marion Kauffman Foundation established its Direct Capitalization Loan Fund, which aims to expand the loan pools available to small businesses in Kauffman’s hometown of Kansas City, as well as nationally, and improve access to capital in disinvested communities.
The fund just announced its third award: a $5.3 million grant to DreamSpring, an Albuquerque-based financial development financial institution (CDFI). DreamSpring also received $300,000 in funding to help deploy the money in Kansas City. “This partnership is designed to help bridge funding gaps and create an environment where small businesses, especially those owned by people from historically underserved populations, can grow and prosper their businesses,” said Anne Haines, president and CEO of DreamSpring.
Kauffman focuses largely on CDFIs because of their track record of financing enterprises that cannot find bank financing. “They have alternative ways of assessing a company’s trustworthiness,” says Shakia Webb, entrepreneurship program manager. For example, CDFIs can review an entrepreneur’s track record of paying various bills on time that banks don’t include in their underwriting.
DreamSpring’s average loan is $13,500, with a focus on BIPOC, women, startups, and low-to-middle-income small business owners. But it makes loans as low as $200 to about $2 million. Smaller loans may need to be repaid within a few months, while larger loans have a repayment term of three to five years.
According to Haines, Kauffman’s seed money will be continuously reused as loans to other small businesses over the next five years. Ultimately, that will lead to DreamSpring committing approximately $140 million in capital.
With the additional $300,000 in funding, DreamSpring hired its first loan officer in Kansas City. It is also building out other capabilities to provide ground service and support in the area.
Akil Cooper, who heads a year-old signage and printing company in the Kansas City area, has just received $7,500 in funding that he is using to purchase a CNC milling machine, target larger clients and expand his business. Ultimately, he wants to purchase more industrial equipment.
Kauffman has already made previous funding to two CDFIs: $5.3 million to AltCap in December 2021 and $3.3 million to Holy Rosary Credit Union in June 2022. For now, according to Webb, Kauffman is pausing to award more awards. “We want to observe the performance of the three CDFIs that we’ve funded, so as we move forward, we’ll have some historical numbers to go forward with,” she says.