Type: Below Market Investments, High Impact Investments
Topic: Buildings & Housing
Status: Current
MCCD provides small loans to individual entrepreneurs and small businesses that have not grown large enough to access commercial banks or established Community Development Financial Institutions (CDFIs). These early businesses are often minority-, immigrant-, or women-owned ventures. MCCD is a membership-based organization, including many cultural-based business developers. They work specifically within Indigenous, immigrant and communities of color to provide capital, technical assistance, and training.
Investment
$1 million 10-year loan at 2%; originated in 2019
Due to Covid-19, McKnight reduced the interest rate permanently to 0.75 basis points to align with the 10-year Treasury rate and provide flexibility while interest payments for one year.
Rationale
An expert in micro-lending, MCCD meets with 1,000 entrepreneurs a year and provides 8,000 hours of direct consulting to small businesses. Its focus on cultural specificity has resulted in strong partnerships in suburban areas with robust immigrant communities. Ninety-two percent of its credit builder loans are awarded to minority entrepreneurs striving to improve or establish their credit scores and bridge financial gaps. These loans are short term and zero interest; well suited for cultural communities that have usury prohibitions, and undocumented residents who have cash savings but no access to credit.
Returns
Too early to tell
Lessons Learned
During a financial crisis, small businesses may struggle to pay their monthly loan installments. Meanwhile, CDFIs struggle in turn as they rely on the interest from these loans to pay their overhead. For this reason, philanthropic grants become particularly important alongside additional debt capital for lending.
Photo Credit: Metropolitan Consortium of Community Developers, featuring supported business Finer Meats.
Disclaimer of Endorsement: The McKnight Foundation does not endorse or recommend any commercial products, processes, or service providers.
Last updated 10/2021