February 2, 2016

Project CUE: Connecting Underserved Entrepreneurs
AEO defines its mission for CDFI Fund Innovation Challenge Project 1.0

“Start by doing what's necessary; then do what's possible;
and suddenly you are doing the impossible.” 
- Francis of Assisi

For many entrepreneurs, achieving the impossible is an inspiration and a challenge. Did you know that every business day, 8,000 credit applications from small businesses are declined? This means in less than the time it takes you to read this blog post, roughly 5 small businesses will be turned down for a loan.

Enter Community Development Financial Institutions (CDFIs),which provide credit and financial services to underserved and low-income communities. Since many CDFIs provide lending and services to small businesses, the work of CDFIs should help more small businesses receive the loans they need. However, even though roughly 2.2 million small businesses located in low-income communities seek credit in a given year, only between 2-5% of small businesses in low wealth communities are currently receiving loans from CDFIs.

This $44-$52 billion capital gap cannot be solved without innovative new business models that bring to bear the unique assets and capabilities of CDFIs, technology companies, mainstream financial institutions, and other critical actors. A platform to aggregate, screen and sort applications is desperately needed.

Seeking to solve critical disconnects like this, the CDFI Fund, part of the U.S. Department of Treasury, recently launched an Innovation Challenge requesting proposals “to help uncover and highlight new, innovative, and successful approaches that work to ensure that even residents of the most underserved areas in our nation can access vital financial products and services to help their families, communities, and local economies thrive and grow.”

And your friends at AEO won the Innovation Challenge! Our proposal seeks to design, test and build a screening and assessment tool to match small businesses declined for loans from banks or online lenders with a CDFI that may be able to meet their needs when other lenders cannot.

“AEO is immensely proud to be chosen as the winner of the CDFI Fund’s Innovation Challenge. We expect to make a lasting impact in low-income and distressed communities that need greater access to small business resources.” - Connie Evans, AEO’s President and CEO.

CDFI Fund Director Annie Donovan said that “this is the first time the CDFI Fund has awarded a contract specifically to experiment with new tools to expand the reach of CDFIs nationwide. I am excited to see both what we will learn over this next year and how we’ll be able to apply those lessons to our future support of CDFIs.”

The name of the project is CUE, which stands for “Connecting Underserved Entrepreneurs,” and reflects the goal of expanding credit opportunities for small business owners from low-income communities. The ultimate objective of the projectis to finance the development of a technology-driven solution that can be used by all CDFIs in the future and thereby expand access to capital for small businesses operating in economically distressed areas. Project CUE brings together a core team of individuals with extensive experience in small business, CDFIs, finance/financial services, software/technology and big data. The team is led by AEO’s Senior Vice President of New Initiatives, Tammy Halevy, and includes Keith CatanzanoLily Huang, and Jason Rosado.

An initial cohort of representative CDFI small business lenders have also signed on to work with Project CUE. They are: Access to Capital for Entrepreneurs (Georgia), the Intersect Fund (New Jersey), Justine PETERSEN (Missouri), and LIFT Fund (Texas). We recently gathered our first cohort of CDFIs for 2 days of workshops centered around design thinking.

Stay tuned to our next few blog posts, wherein we’ll share what we learned from these first exploratory discussions, including some insights into existing issues and opportunities, as well as some ideas for the future of the sector.

Have some of your own ideas for innovation in the CDFI small business lending space? Submit a comment below or find us on Twitter

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