Access to Capital for Entrepreneurs and Carver State Bank Case Study

I. CDFI Partnership Genesis and Structure

Access to Capital for Entrepreneurs (ACE) and Carver State Bank (Carver State) have formed a partnership that may eventually serve as an example to other CDFIs that seek to broaden their geographic footprint. Both partners brought unique advantages to the table and found compelling synergies through their relationship, culminating in a shared New Markets Tax Credit (NMTC) allocation that allows ACE and Carver State to better pursue their missions of community investment and development.

Carver State Bank is the only CDFI-certified bank headquartered in the Savannah, Georgia, area, and is one of only 28  African-American-owned commercial banks in the nation.¹ Founded in 1927, the bank has been an important part of the Savannah-Chatham County financial ecosystem, but faced sharp limitations in its impact outside that area and accordingly in bringing in external community development resources. For example, in an interview Senior Vice President Robert James II observed that “Carver [had] chased NMTCs for 15 years” without success, submitting six applications to no avail.² The bank had five cycles’ worth of experience in activities related to other institutions’ NMTC allocations, having supported several “megabanks,” including USBank, Wells Fargo and Bank of America, in executing their allocation plans.³ However, Carver State’s limited geographic  reach  and  relatively  shallow  business loan experience made gaining an award of its own challenging, which in turn limited its ability to invest in distressed communities and explore new intervention strategies.

ACE, by contrast, is a much younger organization. Founded in 2000, ACE specializes in smaller-balance small business loans in the Atlanta metro area and north Georgia.⁴ ACE is a mission-driven lender, focusing on investment in minority-owned small businesses and entrepreneurship as a path to wealth-building and empowerment for African-Americans. While its unregulated nature makes it more flexible than many of the traditional lenders it works with, ACE too ran into barriers when trying to attract outside funding, limiting its ability to effect change. ACE shared Carver State Bank’s specific interest in the NMTC, but also had reservations regarding the program’s complexity. Senior leadership at both institutions recently recognized that a partnership could be a path to mutual benefit in the short-term and increased capacity, perhaps to the point of solo application, in the  long-term.

The two organizations came together through the aid of a pair of facilitative outside forces. First, Carver State Bank hired a consultant to offer  recommendations to strengthen the bank’s application for NMTC, a long-time goal of the bank. That consultant suggested seeking out a partnership with an outside organization that could supplement Carver State’s reach and bring unique subject-matter expertise to the application. Around that time, ACE Founder and President Grace Fricks attended a convening hosted by the Federal Reserve Bank of Atlanta. Robert James II, then director of Strategic Initiatives at Carver State, spoke at the event, and the two met. Upon further conversation, both parties realized they “fit” because they had a myriad of common interests that could be best pursued by working together. Indeed, Fricks reflected in an interview that “working with Carver aligns perfectly with our mission, even though they aren’t a client.” Based on this realization, the CDFIs formed a joint venture via a draft Memorandum of Understanding to pursue NMTCs (covering allocation management and investment decision-making processes).

II. Goals and Achievements

To the initial driving goal of pursuing an NMTC award, ACE brought its deep expertise in identifying loan- worthy small businesses and performed a study on need and demand in the area to strengthen the application. Carver State brought its rich history and deep roots in community financing in southeast Georgia, and funded the application’s expenses. Both parties co-produced pipelines of potential projects to fund, demonstrating the partnership’s readiness to proceed.

In 2017, they were finally successful, becoming the first Georgian entity outside of the Atlanta metro area, the first African-American controlled entity in Georgia, and only the sixth African-American controlled institution in the nation to win an allocation of NMTCs since the program began in 2000.⁵ The partnership will allocate these credits statewide, with at least 40 percent of the credits invested in rural areas and the remainder to focus on smaller Metropolitan Statistical Areas (MSAs), such as the Macon and Columbus, Georgia MSAs, targeting investments to maximize job  creation.

The partnership is still very new, to the point of lacking a final name. Although its needs and staff are still evolving, its accomplishments are real.

III. Financing and Nonlending Activities

In addition to winning a $30 million NMTC allocation, ACE and Carver State Bank have worked together on other projects.⁶ Such projects include pursuing a 7(a) Small Business Administration loan for an Atlanta woman-owned business, directing loan applicants to one another as the best entity for their needs, holding annual outreach events, educating small business owners on the NMTC program’s operations and benefit, and getting communities interested in the tax credits as a potential resource. Led by a governing board composed primarily of Carver State personnel with one voting ACE member, the partnership is implemented through high-level personnel from both partner organizations.

IV. Impact and Assessment

Though still developing structures for contact protocols and formal metrics, the joint effort already has numerous victories to which it can attest. Once the allocation agreement is fully in place and NMTC investment begins, the principals indicated they look forward to offering publicly available press releases and annual reports covering the partnership’s successes in job creation, types of facilities supported and community impacts.

V. Challenges, Opportunities and Leading Practices

The partnership’s existing benefits span a number of areas. The NMTC’s infusion of additional capital allows the Carver State–ACE partnership to pursue more loans, larger loans and loans with broader lending criteria with less risk, particularly given their policy  of holding a reserve for each transaction. Both CDFIs gain direct financial benefit through fee income and related activities, supporting financial sustainability. Finally, the allocation greatly increases both parties’ ability to leverage additional outside resources — such as raising capital from investors interested in the tax credit and from lenders who want to lend into leveraged funds — significantly improving their abilities to serve communities in  need.

Both parties are excited for the potential opportunities their partnership might bring. Potential activities discussed include both NMTC and non-NMTC ventures. Within the program, the venture is considering creating leveraged funds to make investments in NMTC-eligible projects and starting a NMTC-funded small business loan fund. Outside the NMTCs, the organization plans to seek out more opportunities,  such as the aforementioned SBA 7(a) loan, and ramp  up educational efforts to introduce businesspeople to the array of products that can help their enterprises grow. Staff and leadership of both partner entities report a desire to learn and grow together, and cite the mutuality of the relationship as one of its greatest strengths. The  organizations  share  similar  cultures and priorities, with a focus on providing opportunities to their communities and to the next generation of leaders within their organizations. Fricks shared that “Business relationships are important, but values and cultures also must align for a partnership to work,” a point of agreement that has helped the Carver State–ACE venture. What’s more, both organizations are committed to “sharing the wealth” of benefits the relationship has brought. Indeed, when the NMTC award press release was initially drafted without ACE being mentioned, Fricks reports that Carver State’s leadership insisted ACE be included to honor their essential contribution to the win.⁷ “You can get a lot accomplished if you don’t care who gets the credit,” she advises other CDFIs interested in partnership, and Robert James II of Carver State echoes that “be[ing] respectful of one another’s contributions [and] demonstrating mutual willingness to be flexible” are key traits for any partnership’s success. This attitude, Fricks adds, makes the partnership a “win-win-win for the community and both institutions.”