S2 Ep1 – Gen Z’s Guide to CDFIs

Hi, welcome to Funded. I’m Katelyn Phinney and this is a Clearinghouse CDFI podcast here to give you a glimpse into the community development work Clearinghouse CDFI is doing around the country. Listeners can expect to tune into conversations discussing what a CDFI is, how getting funded by a CDFI works, community impact stories and how we are all working towards building better communities together. Hello and welcome back to Funded for a season two. I cannot believe how lucky I am to be rejoining you for a second season of Funded by Clearing House CDFI. I’m your host, Caitlin Finney, and I think you can tell that I’m really excited to be back on the mic and talking to you guys all about the world of community development financing and bringing you all kinds of educational episodes. I am thrilled to be back. Today we are picking up kind of where we left off in season one, which was Gen Z in action.

Speaker 1 (01:02):

We left episode nine there and we kind of were speaking to the future of community development finance and how we are going to rely on the mission and the values that are important to Generation Z, but how do we expect them to get there without the proper foundation and educational knowledge? So today that’s what I want to talk about. I want to kind of take a half step back from where we left off last season and speak to the important things that I think Generation Z needs to know about what it means to be a community development financer and maybe fill in some of those gaps in education that the public school systems and private school systems aren’t teaching kids these days. I really want to drive home the importance of how these loans can impact communities directly. So community development loans are important because they directly impact beneficiaries in communities that we’re lending to, right?

Speaker 1 (02:00):

That type of financing is not common knowledge in today’s day and age. Okay. But before we get into all that, I wanted to kind of give you a little bit more context on my experience and how I unearthed this passion for community improvement through financing. So hi, I’m Caitlin. I am part of our marketing team here at Clearinghouse CDFI. A little bit more context about me and my expertise, which is not a lot when it comes to finance and having a real estate background, which I’m sure much like most of you is the case. I am a born marketer. I’ve always been creative, but I wanted to find a way to mold my passion for creativity into something that I felt had a strong purpose and mission. And I got lucky enough to come across Clearinghouse CDFI, who right away I could tell had such strong importance on making capital work for people.

Speaker 1 (03:00):

But like I said, I’m a marketer. I don’t have a strong background in finance or development or real estate, so I had to find a way to take what I knew I had strengthen and apply it to something that I felt had a strong mission and purpose. One of those ways I came to find out was through using my marketing services to promote companies that were finding ways to improve communities for the better. And for me, joining the Clearinghouse CDFI team has been that sweet spot where I get to align my strong sense of purpose and mission to make communities better, but also be creative. I had no idea that I could join a finance company to accomplish some of that. My own personal knowledge of finance and that kind of education was lacking. But again, all of this financial education and background had to be taught, researched.

Speaker 1 (03:53):

I had to be a self-starter to kind of learn and pick up on some of this jargon. Personal finance education is severely lacking in the United States, let alone financial education about how we can use money to improve the communities around us. So that’s what I want to aim to tackle today. Okay, let’s jump into it. What is community development financing in the context to Generation Z? Let’s start with a basic definition. Community development financial institutions are defined as specialized finance institutions operating in underserved communities. So essentially these are loans for projects, real estate projects taken out for the purpose of bettering a community. Whatever the service or product being offered by this project does or has, is in some way going to benefit the people who are living in that area. It is not a loan to purchase a single family house for a new married couple, say.

Speaker 1 (04:54):

An example of what you should be able to use a CDFI loan for would be to, let’s say you own a dog sanctuary and are looking to increase your operations and you need to purchase the lot next to you. You would go to a CDFI, you’d show them the benefit that you are bringing to your community and they would help fund your purchase of that lot or parcel next to you to increase your business operations to be able to continue doing good for the community. Hopefully through my brief explanation and examples, you can kind of understand how CDFI funds are supposed to be used. Like I mentioned before, these loans, they need to have some kind of direct positive impact on local neighborhoods. I want to quickly share with you a sort of case study from one of our own projects here at Clearinghouse CDFI.

Speaker 1 (05:46):

The project that we’ve titled Cityscape Broadway is located in Seattle, Washington. It was a $14.6 million loan that we provided to Housing Diversity Corporation. It is a family-owned developer located in the Washington area who’s had great experience over the last 30 years bringing similar projects to the region. It is an affordable housing project built in 2020 with 23,00 square feet of livable space for the downtown Seattle region. In Seattle, two out of every five people are considered low income and currently they’re only building one in five newly built homes that are designated affordable. This project is bringing 84 housing units to the downtown Seattle area. 46 that are designated affordable rental units are available to families who are earning roughly 60% of the average median income and 17 of these units are reserved for very low income, families earning between 30 to 50% of the average income.

Speaker 1 (06:44):

All right. I want to put that into perspective a little bit more and to do that, I’m going to need my notes. Yeah, I have notes she came prepared. Okay. So $126,000 is the average median income in Seattle. That’s a lot of money. You have to earn a lot of money in Seattle to be able to afford to live there. These designated affordable rental units are going to be saved for families who are making 30 to 60% less than that average median income. So if a family of four is living in Seattle and each parent earns a minimum wage, which is about $20 an hour just under, it’s 1997 an hour, then you would be able to afford to live there because your dual income would be about $83,000 a year. For families who don’t have a dual income or don’t have the ability to make dual income every month, that average is nearly impossible to reach.

Speaker 1 (07:32):

The rising cost of housing in the United States is the leading factor in the decline of wellbeing for our communities. Affordable housing units and affordable housing projects like Cityscape Broadway has an impact that alleviates the financial burden of housing for some of these families. Okay. Hopefully that first segment gave you some insight onto how important these kinds of community development financing projects are and the impact that they have and how seriously they can affect the communities that they’re facing and how important these kinds of loans and projects are. At Clearinghouse CDFI, we have a variety of loans, specializations and uses that help make these kinds of projects come to life. So I wanted to talk to you about some of those categories and the distinctions between each. Okay, so let’s first start with loan uses. How do we use these loans? How can we use this money?

Speaker 1 (08:25):

Well, let’s define some of the common uses. This is something you may have heard many times before, but had no real understanding of what it meant. It’s called a refinancing loan. Okay, so what’s a refinancing loan? A refinancing loan would be a borrower comes to us and they say, “I took out this loan three years ago, but the interest rate was a lot higher than what it is now. Can we refinance it? ” Ultimately, this allows borrowers to borrow money at a lower interest rate, reducing their monthly payment. It alleviates some of the hardship of business ownership. It sets up the borrower for future success. It cuts out a little portion of their overhead so that they, in the end, have a little bit more money in their pocket. Okay, this is something else that I really had no real understanding of before I came to Clearinghouse CDFI.

Speaker 1 (09:18):

It’s called an acquisition loan. So an acquisition loan is a loan that’s given to a company or a business owner to purchase a specific asset. And in our case, that asset is property. An acquisition loan is essentially just giving them the money to acquire whatever they need to complete their business ownership and it helps them ultimately by beginning to generate revenue a little bit sooner than they would have able to more quickly provide their services to their community. We have a number of other loan uses here at Clearinghouse CDFI. Those were just some of the more common ones. For a full list, you can download our core product flyer. It’s linked in our description below. Okay, that was loan uses. Let’s talk about our loan specializations. Our specializations speak to the kinds of projects that those loans that we just previously talked about are financing.

Speaker 1 (10:12):

We currently have specializations in a number of projects, but here’s some of the top examples. So our CDFI in particular specializes in charter schools, private or public education institutions who are providing education and resources to low-income communities. Like previously discussed, affordable housing projects like Cityscape Broadway. Those affordable housing developments could be things like Cityscape Broadway that we just talked about. They are apartment buildings designated affordable. It could be mobile home parks that are designated affordable living, maybe special needs housing program with that community. One of our other specializations is with nonprofits, specifically nonprofits focused on homelessness housing or outreach, animal sanctuaries. We’ve done a few. Another example of a loan specialization would be churches or religious institutions. Those are huge community centers bringing a positive impact to their regions. Another example of our specializations are healthcare facilities. Healthcare facilities are an especially important specialization to me just because we’re specifically addressing the healthcare disparity in low income areas.

Speaker 1 (11:25):

Oftentimes you see people who live in low income areas have to travel outside of their home base just to get standard medical care and treatment and that’s not right. So healthcare facilities are an especially important specialization here at Clearinghouse CDFI. Okay. Let’s put these two categories of loan uses and loan specializations into one example together. Let’s say me and my family are really passionate about helping the homeless population in California. We start a nonprofit focused on bringing resources and supplies to that population in Southern California. But I’ve been doing this for a few years now and my operation’s just getting too big. I know that I’m going to need some office space. That is a great scenario of when a person could go to a community development financing institution to find a loan that works for them to make their vision for their nonprofit happen.

Speaker 1 (12:24):

This is where the challenge comes in though, because people do not know that they have this other entity that is ready and available to help them bring these kinds of community focused projects to life. It is hard enough as a young person to learn the ins and outs of doing your taxes for the first time or repaying student loans. It’s hard enough to figure out the financial jargon in all of that personal finance realm. So there’s a definite barrier to entry on finding information that can assist in these kinds of projects. And unfortunately, CDFI resources are unfamiliar to the general public. Okay, we covered a lot there. Are you still with me? But I do need to stress the importance that CDFIs are really focused on addressing the diversity and equity of the finance world. Loan distribution is often given to people who qualify the best, but CDFIs are focused on lending to projects and people who are often overlooked.

Speaker 1 (13:28):

Okay. I feel like I’ve rambled about Clearinghouse in the CDFI industry for long enough now. I want to tell you guys how you guys can get involved and hopefully share some resources with you to continue your CDFI education. If you are a member of Generation Z and you’re looking to learn more about community development financing, I strongly encourage you to look into our Be Bold or Be Bolder High School and College internship programs. There you will get a real peek behind the curtain of what a CDFI is all about. You’ll get to touch all different kinds of areas about working in a community development finance institution and you can get a chance to really see the direct impact companies like this make. So strongly encourage you to check out that webpage. It’s linked in our description below as well. One of the ways that you can help bridge some of this gap in financing knowledge is to spread word about what CDFIs are doing.

Speaker 1 (14:28):

We are solely focused on lending for impact. If you’re looking to do a further deep dive in the realm of community development financing, I strongly encourage you to check out our previous episodes from season one. It is a library of resources that I feel does a great job of giving you an introduction into this whole crazy industry. And I encourage all of you, members of Gen Z to explore the opportunities that community development institutions offer and to get involved because they truly make a difference in local communities around the country. If you feel like you’ve gained a little bit of knowledge, please share it with your friends and family. I’d love to grow our funded family. And if you haven’t already, please subscribe or hit the notification of settings on your platform because we want to make sure you guys are being notified when we post new episodes.

Speaker 1 (15:27):

We are going to be coming to you every first Friday of the month, starting now until our season two runs out, our season two episodes run out. So really looking forward to it. If you have any questions or maybe a future episode suggestion that you’d like us to deep dive into, you could send those to [email protected]. But I just wanted to thank you guys again for engaging with all of the season one episodes and I’m looking forward to doing it again. And that’s a wrap on episode one, you guys. We did it. We’re back. We are so back. All right. Stay tuned for season two, episode two coming to you shortly. Until then, I’ll see you. Bye.