Small Business High-Impact Fund (SBHIF)

DreamSpring’s Small Business High-Impact Fund (SBHIF) will address the challenges of redeploying workers displaced by COVID-19 and creating jobs with livable wages and benefits in low-income, primarily minority communities. Small businesses have traditionally been an economic driver and net jobs creator, but many are expected to permanently close due to COVID-19 with minority-owned businesses especially at risk. DreamSpring’s solution will reposition small business as an engine for job creation, income generation and asset-building by providing low-interest, partially forgivable loans of up to $10,000 and wraparound support to grow or start a business. The Fund will help bridge wealth and opportunity gaps that have stifled economic and social progress and led to negative health outcomes among historically marginalized people. These underserved entrepreneurs will become catalysts for positive economic and social change in their communities—ultimately leading to greater social/racial equality and improved quality of life for more Americans.

DreamSpring’s solution addresses the challenge of redeploying workers displaced by COVID-19. Although U.S. unemployment dropped to 6.9% in October 2020, rates for Blacks and Latinx remained much higher at 10.8% and 8.8% (https://www.bls.gov/news.release/pdf/empsit.pdf). Moreover, some states are registering much higher unemployment rates, including three where DreamSpring’s work has focused: Nevada (12.6%), New Mexico (9.4%), and Texas (8.3%) (https://www.bls.gov/web/laus/laumstrk.htm).  Low-wage workers have suffered the most with employment rates decreasing by 19.3% from January-September 2020 compared to a decrease of only 4.6% for middle-wage workers (https://tracktherecovery.org/).

Meanwhile, more than 25% of small businesses are expected to close permanently with minority-owned businesses at greatest risk (https://www.mckinsey.com/featured-insights/americas/which-small-businesses-are-most-vulnerable-to-covid-19-and-when). Already wealth and opportunity gaps disproportionately impact low-income, minority communities stifling socio-economic progress. Median income for Blacks and Latinx in Dallas County is 46% and 40% lower than whites, and in Houston, 20% of Latinx and 19% of Blacks live in poverty compared with 7% of whites (U.S. Census, ACS 2018).

Small business represents a pathway out of poverty, but many entrepreneurs are denied business loans due to low credit scores. Some 44% of Texans have subprime scores and 42% have debt delinquency (50% for minorities), significantly higher than national averages (https://www.experian.com/blogs/ask-experian/research/subprime-study/).

Owning a small business and achieving financial stability and freedom are the American Dream; indeed, small business can serve as a launchpad for increased socio-economic mobility in marginalized communities. DreamSpring will create the Small Business High-Impact Loan Fund with an initial focus on low-income, minority entrepreneurs in urban communities in Texas. The Fund will provide low-interest, partially forgivable loans to start or grow a small business. Loans of up to $10,000 will be issued with low interest rates and 6-month interest only period followed by a 36-month repayment period (no penalties for pre-payment). Up to 50% can be forgiven (10% of original loan amount for each job created and maintained for at least 12 months). The Fund will be revolving with an estimated 4,000 loans issued and 10,000 jobs created over 5 years. Allowable uses of loan will include paying down high-interest or delinquent loans. Borrowers will receive wraparound support to include one-on-one technical assistance pre- and post-application, such as providing personalized assessments of each applicant’s credit strength and helping them understand how to build their credit, as well as referring them to proven credit-building and -counseling resources as well as other business and financial resources in their markets.

DreamSpring’s target market is low-to-moderate income, minority, and/or women from communities where limited access to safe and affordable credit has historically been a barrier to small business development and the many benefits derived for individual families and entire communities. Many hard-working entrepreneurs in these communities do not have the requisite credit scores, financial assets, language skills and/or cash flow to qualify for traditional bank financing. Without access to affordable capital, these vulnerable entrepreneurs often resort to high-risk sources, such as payday lenders, that charge exorbitant interest rates, trapping borrowers in a vicious debt cycle that negatively impacts their credit scores. By pairing character-based loans with targeted technical assistance in high-impact zones with elevated concentrations of low-to-moderate income and/or minority populations, DreamSpring seeks to level the playing field for underserved entrepreneurs and bridge the credit and knowledge gap that could prevent them from fully participate in the nation’s economic recovery. DreamSpring recently completed a comprehensive assessment of the small business landscape in Dallas with specific emphasis on the needs of minority-owned businesses, businesses owned by women, and businesses owned by South Dallas residents. The research identified a critical need for a more coordinated approach to supporting these small businesses. 

DreamSpring’s solution is aimed at driving resources and wraparound support to minority entrepreneurs resulting in profound positive change in their lives and contributing to the prosperity of their communities. Benefits will range from improved credit scores, to job creation/retention, to the success of businesses that can generate the income a family needs to buy a home, purchase health insurance, or send a child to college. As an impact-driven lender, DreamSpring unlocks the potential for entrepreneurs to become economically self-sufficient and create opportunities for others. By increasing opportunities for minority entrepreneurs, DreamSpring’s solution addresses workforce challenges faced in historically marginalized communities.

DreamSpring’s Lending Team is comprised of approximately 35 full-time staff dedicated to lending and client services both pre- and post-closing to assist clients in all aspects related to their loan application and small business finance more generally. DreamSpring’s four Texas-based community loan officers will partner with a variety of organizations to market our program in the state. They also work with banks and other financial institutions that refer clients to DreamSpring when they are unable to qualify for traditional financing.

DreamSpring was founded on the premise that human potential is unleashed when all people–regardless of race/ethnicity, gender, income, religion, culture, ability, sexual orientation or place of origin–have the opportunity to shape their own future. DreamSpring is committed to expanding opportunity for all entrepreneurs and working towards a more just and equitable society. With passion and kindness, DreamSpring’s team of small business finance experts helps contribute every day to equipping community-based entrepreneurs of all stripes with the tools they need to realize their dreams and become a powerful force for lasting change in their communities. We are especially interested in tearing down systemic economic barriers and erasing the glaring racial wealth gap that leads to disparities in health and education outcomes. We embrace diversity at all levels—staff, clients, partners—and work hard to build staff capacity for effective dialogue, communication, problem-solving and conflict-resolution across cultural and other differences.  

DreamSpring leads the microlending industry in developing core strategies, targeted products, innovative partnerships, and methods of delivery to respond to demonstrated needs of underserved and underestimated entrepreneurs. DreamSpring’s average loan size is approximately $13,500, and we cater to microenterprises with fewer than 5 employees. Annually 85-90% of our borrowers are low-to-moderate income, minority, and/or women entrepreneurs. Our innovative approach pairs character-based loans with financial education and business counseling. We offer a welcoming application process, rapid turnaround times, and flexible underwriting criteria to meet the needs of borrowers with limited collateral, low or no credit scores, or no Social Security Number. DreamSpring realizes our clients’ success depends upon more than a loan, so we treat our loans as educational tools, pairing them with complimentary business coaching and technical training.

DreamSpring’s Small Business High-Impact Fund will build upon our usual approach by offering low-interest, partially forgivable loans with wraparound support including: 1) one-on-one technical assistance provided in-person and virtually by DreamSpring’s team of small business financing experts; 2) monthly small business trainings to be held virtually through webinars and in-person (post-pandemic as permitted) in collaboration with trusted community partners with deep roots in underserved communities; 3) access to a digital compendium of small business resources at the local, state, and federal levels as wells as visual guides or infographics on small business topics; and 4) networking opportunities, including biweekly emails with links to relevant articles, blogs, other resources on entrepreneurship, and discussion boards; reduced rates for membership organizations; and social media forums. 

DreamSpring’s Small Business High-Impact Fund will be powered by our proprietary, state-of-the-art lending platform. Accessed through our website and mobile-friendly, DreamSpring’s loan application can switch between Spanish and English and allows applicants to select the loan that best fits their needs. Borrowers also benefit from a fully customized client portal that provides for paperless completion of loan documents online and the creation of a login account to make payments, view balances, and access additional services. DreamSpring invested heavily in technology over the last several years and launched the new lending platform in August of last year. It is unlike any other in the CDFI industry and has enabled DreamSpring to both deepen our impact in marginalized communities in our legacy 5-state region (Arizona, Colorado, Nevada, New Mexico, and Texas) and broaden our impact by expanding to 12 new states through partnerships with digital marketplace companies such as Lendio and Lending Tree. DreamSpring maintains an in-house software engineering team that is constantly revising and updating the lending platform in order to enhance the client experience.

DreamSpring experienced its highest volume of lending ever in the months following the launch of our new lending platform. We were also in a position to rapidly respond to the recent economic crisis to ensure our target market across 16 states had equitable access to relief and recovery resources for small business. DreamSpring successfully partnered with the Small Business Administration’s Paycheck Protection Program (PPP) to provide 2,455 loans in 16 states for $69.3 million saving 11,349 jobs in just a few short months. Some 40% of DreamSpring’s PPP loans went to minority-owned small businesses, 39% went to women-owned businesses, and 29% went to low-to-moderate-income small business owners. Additionally, DreamSpring was able to quickly approve payment relief plans for about 800 existing borrowers, 38% of our non-PPP portfolio.

DreamSpring uses client surveys to assess client satisfaction and evaluate the client’s overall experience with our lending process. Our surveys enable clients to give critical feedback and identify other areas of support they may need. DreamSpring utilizes the Net Promoter Score, which allows clients to rate their experience, indicating the likelihood that they would refer someone to DreamSpring for similar services. Respondents rate the likelihood of referral on a scale of 0 to 10, with 0 being the lowest likelihood and 10 being the highest. The score is calculated by subtracting total ratings from a possible score of 100. Currently, DreamSpring has a Net Promoter Score of 92%, a sign that clients are having a positive experience and willing to refer other entrepreneurs.

DreamSpring envisions a world where all entrepreneurs—regardless of income, gender, or race/ethnicity—have equitable access to affordable credit and the support needed to realize business dreams and become catalysts for positive economic and social change in their communities. By increasing access to affordable business credit and support services and incentivizing quality job creation, DreamSpring will harness entrepreneurs’ ingenuity and resilience to drive economic and social change leading to significant gains in income and assets for both entrepreneurs and employees.

Small business is an economic driver, net jobs creator, and proven pathway out of poverty. Small businesses account for 44% of U.S. gross domestic product [1] and 1.8 million net new jobs in the U.S. each year [2] or two out of three jobs nationally [3]. For example, prior to COVID-19, there were 2.8 million small businesses in Texas (99.8% of all businesses) employing 4.8 million Texans (45.1% of private workforce), including 227,487 net jobs created in 2019 [4]. Start-ups are especially important for job creation. In Texas, the average number of jobs created by startups in their first year was 5.61, 80% of startups were still in existence after one year, and the average time it took for a new business to add employees was 1.84 quarters [5].

Moreover, building the capacity of low-income and minority-owned small businesses has been identified as a key strategy for addressing economic inequality and closing the racial wealth gap [6]. Data show that for every 1% increase in the rate of entrepreneurship in a state, there is a 2% decline in the poverty rate [7] and that median net worth for Black business owners is 12 times higher than Black nonbusiness owners [8]. Finally, the effectiveness of DreamSpring’s approach is further evidenced by a 3-year longitudinal study of 500 clients, whereby 94% of borrowers were still in business 2-3 years post-loan; 60% had increased sales; and 40% had added jobs and were offering benefits to employees such as paid leave, vacation, and/or development opportunities. [9]

1. https://cdn.advocacy.sba.gov/wp-content/uploads/2018/12/21060437/Small-Business-GDP-1998-2014.pdf

2. https://advocacy.sba.gov/2019/04/24/small-businesses-drive-job-growth-in-united-states-they-account-for-1-8-million-net-new-jobs-latest-data-show/

3. https://fas.org/sgp/crs/misc/R41523.pdf

4. https://cdn.advocacy.sba.gov/wp-content/uploads/2020/06/04144220/2020-Small-Business-Economic-Profile-TX.pdf

5. https://indicators.kauffman.org/state/texas

6. https://interise.org/wp-content/uploads/BridgingtheWealthGap.pdf

7. https://goldwateri/nstitute.org/wp-content/uploads/2014/10/PR254-Increasing-Entrepreneurship.pdf

8. https://aeoworks.org/images/uploads/fact_sheets/AEO_Black_Owned_Business_Report_02_16_17_FOR_WEB.pdf

9. https://us.accion.org/impact-study/

DreamSpring remains steadfast in its commitment to scale our impact and reach thousands more hard-working marginalized entrepreneurs in need of our services. DreamSpring’s Small Business High-Impact Fund will have an initial geographic focus on high-poverty communities in major Texas urban centers, including Dallas, Houston, San Antonio, and Austin. The program will begin in Dallas, where DreamSpring recently led a needs assessment on the small business ecosystem, and from there will move to Houston, San Antonio, Austin, El Paso and high-poverty rural counties in South Texas (although all Texas entrepreneurs will be eligible to apply for funding). In 2019, DreamSpring issued 263 small business loans in 51 Texas counties with lending concentrated in the Dallas (33%) and Houston (32%) metro areas. Some 84% of loans were issued to our target market of low-to-moderate income, women, and/or minority entrepreneurs, and the average loan was $12,709.  DreamSpring will leverage existing partnerships with fintech companies (e.g., Lendio and Lending Tree) as well as local organizations/banks to scale to 600 loans during the first year of the Fund, increasing to 1,000 loans annually after five years.

With DreamSpring’s growing digital footprint, we could easily offer the SBHIF Loan product and enhanced support services to minority entrepreneurs across the country. As an organization, DreamSpring seeks to expand overall lending by 50% to reach more than 3900 entrepreneurs across our region in 2021. DreamSpring’s impact could grow exponentially if we capitalize on our recent experience developing our proprietary lending platform and launch additional technology projects. 

DreamSpring’s primary barriers to scale are financial and technical in nature. First, DreamSpring needs low- or no-cost lending capital and philanthropic dollars to cover loan loss reserves and other operating costs. DreamSpring is nearly 60% self-sufficient as we receive a large percentage of our revenue through interest payments and loan initiation fees. In addition, approximately 95% of our loan portfolio is current, allowing us to revolve our lending capital on a regular basis. However, in order to scale our impact and reach thousands more underserved entrepreneurs in new markets, we need a higher level of lending capital as well as philanthropic support. DreamSpring can leverage transformational philanthropic commitments to secure additional funding and lending capital from new sources.

Underserved entrepreneurs rely on microlenders like DreamSpring. By offering character-based loans through a flexible collateral and underwriting process, we are able to serve marginalized borrowers looking at their whole story and creating a broader picture of their true credit risk profile. However, this document-heavy process is primarily manual, very time-consuming, and vulnerable to potential fraud. We need innovative technology to help us build automated underwriting models that will allow us to create greater efficiencies in the loan application process and reduce our portfolio at risk. This will enable us to scale our impact and build a national movement in support of more inclusive underwriting models that will increase access to small business capital for all who need it. With transformational philanthropic support, DreamSpring can continue to develop innovative products such as this.

DreamSpring forecasts tremendous growth in lending and impact over the next 5 years as we dramatically scale to reach underserved communities across the country. Our goal is to unleash $600 million in lending capital to tens of thousands of entrepreneurs over the next 5 years. Thus, DreamSpring is actively pursuing catalytic partners to help us leverage support and mobilize additional lending capital and philanthropic dollars. We currently receive grant funding from numerous corporations, foundations, and banks that contribute on an annual basis in order to achieve their own impact goals and secure Community Reinvestment Act (CRA) credits with the U.S. Department of Treasury. DreamSpring also routinely receives funding through the Department of Treasury, CDFI Fund’s annual competitive grant cycle. 

In the technology realm, we are seeking funding to develop an inclusive underwriting model, a tool that is skewed towards not against underserved entrepreneurs with limited access to financial capital. As DreamSpring seeks to scale its impact and serve thousands more unbanked and underbanked entrepreneurs across the country, we are convinced that we can only do this by building a more inclusive underwriting model that utilizes predictive analytics, machine learning, and artificial intelligence. These tools will enable us to fulfill our mission of making fair and affordable credit available to small businesses everywhere by essentially making the underwriting process more democratic.

DreamSpring would like to be able to collect more impact data from our borrowers, including business longevity, amount of additional annual revenue earned by borrowers after receiving services, percentage additional annual revenue earned by borrowers after receiving services, percentage increase in the number of profitable businesses served, credit score changes over time, number of businesses offering livable wages and benefits, number of borrowers with increased feelings of financial stability, number of borrowers with increased access to health insurance and reduction in overall poverty and unemployment in targeted counties.

DreamSpring, a resilient, award-winning Community Development Financial Institution (CDFI) is uniquely qualified to scale a proven, transformative solution for improving the lives of marginalized entrepreneurs. As an impact-driven lender, our goal is for all entrepreneurs—regardless of income, gender, or race/ethnicity—to have equitable access to safe, affordable credit to start or grow a business, achieve financial security for themselves and their families and create quality jobs in their communities.

For more than 26 years, DreamSpring has specialized in meeting the needs of underserved and underestimated entrepreneurs and addressing poverty and opportunity gaps that disproportionately impact families and communities of color. Through our targeted small business lending and technical assistance programs, we provide the affordable capital and business support marginalized entrepreneurs need to start or grow a small business. Each year, approximately 90% of our borrowers are low-to-moderate income, minority, and/or women entrepreneurs; average loan size is approximately $13,500, and we cater to microenterprises with fewer than 5 employees.

DreamSpring is committed to effecting transformational change in Texas and beyond and has the leadership, expertise, and vision needed to scale its impact. DreamSpring’s community lending officers provide invaluable technical assistance to clients, many of whom are under- or unbanked. Many of our team members come from the communities they serve and are committed to expanding opportunity for all entrepreneurs and working towards a more equitable society. Because when minorities are underrepresented in small business lending and ownership, the gap has far-reaching consequences for our entire economy and society.  

To achieve its goals, DreamSpring partners with organizations that share a dedication to promoting vibrant local economies and empowering underserved entrepreneurs. DreamSpring has an extensive network of partnering agencies in local communities, including local bank branches, Small Business Development Centers (SBDCs), SCORE chapters, Minority Business Development Agencies, Veterans Business Outreach Centers, YWCA Women’s Business Centers, chambers of commerce, state and local economic development agencies, and other non-profit organizations that we rely upon for referrals and other networking opportunities. We also collaborate with them on outreach, training, and other small business technical assistance opportunities. Additionally, we routinely refer applicants with low credit scores or limited credit history to eMoneyPool and Money Management International to help them build their credit and become “loan ready.”

Moreover, we are constantly seeking to develop transformational partnerships to help scale our impact and reach more underserved entrepreneurs. For example, in the last year, DreamSpring has amplified its presence across the country by partnering with digital marketplace companies, such as Lending Tree and Lendio, who share our vision of greater financial inclusion. These companies act as brokers and link us with individuals who are seeking small business loans but might not qualify for traditional financing.

Finally, as noted above, DreamSpring recently partnered with the SBA to issue PPP loans to small business owners whose needs were not being met by the larger banks. Some 40% of DreamSpring’s PPP loans went to minority-owned small businesses, 39% went to women-owned businesses, and 29% went to low-to-moderate-income small business owners.

DreamSpring is a nonprofit 501(c)(3) organization whose mission is to increase access to business credit, make loans, and provide training and support that enables entrepreneurs to realize their dreams and be catalysts for positive economic and social change. DreamSpring is certified as a Community Development Financial Institution (CDFI), and our target population is low-to-moderate income, minority and/or women entrepreneurs. As one of the nation’s highest impact nonprofit micro and small business lenders, DreamSpring is committed to delivering responsible capital to underserved entrepreneurs. Our goal is for all entrepreneurs—regardless of income, gender, or race/ethnicity—to have equitable access to safe, affordable credit to start or grow a business, achieve financial security for themselves and their families and create jobs in their communities. To achieve this, DreamSpring offers small business loans ranging from $500 to $2 million, along with training and support services such as business counseling, technical assistance, and business resource events. 

Many of the businesses we support are mom-and-pop shops, rural enterprises, food trucks, and other businesses owned by low-to-moderate-income households. DreamSpring specializes in meeting the needs of these underserved entrepreneurs and addressing poverty and opportunity gaps, which disproportionately impact families and communities of color. Through our targeted lending and technical assistance programs, we provide the affordable capital and business support marginalized entrepreneurs need to start or grow a small business.

DreamSpring is currently nearly 60% self-sufficient as we receive a large percentage of our revenue through interest payments and loan initiation fees. In addition, approximately 95% of our loan portfolio is current, allowing us to revolve our lending capital on a regular basis. We also  receive grant funding from corporations, foundations, and banks that contribute on an annual basis in order to achieve their own impact goals and secure Community Reinvestment Act (CRA) credits with the U.S. Department of Treasury. DreamSpring also routinely receives funding through the CDFI Fund’s annual competitive grant cycle. Our work is more important than ever, but we cannot do it alone. DreamSpring needs likeminded catalytic partners to embark on this journey with us and to help us leverage support to mobilize additional lending capital and philanthropic dollars.

DreamSpring has not yet raised sufficient funding to launch the Small Business High-Impact Loan Fund. We do have lending capital to issue loans under the program, but we need philanthropic support to cover operational costs, loan forgiveness, and loan loss reserves. 

DreamSpring is currently participating in the Lone Star Prize competition, which will award $10 million over 5 years to a proven, scalable, innovative solution that improves the quality of life for Texans in the long-term in the areas of health, the environment or workforce development. Finalists are to be announced soon. DreamSpring also regularly receives grant funding from JP Morgan Chase, Wells Fargo, Bank of America, Meadows Foundation, Comerica, WaFd, and BB&T to support our general lending program in Texas. DreamSpring could leverage these philanthropic partnerships in support of the proposed Small Business High-Impact Fund. Annually, we need approximately $2 million in grant funding to launch the program in Texas and more to scale nationwide.

Staffing - $75,000

Staffing benefits - $11,250

Staffing taxes - $7,500

Outreach and Marketing - $50,000

Loan Loss Reserves - $450,000

Loan Forgiveness - $1,375,000

Monitoring/Evaluation - $25,000

Accessibility - $5,000

TOTAL = $1,998,750

DreamSpring needs philanthropic dollars, lending capital, and catalytic partners to enable us to reach more minority entrepreneurs in need of low-cost capital and support services. Minority entrepreneurs and workers are among the hardest hit by the current economic crisis, but they have experienced significant barriers to accessing relief and recovery resources, such as the PPP. The Small Business High-Impact Fund can provide the essential capital and support these entrepreneurs need to survive these difficult times and to eventually thrive. We need visionary leaders, such as the Challenge partners, to support us in our efforts either through grants, lending capital, outreach and marketing support, or technical support for monitoring and evaluation and board development. We are also interested in working with the Workforce Solutions Greater Dallas and other local partners on entrepreneurial development with displaced workers and increasing access to local small business resources. 

In order to scale our impact in Texas and beyond, DreamSpring seeks partnerships with catalytic foundations and organizations that support our goal of expanding opportunity for all entrepreneurs and working towards a more just and equitable society. We need access to philanthropic dollars to support the launch of our ambitious program and to eventually be able to scale beyond Texas. We need support for marketing and outreach of the program in local markets, and we also would like to improve our monitoring and evaluation capacity so we can collect more impact data on an ongoing basis.

DreamSpring was founded on the premise that human potential is unleashed when all people – regardless of race, ethnicity, gender, income, religion, culture, sexual orientation or place of origin – have the opportunity to shape their own future. DreamSpring exists to break down systemic barriers that inhibit that reality. With the backdrop of the COVID-19 crisis, which is disproportionately impacting communities of color, we must and will continue our fervent pursuit of a more just society.  When minorities are underrepresented in small business lending and ownership, the gap has far-reaching consequences for our entire economy and society. While the United States is more racially diverse than ever, minorities own businesses at a disproportionately low rate, costing the U.S. economy 9.5 million jobs it could realize if all groups participated equally in the ability to open and grow a business. We strongly believe that entrepreneurship holds great promise as an effective pathway out of poverty and avenue to erasing the glaring racial wealth gap in this country. As a society, we can no longer accept the fact that the median wealth of white households in the U.S. is eight times that of Hispanic households and ten times that of Black households. We will partner with anyone and everyone that shares our vision.