The state of California is set to deploy $ 475 million in Covid relief funds for small businesses, extending what could be a lifeline for many business owners.

More than half of the applicants already selected for the program are from minorities and almost half are from women. With this equity-focused funding, California could help prevent a further widening of the racial wealth gap.

And a local black-owned lender is helping make it all happen.

BSD Capital Inc., which operates as Lendistry, is a hybrid between a fintech company and a traditional small business lender. It is also a community development financial institution that provides loans and other capital to underserved small businesses such as minority-owned businesses and those in low-income areas.
The downtown-based company was built, according to founder and CEO Everett Sands, to deal with the fallout from a wicked problem in America’s financial system – the decline of community banking.

Sands began his career at a small black community bank based in Baltimore. Ironically, it wasn’t until he joined banking giant Wells Fargo & Co. that he began to realize just how serious the problem of declining community banks could be.

Big banks like Wells Fargo provide capital for loans to smaller banks that might not have the cash on hand to execute transactions otherwise. The process is mutually beneficial as it helps large banks tap their huge deposit volumes while allowing smaller banks to serve customers they otherwise would have had to turn away.

“We were funding probably a billion dollars a week (for these little institutions),” Sands said. “If 10-20% of (these community banks disappear), that’s a huge void created. “

Over time, a 10-20% drop in community banks would prove too optimistic. Stimulated by factors such as increasing technological demands and a changing regulatory landscape, the number of community banks has been declining for decades.

In 1990, there were more than 15,000 commercial banks and savings institutions in the United States, according to the Federal Deposit Insurance Corp. Today that number is just over 5,000. Most of the banks lost during this period were small community institutions.

“One of the things I remembered about economy class was supply and demand,” Sands said. “If you ever wonder why small businesses aren’t funded or can’t get capital, that’s why. “

Beyond fintech

Sands’ original plan to address these issues focused on building a fintech company. But the founder of Lendistry said he soon realized that elements of the typical fintech model were not suitable for the task at hand.

“The acquisition cost was really high for a FinTech company,” Sands said, referring to the cost a company pays to get new customers.

“In addition, the cost of financing was really high,” he added, referring to the costs associated with obtaining capital from financial institutions to make new loans. These high investment costs result in high lending costs for borrowers, according to Sands, which can become onerous for some small businesses.

Sands also said that many fintech companies’ risk management process was not the type of underserved small business loan he wanted to focus on with his new company.

“The small business client is more like an individual than a commercial client,” he said. “With small businesses, they just don’t have the assets (to back up a loan). You cannot enter the grocery store.

According to Sands, the fintech model had a strong ability to steer clients towards the financial products that suited them best.

“Sometimes it’s as simple as ‘What do you want to spend the money on?’ “, did he declare. “Sometimes it’s a lot more complicated. There are a lot of things you can do with data.

FinTechs also had what Sands described as a “more scalable experience,” meaning a more systemized ability to grow their platforms and customer bases to a larger audience.

Sands ultimately decided to try to find his way somewhere between a fintech and a traditional community lender. He hired a mixed team of former community bankers – recently displaced by mergers and acquisitions in their industry – and technologists.
“We had to literally take years and sit down and think through every point of that,” he said.

The result was what Sands described as a “hybrid institution,” echoing many of the traditional goals of a community lender, coupled with the data processing technology of a fintech.

The value of this new approach was recently highlighted during the Covid-19 pandemic.

Initiatives like the federal paycheck protection program, along with other state and local measures, have been rolled out over the past year to prevent small businesses from sinking amid closures and other restrictions.

Despite good intentions, these programs have encountered difficulties in ensuring that funding reaches the groups most in need. Large banks with the capacity to distribute capital on behalf of governments did not have relationships with many small businesses in desperate need of funds or effective means to identify and engage these businesses.

Fill the void

Lendistry’s niche in technology-driven small business lending matched that gap. Over the past year, Sands said, the company has worked with 12 different state governments to issue P3 funds, as well as administer eight different grant programs for county and state governments.

Lendistry has deployed hundreds of millions of dollars for small businesses through these programs to date, according to Sands.

As part of these initiatives, the downtown-based lender has been commissioned by the California Office of the Small Business Advocate to be the official administrator of the $ 475 million Small Business Covid-19 Relief Grant Program. State.

The program is designed to target many underserved businesses that have escaped the cracks with the P3. It was divided into two towers, the first of which opened on December 30.

“We processed 344,000 requests in 15 days,” Sands said. “We were like, ‘Oh boy. It works, but it’s scary. ‘”

Some 21,000 companies were selected in the first round of the grant program. Of these, 77% were underserved and disadvantaged small businesses such as those owned by minority groups or in low-income areas, according to CalOSBA.

The second round, which opened on February 2, will select a similar number of beneficiaries with similar equity goals in mind.

While the situation remains precarious for many small California businesses, Sands said he was optimistic such funding would help a lot through the tough months ahead.

“The worst part is that we are in a pandemic. There is suffering, and there is a deep, deep need, ”Sands said. “The good thing is that small businesses have never taken a break. They are by far the most resilient people in California. “

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