- By Joe Boomgaard
Given the lack of access to capital in Indian Country, Indigenous entrepreneurs have fewer places to turn for help when it comes time to start or grow their businesses.
In a growing number of communities across the country, Native Community Development Financial Institutions (CDFIs) are stepping up to fill part of that void.
These U.S. Treasury Department-certified nonprofit lenders offer more than just loans: They often help Native entrepreneurs with technical assistance to develop their business plans, and connect them to subject matter experts to refine their ideas into viable businesses.
The work Native CDFIs provide is getting noticed, with increased federal funding set in next year’s budget, which comes on the heels of additional money in recent years they received as part of various federal pandemic relief efforts.
Native CDFI executive directors also are eyeing even funds in the coming months, including a portion of Treasury’s new $1.75 billion fund targeted at minority lending institutions and the State Small Business Credit Initiative, which includes an allocation of $500 million for tribes.
However, even with the increased federal and philanthropic funding, Native CDFIs remain resource constrained in many ways, including for so-called “patient capital” they could use to offer longer-term loans as well as unrestricted dollars to bolster their staffs to better meet the needs of Native entrepreneurs.
To get a deeper sense of the role these organizations play in small business formation and growth in Indian Country, Tribal Business News gathered a handful of Native CDFI executives for a roundtable discussion as part of a broader reporting project, which is supported by grant funding from URL Media Group, a network for BIPOC media outlets, and the Knight Lenfest Local Media News Transformation Fund.
Joining this writer and Tribal Business News Publisher Levi Rickert for the discussion were:
- Christopher Coburn, CEO of Mvskoke Fund, which serves Muscogee (Creek) Nation citizens in Oklahoma and other Indigenous communities in an 11-county area of Oklahoma;
- Krystal Langholz, chief operating officer for Longmont, Colo.-based Oweesta Corp., a national Native CDFI intermediary organization;
- Cindy Logsdon, CEO and director of the Citizen Potawatomi Community Development Corporation in Shawnee, Okla.;
- Russ Seagle, executive director of Cherokee, N.C.-based Sequoyah Fund serving the Eastern Band of Cherokee Indians;
- Dave Tovey, executive director for Pendleton, Ore.-based Nixyaawii Community Financial Services that works with members of the Confederated Tribes of the Umatilla Reservation; and
- Pete Upton, executive director of Grand Island, Neb.-based Native360 Loan Fund Inc. and the interim director of Washington D.C.-based Native CDFI Network.
Here are some highlights from the conversation.
In our reporting, we keep hearing that it’s a good time for Indigenous entrepreneurs to start a business. Are you seeing an uptick in interest?
SEAGLE: It’s as good a time for an Indigenous entrepreneur as anybody. Historically, when the economy has hit a rough patch, when inflation is higher, when things are more uncertain, people who start businesses during these times survive longer and perform better. When you start out in the middle of the fire, you tend to be more creative. You tend to be a little more conservative with how you spend your money. So people are a little more thoughtful about how they borrow money at times like these.
UPTON: When you look at all the innovation that’s going on and that has been developed through the resources that we’ve been able to create, technical assistance providers have a lot of innovation that we can offer our entrepreneurs that wasn’t probably available two years ago. The pandemic … forced us to get creative. Just the realization that we can do things via Zoom is remarkable and it frees up so much time for the entrepreneurs where they’re not spending two, three hours on the road, meeting with us.
TOVEY: We have a very small business community, probably about 32 active clients. We’re seeing more people interested in joining. As we run our demographics on our community, we’re seeing a lot more people moving up the chain in their respective organizations, and to me that implies a pent-up demand. So we’re trying to prepare ourselves. We don’t have a small-business loan product, but we’ve been doing small business classes for many years. So right now our main target is the State Small Business Credit Initiative.
COBURN: It’s a mixed bag. Like a lot of Native CFIs, we have some people wanting to be entrepreneurs that aren’t ready skill-wise, development-wise (or) personal financial competency-wise. We need to talk (with them) about budgets and expectations and goals … to see what they’re trying to do, (and) where they’re going. So a portion of our people are that way.
What are some of the key trends you’re observing right now?
TOVEY: Right now, tribal reservations are kind of input-output models. We have high levels of leakage. We have transfers of state and federal grants coming in, but we don’t have much way to recirculate those. That’s the exciting thing that (Native CDFIs) get to do. We’re all interested in seeing more Native CDFIs grow. There’s only 70 of us versus 500-plus tribes across the country.
COBURN: I do see a lot more demand for capital. Our success (over the past few years) was getting through the pandemic and helping people …with more training and more sponsoring of things. We got noticed for standing in the gap when everybody else was losing their heads, and the need for help is huge. For my CDFI, right now, internal capacity is at the limit. I need to hire people.
LOGSDON: I think Christopher hit something on the head, and it’s staff capacity. We’re lean and mean, and we’ve had a credit analyst position posted since September. I’ve probably had seven applicants and not one is even qualified. That’s a struggle.
LANGHOLZ: There’s definitely huge growth in capital demand. Our Native CDFIs that are in our portfolio, in 2020, lent a total of $42 million (to small businesses). In 2021, it was $88 million. Just to contextualize, that’s a lot of growth. Most of our Native CDFIs’ lending historically has been around job creation and small-business creation, and that remained true. We saw 109 new Native small businesses open last year. But also in the pandemic, there was a huge (outflow) of capital to existing borrowers to really help them stabilize and survive the pandemic and to scale up operations.
UPTON: The thing that I see (is) the SSBCI program. It’s really forced us to break down our organizational silos and think outside of our normal operating systems. Really, our environment prior to COVID was probably pretty focused on internal (operations). But (that’s changed). Today, I’ve literally had four different conversations with four different Tribes trying to assist them with all the funding that’s coming down the pipe. It’s really forced us to think collectively.
SEAGLE: We’ve seen a lot of people moving toward making money with smaller ventures, making money with their art, making money with things that they can do at home. We kind of declared 2022 “the year of the side hustle” here at Sequoyah Fund. So we’re rolling out programs to help people cultivate those side hustles.
I would love for the big dollar loans to come back. But I think right now, we’re just in a period where people are going to be happy if they can borrow $2,500 to $5,000.
We’ve heard many examples over the past few years about Native CDFIs working together to help Native entrepreneurs. How do these collaborations come together?
COBURN: I’m finding now that we’re having more people that want larger deals. We’ve had to refer our people to other (Native CDFIs) for service. And so we’re trying to grow our capacity where we can keep a piece of that and not refer all of that as we grow.
UPTON: It’s the ecosystem in our Native CDFI world. We do a lot of referrals. We do a lot of partnerships, and it’s just a collaborative effort to get funding to our end beneficiary, which is Native Americans.
LOGSDON: It’s sharing the risk. It could be a bridge loan. We’ve been working a lot with Native American Bank out of Denver, and those tend to be very large deals. It can be that we’re in and out in a year, but at the end of the day, we’re able to get a deal done.
It’s a strategy of growth for all of us to ensure that a deal gets done. Maybe your loan committee isn’t comfortable with the amount. Maybe it’s bringing more than one partner together to get a deal done. But at the end of the day, we want to use our Native network. It’s all about the job creation and getting the deal done, and maybe that capital stack is a little more complicated than what we’re typically seeing.
The Native American Business Incubators Program has been tabbed as one way to create a pipeline of entrepreneurs in Indian Country. How much opportunity do you see for your organizations to get involved in incubators?
COBURN: The need for an incubator is there to some degree for probably all our clients. We’re kind of into a hybrid. We’re remodeling a space next door to be an incubator so that we’ll have three or four shared spaces that clients can come and use if they have older computers, older gear, things of that nature. They can work alongside us. But also online, we have tools available that can enhance that. It’s kind of a hybrid and maybe different than what most people think of as an incubator.
UPTON: We’ve gone to … a virtual incubation center just due to the fact we’re able to provide the same type of services, but with Zoom and the ability to connect that way. It really has helped us connect to our clients when they’re available. So many times with an incubation center, there’s some restrictions and there’s the cost of the overhead. Going virtually and being able to have the same types of services and the coaches available is, I think, a model that we’re really pursuing.
TOVEY: Most of our clients are retail, are craftspeople, (so) we’re in the midst of planning for a pretty sizable 14,000-square-foot incubator to be adjacent to our building so we can have both that hands-on constant client contact, but also as a link to our SSBCI loan product for the tenant improvements. We’re right on the state highway and right off the interstate, so we’re trying to configure it to where there’s some real good freeway and highway exposure. But, it’ll be two years in the making for us.
SEAGLE: We’re kind of in a unique position right now. We’re in the planning stages where we’re trying to relocate our offices. We have a lot of programs for artists, so we’re trying to come up with a way to nudge the tribe to work with us to build an art incubation space where the artists have places to work, where the public can come in and watch them work and buy their products, and that we can have some office space.
Shifting gears here, Native CDFIs got a 30-percent bump in funding via the Treasury’s Native American CDFI Assistance (NACA) Program for next year. That’s great, but it’s clearly not close to enough. What kinds of challenges around funding are you facing right now?
COBURN: There’s money to be had to do training and technical assistance. There’s money to be had to borrow for lending capital. What there’s not enough of is patient capital. We’re in that pinch point. We’ve got plenty of clients, a giant pipeline; we can borrow money. I can’t grow my staff fast enough because I can only shave a tiny percentage of this money from NACA to hire people. I can’t scale up enough capacity, and the only way I can do that is with additional debt capital or go to the tribe and hope that I caught them on the right day. But basically it’s just we need some sort of patient capital whether that’s from a foundation or something.
SEAGLE: We are all resource constrained. We are all small. We are understaffed. We are doing heavy lifting with important work in small communities and we have to stop what we’re doing once a year, or we have to throw a lot of money at grant writing. I’m not a grant writer. We have to farm that out, so we have to use precious capital to hire somebody to write a federal grant for us. … If we had a block grant program where the Treasury said, ‘You’re certified, we’re going to give you this money, and then if we don’t like what you give us in your report, we’re going to claw some of that money back or there will be other repercussions,’ I think it would be more efficient for us, more beneficial to our communities, and it would be cheaper for the government.
What are some of the creative ways you’re finding to help bolster your financial positions or access that patient capital?
LANGHOLZ: We are the ‘hub’ to our 26 Native CDFI ‘spokes’ through the SBA Community Navigator Program and have tried to do our very best. It’s always difficult to be an intermediary on federal money, because if I had all the resources in the world, I’d be like, ‘Here’s your very flexible capital, do whatever you want with it.’
Unfortunately, that’s not how federal money works. But we’ve tried to structure it to be as flexible as possible so that when our Native CDFIs are providing technical assistance over the next two years, we will be contracting them to do those services in their communities.
UPTON: The brilliant thing that (Oweesta) did with the program is it’s a contract, to where the money that we receive through this grant comes to us as earned income. It’s just a flat $120 per hour. What it does, it increases our self-sufficiency ratio, because we have earned income coming from this program. It’s one of those metrics that’s very important to a lot of funders, so it really strengthens the core of our foundation for Native CDFIs. It could have been just another grant, but it was positioned as earned income. To me, that was a brilliant move.
The Treasury’s SSBCI program also has received its share of attention from Native CDFIs as a potentially large source of funding, but it would require a partnership with a tribe to access it. How are you looking at this opportunity?
TOVEY: We don’t have a small business loan product, (but) it’s the one source we can tap to set it up. We’re also working on a regional model through the 18 affiliate tribes in the Northwest Indians Economic Development Corporation.
I’ve got to give a lot of credit to the Treasury folks for being so patient and pushing back some of the deadlines and just having weekly meetings with us. But even so, I still have to say that this is a program that’s been shoehorned into Indian Country. It was designed for states, and at our scale it’s just a little bit of a challenge to make it fit. If there’s any comfort I’ve found throughout, it’s that everybody is equally confused and fearful. We’re going to keep soldiering on and try to do what we can with it, because it is so critical to where we are in our growth.
UPTON: There’s a lot of challenges, but I think it comes back down to you’ve just got to be persistent. In my region, it’s just continuing to have that dialogue and trying to find something that’s workable.
I think more than anything, the tribes that I’m working with currently all sense the complexity of it, because it’s a 10-year program and there’s going to be governmental changes within that 10 years. It may be that it’s good today and in five years, a new government steps in and they don’t want to continue. But I think it’s a great opportunity, and I think both sides have to give a little bit.
As you look ahead to the remainder of this year, what do you see as your single largest challenge for each of your organizations?
SEAGLE: For us, it’s physical capacity. We need more people, but in order to bring more people here, I need more office space, which means we’ve got to relocate. I have a relocation committee, a subset of our board that is working diligently on trying to work with the tribe on available space. Do they want to try to give us land and build something or do we just need to rehab an existing building right now? It’s up in the air. But if I brought somebody on tomorrow, I don’t know where I’d put them.
We’ve got to have the space to be able to put in the people. Once that challenge is solved, we’ll have this nicely built rocket. We just got to keep fueling it.
LANGHOLZ: Keeping up with our growth really is our challenge. We’ve added so many staff positions. We’ve basically doubled in size since the start of COVID and we’re still in that process, just trying to deploy capital as quickly and effectively as possible to our partners. I also think part of it is there’s so many federal resources out there, there’s so many new philanthropic resources that are out there.The creativity that you have to do to apply a program that wasn’t designed for Native communities and to translate that into Native communities requires a lot of time and energy and effort. I will say that I’ve been working and serving with Native CDFIs for the last 15 years, and I would much rather take challenges related to growth and opportunity and abundance than I would scarcity.
UPTON: For the Native CDFI Network, we’re on the road to becoming an intermediary funder … so we’ve got to focus on what the Native CDFI Network wants to do in becoming that intermediary. Most of all for the Native CDFI Network, it is being very flexible and then being able to act quickly. We learned that through COVID, and now we’re facing the gas prices, we’re facing the war in Ukraine and all that affects everyone. It affects our communities, whether we like it or not.
We have to remain at the table with the tribes to try to figure this SSBCI out, because it was intended for the beneficiaries, which are Native entrepreneurs, our Native citizens. We have an obligation to them to figure out a way to make the SSBCI work. That’s probably one of the biggest inflows of money into Indian Country that I’ve seen for small businesses, so we have to find a way to make it work.
Let me finish on this note: What do Native CDFIs bring to clients versus what they might get in a traditional banking relationship?
UPTON: What Native CDFIs bring is the flexibility and the ability to work with the client to set them up to succeed. Because there’s nothing worse than getting into a loan that you’re forced into and you can’t make the payments. You’re immediately set up to fail. What we try to do is set our clients up on a payment schedule and terms that allows them to succeed. Really, Native CDFIs just bring a lot of hope and we’re going to find a way to make it work and we set them up to succeed. We don’t want anybody to fail.
SEAGLE: It seems like a bank (requires) a thousand reasons to say yes, but only one reason to say no. We’re the exact opposite. We put ourselves in our client’s shoes to see their needs from their perspective. It just comes down to empathy. We’re not just in the community, we’re part of it, and whatever they’re going through, probably we’ve gone through it too on some level.
COBURN: I think the biggest thing is Native people value community, and we value the individual … if they’re a good person, we try to find a way to point them to help. That’s not to say we’re charities — we aren’t. We’ve got to make money, but hopefully we’re doing enough deals that make money that we can have some capital to take some risk to really make some difference in people’s lives.
The main thing is we care about our people. This is community-driven, values-driven. Natives take care of Natives. But we can’t say yes to dumb decisions, so we’ve got that balance. We got to be a good business, a great financial institution. I tell my board and our council that we’ve got to be the best bankers possible so we have enough cash to do these things nobody else can do to help our people.