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To Jacob Haar, a market that under-lends to businesses owned by women, minorities and veterans is inefficient. To seize that opportunity, Community Investment Management, a San Francisco impact investment firm, is financing a new crop of lenders using data and technology to better understand small-business borrowers.
Traditional small-business lending has relied heavily on outdated underwriting models, such as collateral-based models, that too-often exclude diverse business owners and communities. CIM provides working capital to innovative financiers like StreetShares, which connects military veteran investors to veteran-owned business. StreetShares leverages the loyalty of the military community to reduce risk in financial transactions. Since 2015, CIM has lent more than $300 million to small businesses in the United States — more than half of them owned by women, minorities, or military veterans.
“There is more information out there than ever before, and yet, income inequality, or just inequality generally, is extreme at this point in time and the existing funding models that we have for lending are broken,” Haar, a managing partner at Community Investment Management, told ImpactAlpha. “We need to think differently about the way that we underwrite borrowers. It is less about physical collateral and more about understanding borrowers better.”
Read the full interview with Jacob Haar about expanding small-business lending at ImpactAlpha.