![]() And here’s the thing, “data has shown that better relationships between lenders and borrowers equal better credit performance.” Community lenders and nonprofits have explored and done CBL before, but with the lending industry the way it is today, more inculcation and adoption is clearly needed. Modern CBL is basically the same concept: a model which considers the applicant’s character as a safeguard for the likelihood that they will repay the loan. But in the days before credit scores even existed, loans were given out based on the relationship that an individual had with the lender, and the strength of that relationship acted as an indication of a person’s ability to repay back that loan - provided that you were a white male of course. In fact, it’s as old as lending itself - and it exists, but with a heavy reliance on those racist credit scores. Basically, as soon as we peel back the layers of the financial onion, it’s easy to see that the system leaves a vast swathe of our community, especially those from traditionally underserved groups, in the financial dark.Įnter one of our potential solutions: Character-Based Lending, or CBL. According to a 2019 report by RateMyInvestor and the Diversity VC, startups funded by the top Venture Capital Firms were nearly 90% male and 72% of founders are white. What’s more, only 1% of all venture-backed startup founders are black. Think about the local family-owned restaurant down your street, which will be passed down to children and grandchildren, without ever intending to be scaled or sold. Venture capital isn’t a solution either, and frankly not applicable to many businesses - particularly those whose models won’t scale. Theoretically it’s as simple as going to a bank and demonstrating one’s creditworthiness, but creditworthiness depends on credit scores which are reliant on racially-skewed data like home ownership - an area we know BIPOC folks have been historically shut out from, and completely disregard the unbanked, which includes includes about 17 million adults, of which 21.7% are Black, 19.3% are Latino and 15.5% are Native American. After that, you either turn to the traditional financial system for a loan, or to venture capital firms for backing.Įxcept here’s the problem: when it comes to funding your big idea, chances are that unless you are a white man, the cards are stacked against you. ![]() First, you’d turn to your closest allies for the friends-and-family round where they can support you before you’re able to prove yourself to creditors or funders. Typically, you’d go through a “standard” funding journey. So you have a big idea, you start your business and you want to take this fledgeling product to the next level. Photo by The New York Public Library on Unsplash
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