We must build a small-business finance sector where business coaching is integrated and accessible, writes Sandy Fernandez, of the Mastercard Center for Inclusive Growth.
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In order to succeed, everysmall-business owner needs access to capital — but thesmall-business financing gap is getting worse. Last year, only 52% of small businesses that applied for financing received the full amount of funding they requested, down from 62% in 2019.
The reasons for the small-business financing gap are complex. One of the most overlooked factors is that many small-business owners do not have the financial acumen to navigate the complexities of business finance, administrative and legal needs — leading to frustration, higher costs due to mistakes and potentially, failure. When it comes to seeking capital, they must assess loan options and risk without critical expertise.
To ensure more small businesses cansecure the funding they need, we must treat business coaching as a critical part of the capital-readiness equation. When paired with lending, coaching helps small-business owners assess financing needs, navigate the loan process and use capital effectively once secured.
Consider: Nearly 70% of community development financial institutions, OR CDFIs, which provide affordable financing to small businesses in low- and moderate-income communities, say borrower qualifications were a limiting factor in their ability to meet demand. In a Mastercard Strive USA survey of small-business experts, all respondents said pairing business coaching and lending was one of the best ways to improve opportunity for small businesses.
In practice, integrating lending and business assistance could look like this: If a small-business owner is turned down for a loan, they would receive financial counseling for next steps and alternative options, such as credit building. Post-loan, business coaching can help small-business owners effectively utilize financing, maximize profits and minimize defaults.
Yet, integrating coaching with lending is complicated. Banks, community lenders, and small-business support organizations often operate in isolation, with few formal systems for sharing insights or coordinating efforts at scale. Even within integrated institutions like many CDFIs – where lending and coaching coexist – internal referrals are frequently hampered by friction and departmental silos.
To help build a truly integrated small-business support system, community lenders and business support groups — and the philanthropic and public sector funders that support them — can look to proven models that turn fragmented assistance into coordinated, capital-ready systems across multiple actors.
Technology tools like open banking, AI, and data collection/reporting platforms can integrate coaching with the lending process, providing line of sight into transactions in real time, delivering actionable data and intelligence, and identifying gaps and opportunities to leverage coaching — so that the bar to access coaching is lower, adoption is higher and risks for entrepreneurs are mitigated. This is a call to everyone who supports or works in the small-business financing sector — from philanthropists to investors to bankers — to invest in technology tools that make business coaching more accessible. Shared services models and technological innovations are making these investments cost-effective and scalable.
One option to help integrate in-house lending and coaching departments is for community lenders to adopt technology and shared services models that remove silos. For instance, Community Reinvestment Fund, USA has created software enabling CDFIs to proactively work with entrepreneurs to identify new growth opportunities and monitor the overall financial health of the small business, all while facilitating information-sharing between departments. By creating digital profiles for businesses that opt in, coaching and lending departments can easily coordinate on businesses’ needs and offer customized support.
CDFIs can also use technology to scale in-house business coaching. Accion Opportunity Fund, or AOF, designed a new digital learning platform to supplement its one-on-one business coaching services. Learn with AOF offers business learning on-demand to work with owners’ busy schedules, providing personalized learning pathways aligned with common challenges for prospective borrowers, such as financial documentation, cash flow management and credit. AOF loan applicants who are not yet ready for financing receive a customized message transparently explaining the challenge and offering the specific learning path that will help alleviate it — turning a negative decline experience into a positive learning opportunity.
In addition, the small-business sector should explore ways to facilitate coordination between lenders and support organizations — as exemplified by the “one-stop shop” model. For instance, Next Street’sNYC Funds Finder, a partnership with the NYC Department of Small Business Services, or SBS, helps small businesses easily find business coaches and responsible lenders. The results of this collaboration are striking: Business owners who connect with an advisor from SBS through the platform are about 14 times more likely to successfully access funding compared to business owners without an advisor.
While digital-first tools are essential, so too is the time-tested, place-based approach to integrating lending and coaching — meeting businesses where they are in the most literal sense and building community trust. For instance, in Alabama, the Birmingham Business Resource Center offers an in-person one-stop shop, pairing lending with expertise in the local business market, while Rural LISC helps build capacity for rural business support organizations like Higher Purpose Hub in Clarksdale, Mississippi, and Delta Compass in Greenville, Mississippi, which coached entrepreneurs Jason and Kenesha Lewis of Kay’s Kute Fruit and connected them to local lenders.
When there’s friction or a void between small-business lenders and advisors, small businesses remain small, grow more slowly or sometimes fail. Already, small businesses contribute 44% to the nation’s gross domestic product. Imagine what American economic strength — and local economies in towns across the country — would look like if these businesses were fully powered with the capital and expert advice needed to grow even further.
The path forward is clear: We must build a small-business finance sector where business coaching is integrated and accessible. The models work. What is missing is the fuel. Philanthropy can ignite progress in the private sector and banks and community lenders can drive it forward. We have an opportunity to seize on new technologies and data-driven insights that drive bottom-line results and enable small-businesses owners to compete on a level playing field, create jobs, and build wealth for themselves and their communities, from rural Mississippi to Brooklyn — let’s not miss this moment.
