When we launched our Direct Public Offering (“DPO”) in early 2016, Capital Good Fund was a much smaller organization with an unclear path to scale and self-sufficiency. The idea of the DPO–a debt offering that would enable us to invest in the operating improvements needed to grow to a $100 million loan portfolio by 2025–was bold: not only had we structured it in a way that no one else had ever done, but we were banking on raising millions of dollars from impact investors. We knew, of course, that the investment was compelling, enabling us to achieve outsized impact while generating solid returns for the investor, but there was doubt that we would attract much capital.
Today we are thrilled to announce that, having hit our goals, we are closing this Offering. We ended up raising $3.95 million from 104 individual investors, who invested anywhere from $1,000 to $1.25 million, demonstrating that when one gives people the opportunity to align their values with their portfolios, they’ll do it. But none of this means anything on its own: the goal of raising capital was to deploy it for impact and growth, and here the numbers are stunning:
In 2015, the year prior to the launch of the DPO, we financed just 300 loans for $376,000; in 2019, that grew to 1,185 loans for $3.1 million, a nearly 900% increase (on a dollar basis). As the end of 2015 we were lending in one state, Rhode Island, and had $630,000 in total assets; by 2019, we were operating in five states–Rhode Island, Delaware, Massachusetts, Illinois, and Florida–and had assets in excess of $8.1 million. Total revenue in 2015 was $419,000, compared with $3.3 million in 2019. And most importantly, the percentage of our expenses that were covered by earned revenue–that is, income from our loan portfolio and financial coaching, as opposed to grants and donations–rose from 20% in 2015 to 29% in 2019 (In dollars, that’s $125,000 in 2015 and nearly $1 million in 2019). Why is this so critical? Because our goal is for our self-sufficiency ratio to hit 100% by 2025, meaning that we will be able to operate without dependence on philanthropy.
As of this writing, in early April 2020, we have a staff of 33, a $4.1 million budget, total assets of $10 million, and an outstanding loan portfolio of $5 million (1,850 borrowers.) We have financed 4,800 loans for $10.2 million with a 95% repayment rate, and just 3.7% of our active portfolio is delinquent (30+ days late). To understand how impressive those portfolio figures are, consider the profile of our borrowers–clients that mainstream lenders shun because they are supposedly too risky to lend to. We serve those who are all-too-often unable to access affordable loans for reasons of racism, sexism, legal status, disability, language barriers, and mistrust of the system. The following is true of our clients:
- The average FICO score is 580%; 20% have no FICO at intake
- 65% are female; 35% are male
- 28% are low-income; 34% are very low-income; and 18% are extremely low-income; the remainder are moderate-income (calculated as a % of Area Median Income)
- 38% are Latino; 28% are African-American; 3% are other minorities; and the remainder are Caucasian or multi-racial
So what comes next? Well, our 2019 plans have obviously been upended by COVID-19; for instance, we’re not going to finance nearly as many Car Loans as we had originally projected, since people aren’t car-shopping right now. In fact, the crisis is pushing our break-even point by a year. Fortunately, we’ve been able to quickly pivot and launch the Crisis Relief Loan, which we designed to address this unprecedented crisis. The product has the following features:
- $300 – $1,500
- 5% APR
- 15-month term, with an initial three-month deferment period
- Credit review based on pre-crisis income and expenses
- Loans can be used for almost anything–rent, utilities, food, clothing, WiFi and cell phone bills, etc.
As of this writing, we have already received nearly 300 applications and closed 20 loans (with 30 more pending closing). The response from the philanthropic community has been phenomenal, with banks, foundations, and individuals stepping up to donate to help us scale up the product. If you want to make a tax-deductible donation, click here. We are especially proud of how we are leveraging grant funds: the money we raise goes into a loan-loss reserve; for every grant dollar, we’ll lend out up to $4 of our own capital. This means that even if the default rate hits 25%–and given the extreme uncertainty of this moment, we just can’t know for sure, though we expect it’ll be much lower–there will be no harm to our portfolio. What’s more, we’ll use the funds to forgive the loan, meaning that there won’t be any harm to the client’s credit, either. As principal revolves, we’ll lend it back out, further magnifying our impact.
The Direct Public Offering has made all of the above possible: without that $4 million, we would never have been able to make the investments in technology, personnel, marketing, and professional services to be able to grow. The best is yet to come: by 2025, we expect to have a $100 million loan portfolio, 60+ staff, and over 30,000 clients. And most importantly, we are having transformational impact: our clients see an average FICO score increase of 75-points; have realized an aggregate savings in interest and fees of roughy $4 million–MILLION!–thanks to our loans, which are so much more affordable than our predatory competitors; and have used the loans to become citizens, avoid deportation, get a green card, place a security deposit on a safe apartment, make their home more energy-efficiency, and myriad other key needs.
Stay tuned. The best is yet to come. If you wish to be updated on our Offering, please sign up for our newsletter.