Blended Capital for Household Wealth Building
What is a "Blended Capital Approach” to Capital Access?
A "Blended Capital Approach" to asset building responds to the reality that to obtain or secure an asset, individuals with historic barriers to building wealth require more than one or even two sources of capital. The ideal blend includes combined resources of matched savings, mainstream loans, and financial assistance that does not require repayment (i.e., a grant).
As you continue reading below, note that grants and matched savings can’t be pulled from thin air. Communities, philanthropy, municipalities, State and Federal governments must make a conscious effort to invest in grant and matched savings programs for equity-deserving groups who have been harmed by racist systems that denied them intergenerational wealth building opportunities for decades and even centuries.
Matched Savings: Made popular through the US Federal Government’s Assets for Independence program. IDAs are accounts set up by financial institutions in partnership with community-based organizations and matching funders. The Blended Capital Approach recommends at least $10,000 in match funding (totalling $20,000 with each participant’s $10,000 contribution) for beneficiaries on an Asset Acquisition Journey.
Mainstream Loan: Should a beneficiary’s journey lead to a lender, then any loan should have terms that are favorable to the beneficiary, both through a mainstream rate that is close to prime and term lengths adjusted for manageable monthly payments. Rates and terms are based on the inclusion of matched savings (up to $20,000 towards the principle), any other fiscal supports (for example, down payment assistance on a home purchase), and what financial assistance amount is available and recommended through conversations with the beneficiary, the lender, and the financial TA provider.
Blended Capital Enhancement: A grant used to close gaps in down payments needed to complete the Asset Acquisition Journey. The grant fund should have maximum (but flexible) amounts set. For example, a beneficiary scaling a business and in need of a new piece of equipment should have a maximum grant amount of $25,000, or $50,000, or $75,000 depending on the type of business and revenue stream. A beneficiary needing to pay off debt before purchasing a home could use a grant to pay off their debt. Debt repayment grants could be set at $5,000 or $10,000 or as much as funders decide. A beneficiary could use a grant for DADU build or home renovation. A DADU grant could “max out” at an amount such as $25,000, $50,000, etc.
Combining matched savings, loans, and grants push beneficiaries over the finish line of their Asset Acquisition Journey and ensure a more secure asset and opportunity to pass along wealth intergenerationally.
What is an Asset Acquisition Journey?
An Asset Acquisition Journey maps the need in time and resources to acquire an asset, usually in collaboration with a Financial Technical Assistance provider (financial counsellor, business coach, housing counsellor).
What counts as an asset?
An asset is any wealth-building opportunity, whether it's owning a home, securing a home, expanding a home, building an Accessory Dwelling Unit, purchasing a vehicle that aids in gaining or maintaining employment or a business, investing in education, reducing debt while building savings, starting a business, scaling a business, purchasing a commercial space for a business, or developing housing or commercial properties.
What is Financial Technical Assistance?
This refers to any Financial TA provider integrated into the journey with an asset-seeker. This could be an accredited financial counselor, a business coach, a HUD-Certified housing counselor, or someone else trained to help an individual understand their financial needs for the duration of the journey.
How does it all work together?
An individual embarking on an Asset Acquisition Journey can access Blended Capital Interventions at any stage in their wealth-building process. Examples:
A small business owner in a municipal, state, nonprofit, or CDFI enterprise support program looking to scale their business without collateral.
A middle-income renter looking to purchase a home involved in a homeownership initiative.
An apprentice in the trades looking to start a contracting business.
A small business owner in a municipal or CDFI program designed around commercial property ownership who wants to own their commercial building.
A parent with a HUD voucher working to save for their child's college.
A homeowner wanting to renovate or expand their home or build an Accessory Dwelling Unit (ADU) who is working with a special Credit Union DADU lender.
A returning citizen with a lapsed predatory loan connecting into a reentry program.
A consumer with seemingly insurmountable debt visiting a financial counselor for the first time.
Any other situation where an individual comes into contact with a TA provider.
In consultation with the Financial TA provider and support program, determine the asset goal and all the steps necessary (amount needed, ideal loan terms, necessary classes or courses, adjacent support programs, debt consolidation steps, savings strategies and goals, expense management, likely time commitment, other necessary supports). This unlocks the Matched Savings opportunity. Along the journey, the individual saves towards their goal and maximizes their matched savings target.
The individual and TA provider, having already discussed ideal loan terms suitable to the individual's income and cash flow, prepares the loan for the asset purchase.
The grant gets the individual over the finish line or secures the asset. Examples of how the Grants do this:
An individual completes their apprenticeship training in the trades. Their employment coach connects them with a business start-up program focused on helping BIPOC trade workers start their own businesses. The program is associated with a local CDFI offering zero-collateral loans for participants working with a business coach. They need $80,000 to purchase vehicles and tools to start their business. The CDFI approves a $50,000 no-collateral loan. Over six months of coaching, they save $10,000, receiving a $10,000 match. They receive a $10,000 grant to round out their needs. They stay involved with their coach, grow their business, and thrive as a business.
An individual qualifies for a special program focused on Black homeownership. They enter into coursework with a HUD Housing Counselor through the program. This qualifies them for down payment assistance. They begin saving their $10,000 and receive a $10,000 match. They receive favorable loan terms upon purchasing their home, using their savings and down payment assistance. They receive a grant for $20,000 in a home repair fund so they can maintain their home and preserve their asset in case of emergencies (like a broken water heater, etc).
An individual returning from incarceration and in a job training program has combined court debt, student loan, and credit card debt of $75,000. They enter into a program that helps to pay off their court debt and expunge their record. They begin working with a financial counselor, which triggers their matched savings process. They save $10,000, have $10,000 matched, have their court debt waived, and use their savings and grant to pay off their credit card and student loan debt, giving them a “clean financial slate” in addition to a “clean” court record.
What is the typical duration of a journey?
Participants can enter into a relationship with their Financial TA provider, and their journey could be a matter of months or longer, with an open invitation to continue to check in with the Financial TA provider.
Why blended? Why not just one or two?
Closing racial wealth gaps requires robust approaches to capital access. Matched Savings programs alone have not provided sufficient wealth to invest in assets. Loan programs associated with business start-ups or down payment assistance for a home purchase do not come close to matching the average assets of white-owned start-ups or white homebuyers, which leads to devastating outcomes such as shuttered businesses and higher foreclosure rates. Combining loans, matched savings, and grants addresses these gaps in and secures an asset.
Why only “most cases” for a loan? Why not all cases?
Sometimes a loan is not a necessary or desirable approach to asset acquisition. When advisable by the TA provider, beneficiaries should avoid taking on debt. Some asset journeys are simply about paying off debt and building savings.
Is this like Basic Income?
No. This is meant to address racial wealth gaps, not racial income gaps. Guaranteed Basic Income is still a necessary, more cost-effective, and more dignified approach to providing life-stabilizing resources to people experiencing poverty (as opposed to emergency food, welfare programs, etc.).
Should this be available to everyone?
No, only to people involved in an Asset Acquisition Journey from communities that have been historically excluded from wealth and equity-building by racism in real estate, housing, lending, financial systems, under-investment, over-policing, etc, should be beneficiaries.
Who manages the Matched Savings?
A regional or Statewide intermediary
Who manages the Grant funds?
A regional intermediary
Which lenders participate?
Lenders working authentically in and with communities impacted by structural racism, with a track record of creating or willingness to create beneficial financial products using a cash flow analysis, relational underwriting, or any other approach designed for financial inclusion denied by traditional underwriting based on FICO scores.
What other factors can make this successful?
A Loan Guarantee Fund to encourage lending
A fund for Homeownership-focused CDFIs
Ongoing funding for hiring and training Financial TA Providers
Grants for capital and operations for emerging BIPOC-led CDFIs
Workforce development incentives