Inclusive Action for the City, a Boyle Heights-based community development financial institution (CDFI), has significantly increased its lending and reach in the last year, as well as expanded into real estate through its community ownership initiative. These growth moves, among others, earned the organization the inaugural Emerging Growth CDFI Award from the Opportunity Finance Network, a CDFI membership association based in Washington D.C., just last month.

Central to Inclusive Action’s mission is prioritizing underserved communities. Currently, its client portfolio consists of 57% women-owned businesses and 95.8% owned by Black, Native American and other minority entrepreneurs.

In the last three years, Inclusive Action has also tripled its number of employees and operating budget, said Deputy Director Nicole Anand. 

Anand said Inclusive Action has three overarching goals, or “North Stars,” as she calls them.

“Those North Stars are reducing the racial wealth gap, eliminating income inequality and turning community agency into power,” Anand said. “And as a part of that, we are an organization that believes in the fact that small business is the backbone of our economy. If we’re trying to reach these goals, we want to invest in small business.”

Inclusive Action particularly seeks out microentrepreneurs and microbusinesses because it’s a segment that often gets left out in traditional lending, Lending Director Andrea Avila said. Avila defined these as businesses with less than five employees and with a maximum of $750,000 in annual gross revenue.

Developing its lending portfolio

One specific business type within the microbusiness landscape that Inclusive Action has focused on is street vending.

“We have looked at the ecosystem and who people are serving and have identified that microbusinesses – and even a segment of microbusinesses, which is street vendors or ‘open air entrepreneurs,’ as we call them – have been completely left out and that no one else is serving these businesses,” Anand said.

Inclusive Action first began as a policy advocacy nonprofit. After the organization’s work in passing Senate Bill 946 in 2018, which legalized street vending, it amped up its lending initiatives significantly.

“Four years later, together with our coalition partners, we passed SB 972, which created pathways for food entrepreneurs that were not a part of the formal economy to become a part of the formal economy,” Anand said.

While helping realize the legitimacy of street vendors was a win for the organization, it called attention to a new need to help these businesses be sustainable. One way to act on that is capital flow.

As Inclusive Action began increasing its lending activity focusing on street vendors, Covid hit shortly after, creating increased hardships for a variety of small businesses.

“We saw a really big need for other businesses outside of street vendors that are not able to access capital anywhere else and are also stuck in high debt entry cycles,” Avila said. “So (we needed to) expand the team to make sure that we’re also supporting those needs.”

Once Inclusive Action accelerated its lending to more types of businesses, this in part inspired the organization to expand into the real estate market with the creation of its community ownership initiative.

“We can do all the healthy capital that we want, but if a business owner is being kicked out of their brick and mortar because (their landlord) is raising the rent 10 times the (property) value, where are they going to go?” Avila said.

The concept behind community ownership is to bring minority and low-income business owners into buildings initially as tenants but eventually convert them into owners.

Another key avenue for protecting brick-and-mortar businesses is education on rental agreements.

Avila recalled a recent client who came to the organization after being forced to file bankruptcy when her company’s rent was hiked. To try to prevent situations like this, Inclusive Action partners with other organizations that can provide lawyers to look over lease agreements for clients to ensure they understand important terms.

Additionally, on the policy side of things, supporting legislation to safeguard commercial tenants is a big push for Inclusive Action. This is why the organization co-sponsored SB 1103 – which was signed into law by Gov. Gavin Newsom in September – mandating that leases be translated into a person’s primary language and tightening eviction and rent increase procedures.

Receiving CDFI status

Part of Inclusive Action’s recent growth stems from its 2020 designation as a CDFI.

Since then, it received more than $1.5 million from the U.S. Treasury’s CDFI fund. The organization also recently secured $1 million in funding from Citi Foundation, the philanthropic arm of the global bank Citi, and became a part of its Community Progress Makers in Southern California cohort.

“The (CDFI) certification has also brought a certain amount of legitimacy and visibility to our organization and to our lending,” Anand said. “When you are a CDFI, there is a camaraderie with other CDFIs and an understanding that we were born out of a civil rights mission and we are established to serve the underserved.”

Being a CDFI also opens the door for referral partnerships and allows Inclusive Action to have a seat at the table and be a part of conversations that shape CDFIs and the financial industry at large, Anand said.

Seth Julyan, chief network officer at Opportunity Finance Network, said Inclusive Action was the right choice for the organization’s Emerging Growth CDFI Award not only because of its recent growth spurt, but also the “the innovative ways they go about reaching communities,” he said.

“A lot of CDFIs will do what Inclusive Action for the City does with business coaching and helping entrepreneurs get ready to take on debt,” Julyan said. “What’s a little bit different with Inclusive Action is the actual policy advocacy that they do.”

In terms of loan products, Julyan also said he admired Inclusive Action’s work with converting debt into equity, adding that its lending team is “phenomenal at involving the community and how they tailor and design loan programs.” 

Loan products

As of October, Inclusive Action recorded $950,000 of loan deployment for 2024, accounting for nearly one-third of its total loans since 2016 and a record annual high for the institution. Additionally, the organization has deployed more than $3 million in grants.

It currently offers three different microloan structures. The first is called Raices, which means “roots” in Spanish, and ranges from $500 to $2,500 with a 5% interest rate and is made to provide funds for working capital, inventory and refinancing debt.

This small dollar loan product was created to address predatory lending Inclusive Action observed in the community.

“We were seeing a lot of folks going into predatory debt for very small amounts, like $1,000 to $2,000, and so how can we be somewhat of an alternative to predatory lending… and be efficient for other folks instead of them going into a 36% interest debt?” Avila said.

The Raices loan also helps clients establish and/or build credit to open opportunities for larger loans in the future. Inclusive Action clients on average see their credit scores increase by more than 250 points after working with the organization.

Next is the Tierra loan, which ranges from $5,000 to $50,000 with a 3% interest rate, to fund equipment, inventory and technology. Just this year, Inclusive Action raised this maximum by $15,000 to account for inflation.

“We want to make sure that we’re supporting businesses as the economy around us is changing,” Avila said.

When evaluating the impact of small dollar loans, Jessica Jackley – an entrepreneurship professor at USC Marshall and founder of Kiva, the first microfinance crowdfunding platform – said there is more than meets the eye.

Jackley said the tools that come along with partnering with an organization like Inclusive Action, in terms of training, guidance and navigating the best use for a loan, add to the value of a smaller loan. Plus, it can help jumpstart a business from a slump.

“A bit of a change in trajectory for growth for a small enterprise (can be) really powerful,” Jackley said. “… Oftentimes a person might be stuck at a particular stage of their business and having access to that next step up can really set things in motion for them in a really positive way.”

Lastly, there is Semi’a, also called the seed loan, ranging from $3,000 to $35,000, which can be put toward a variety of business uses, and has an 8% interest rate.

Inclusive Action does not have a requirement for credit scores to qualify for its loans, though the organization does make recommendations based on someone’s financial standing for a suitable loan size to avoid piling on debt.

When it comes to the demographics Inclusive Action serves, Jackley compared securing financing to the adage: “What came first: the chicken or the egg?”

“Often a lot of other resources aren’t available until you have the credit score and other markers of reliability, whereas for somebody, especially a recent immigrant or somebody that’s just beginning their journey, it’s really hard to build,” Jackley said.

Thus, Inclusive Action’s credit score policy opens the door for people often turned away from traditional lending.

“This is a really wonderful opportunity for somebody to prove themselves as opposed to relying on the same signals and systems that prioritize a lot of other people and a lot of other life paths,” Jackley said.