Going Deep: Developing Childcare Industry Vertical for Small Business Lending

 

By Accion Serving the East Coast CEO Paul Quintero

 

On June 19, 2019, I presented on the benefits of developing an industry vertical at Opportunity Finance Network’s 2019 Small Business Finance Forum in Chicago.  Together with panelists from Opportunity Fund and Colorado Enterprise Fund, we shared how targeting certain industry segments for small business lending can differentiate your organization in the marketplace, grow word-of-mouth referrals and pave the way for market expansion to new geographies.

 

At Accion, our new focus is in serving home-based childcare providers across New York City.  To understand why, listen to what Elizabeth Galloway, a co-owner of O&E Childcare in the Bronx and recent Accion client told us about the importance of her work for the community: “This is a poor community. But it doesn’t matter where they come from, it doesn’t matter what they face. We can give them a chance to be successful. Bringing resources, bringing hope to a child’s life? It means everything!”

 

An op-ed published in the New York Times just yesterday underscores the economic implications of how our country addresses its childcare needs.

 

Lack of Childcare: A Costly Challenge

The vast majority of small business owners that Accion serves are low- to moderate income, women of color, and/or immigrants, of which most are Hispanic or African American. These affinity groups have historically had the most difficulty accessing the educational and financial resources that a business needs to grow, or in some cases simply stay afloat.  Additionally, a 2015 report from the Committee for Hispanic Children and Families found that childcare providers struggle with cashflow challenges, significant constraints on their time, volatility in income, and limited financial acumen. In other words, childcare providers have been left underequipped to provide an essential public service.

 

This is troubling when we consider the social importance of their work.  Research from Nobel Prize-winning University of Chicago economist Dr. James Heckman and others indicates that investing in early childhood education improves children’s cognitive skills, attentiveness, and sociability, leading to tangible personal benefits and better social, health, and economic outcomes down the line. Beyond the educational benefits, the existence of a robust, reliable network of childcare providers means that families with children who are not yet school age can go to work, earning an income for their families and contributing to the broader economic health of their communities.

 

On the other hand, when families struggle to find quality, affordable childcare, the whole economy suffers, with working mothers bearing the brunt of the burden.

 

According to research by the Center for American Progress, American businesses lose roughly $12.7 billion a year due to the childcare challenges of their employees, who often must miss work to care for their children, cut back on their working hours, or leave the workforce entirely. The national losses in earnings, productivity, and revenue climb to $57 billion annually. The same research indicated as many as half of American families reported difficulty finding childcare, and women paid the price: mothers were 40% more likely than fathers to report that childcare issues impacted their careers, and were less likely to be employed when unable to find a provider than mothers who were. With nearly 70% of mothers participating in the workforce and 42% of mothers operating as the primary breadwinner in their families, an inadequate childcare system is something we simply cannot afford.

 

Developing a targeted Childcare Industry solution

Our idea for scaling our work with the most vulnerable among us began by determining which industries had the highest concentration of our targeted affinity groups.  From this list, we sought industries in which we had previous experience and ranked ordered by recession sensitivity (from least to most).

 

Home-based childcare providers scored high on the above and have been a constant, albeit historically small, portion of Accion’s client base for years.  Importantly, the industry is primarily made up of Hispanic and African American women, who traditionally face the greatest barriers to financial inclusion. Thanks to initial investment from Citi Community Development, without whom we could not have gotten this work off the ground, we launched a pilot program in the fourth quarter of 2018.

 

Using insights gained from human-centered designed workshops and information gained from intensive research of the field, we designed an offering that responded to the key needs of providers, which included: (1) simplicity; (2) a stress-free process; and (3) repayment flexibility.  Licensed home-based childcare providers are currently prequalified by Accion for up to $20,000 with just a fifteen-minute phone call, with no paperwork required to apply and a 48-hour turnaround to receive their closing documents.  At the time of the panel, we celebrated two milestones, including: over 100 clients served through the program, and over $1 million lent since launching the initiative in October 2018.

 

Societal Payoff

The challenge is clear: nonprofit organizations like Accion must continue to be creative in solving the problems that face Elizabeth Galloway and others in American communities everywhere. With economic inequality climbing to historic heights and an uncertain economic future ahead, the stakes are simply too high to refrain from innovating on behalf of under-resourced communities. Accion’s answer to this challenge has materialized as a focus on the industries that can powerfully impact people’s lives. For others, the answer may be different, but the fruits and benefits of our creativity will be a future in which opportunity and prosperity are accessible to all.