First Step Alliance creates proposed credit union geared toward unbanked, including returning citizens

Nancy Eiden, founder, trustee and secretary of nonprofit First Step Alliance

One of the biggest challenges facing those leaving prison is effectively dealing with financial issues, establishing credit and getting a loan to buy a car, a house or start a small business. Accomplishing any or all of these will help people in reentry successfully launch their new lives. And nonprofit First Step Alliance is in the process of creating the first ever credit union to help them do so.

Those who can successfully open bank accounts and navigate the financial system are more likely to stay out of prison.

At least that’s what Pennsylvania Dept. of Corrections research shows. It discovered that 73 percent of those who managed to stay out of prison for at least three years had bank accounts. And people who didn’t make it to three years? Only 39 percent of them had accounts. In addition, those in the first group had accrued about $5,000 in debt, while those in the latter only about $2,000, indicating that financial institutions were willing to extend credit to some individuals. Securing credit can help those in reentry buy a car or something else they need to reestablish themselves in society. It can also help them get a loan to start a small business.

But how to get credit? It’s certainly a challenge for those who’ve been in prison, many of whom have never had a bank account to begin with.

We will be the first (credit union of its type) if we can get this off the ground. It’s the funding that is holding us back.

Nancy Eiden

Although it’s not easy, nonprofit First Step Alliance, is out to change that. The organization is committed to helping formerly incarcerated individuals improve their financial lives. And its proposed credit union will focus on the unbanked, especially those in reentry.

The inspiration came from Nancy Eiden, First Step Alliance’s founder, trustee and secretary, who spent most of her career in global banking and credit unions.

“I had experience with working with underserved communities and the lack of options that many people have. I had conversations with formerly incarcerated people who were having trouble banking. Many people don’t have traditional forms of identification like drivers licenses. Credit is also a huge challenge. Credit scores are low,” she says. In fact, credit score declines by 32 points for each year of incarceration according to a U.C. Berkeley study.

First Step Alliance receives application approval

Although the proposed financial institution was originally named the Returning Citizens Credit Union, It will now be known as Diverge and has received approval from the National Credit Union Administration to submit a full charter application. First Step Alliance has also teamed up to partner with another membership organization, CLEAR, the Center for LGBTQ Economic Advancement & Research, to create the new credit union.

The biggest challenge, according to Eiden, is raising the initial capital. “The money is out there for this type of initiative,” she says. “Grassroots (fundraising) probably won’t work here. The initial target is $2 million, and it will be easier to raise the money from credit unions, credit union service providers and credit card companies.” She adds that companies and institutions with a DEI (diversity, equity and inclusion) mindset that have the financial bandwidth will be the key to securing the capital they need.

The $2 million is the organization’s three-year projection. “The goal is in five years to have an asset base of $50 million and 15,000 customers,” Eiden says.

The bank will be a hybrid operation. “We intend to open initial offices in New Jersey and Connecticut. The goal is to work with reentry organizations and have people within those locations act as our bankers. We’ll have a mobile banking app and a member support staff,” she adds.

While plans are in place for the new credit union, the organizers have a big task ahead of them.

“We will be the first (credit union of its type) if we can get this off the ground. It’s the funding that is holding us back,” Eiden says. “Where we are right now is helping people one person at a time (through her nonprofit), and that evolves into helping many thousands – or tens of thousands.”

“Diverge will offer better access to fair and inclusive financial services to help people get back on their feet.”

Potential loan funders to turn to

Until First Step Alliance establishes Diverge, Eiden suggests checking out loan possibilities with a community development financial institution (CDFI). CDFIs – and there are more than 1,200 in the U.S. – are geared toward communities and clients that traditional financial institutions don’t usually serve. And along with loans, they may offer business coaching and financial education to ensure those who receive the loans will be able to succeed in their ventures.

These funds offer micro-enterprise and small-business loans to people in low-income communities. Although CDFIs are located in all 50 states and Washington, D.C. the loan funds are a bit more specialized. But many exist and some work with clients across the nation.

The Opportunity Finance Network’s website has a directory of hundreds of community development loan funds, although it’s unclear how many of them are willing to work with people who have been incarcerated. Since they all serve underrepresented communities and demographics, however, they may lend to someone who was incarcerated whether that is clearly stated in their description or not. These organizations make loans and grants, as well as loans that can become grants.

If you’re interested in the possibility of a CDFI loan, you can begin by using the CDFI locator. Click on “area served,” and select the appropriate state. From the state list you can click on each individual organization and find a description of the sort of funding it offers. It’s important to go to the individual institution’s website and call those you think might be possibilities. Each one is a bit different in terms of what’s required and how to go about applying for a loan. Taking the time to review the full list serving your geographic area, and talking to multiple lenders may open doors to more specific options and programs.

Examples of CDFIs

Here are a few possibilities of CDFIs that Eiden recommends and several that we are aware of:

AEO, the Association for Enterprise Opportunity, has created the Endeavor Ready 3.0 program in which it is working with its partners to expand capital access to those in reentry who want to start a business. So far participants have accessed more than $250,000 in loans. Applications closed in December 2022, but AEO may accept another cohort for 2023. If you’re interested in being considered, fill out an online consent form.

Dreamspring – A nonprofit community lender headquartered in Albuquerque, this CDFI focuses on underserved communities and offers loans, credit, and small business support to entrepreneurs who are starting or growing a business in 27 states — Alabama, Arizona, California, Colorado, Florida, Georgia, Illinois, Iowa, Kansas, Louisiana, Michigan, Mississippi, Missouri, Nebraska, Nevada, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Washington and Wyoming. You can apply by phone or online by clicking the “Apply Now” button at the right-hand top of the organization’s website.

The Fountain Fund – This nonprofit lending organization has offices in Charlottesville, Vir., and New Orleans and operates in those cities and the surrounding areas. It offers loans to previously incarcerated individuals that range from $250 to $15,000. Loan recipients are required to participate in financial literacy training that includes group workshops and one-on-one financial coaching.

Hope Credit Union – Headquartered in Jackson, Miss., Hope serves clients in Alabama, Arkansas, Louisiana, Mississippi and Tennessee. It offers loans to help people leaving prison get back on their feet, as well as loans to help those people who qualify start – or expand – small businesses. In mid-2020, Netflix made a $10 million investment in the credit union to support more than 2,500 entrepreneurs, homebuyers and consumers of color. It’s part of Netflix’s pledge to move 2 percent of its cash holdings – about $100 million – into black banks and black-led financial institutions. To highlight what it’s doing, the company produced a three-part series, Banking on Us.

Entre Capital – This community loan fund advertises, “Unless you have a criminal record, we can’t lend you money.” It’s the first CDFI to provide affordable commercial business loans to returning citizens in Texas.

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