Prosper Portland

Case Study

To change outcomes, you need to change the system. Prosper Portland and Craft3 work to deliver more equitable and inclusive approaches to community development finance.

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Building Relationships and an Effective Voice

Prioritizing equitable financing

Starting in 2012, Prosper Portland — the economic development and urban renewal agency for the City of Portland, Oregon — began to prioritize investments in underserved communities through its Neighborhood Prosperity Network. This effort grew out of the recognition that an equitable economy in Portland would require development outside of the City’s core.

Craft3 was a newcomer to the Portland market, having recently merged with Cascadia Revolving Loan Fund, which had a long-time presence in Portland. As the organization began listening to and meeting with community members, it became clear that Prosper Portland’s place-based approach to community economic development aligned with the approach Craft3 had taken over decades of working in and around Astoria, Oregon. Both Craft3 and Prosper Portland believed that purposeful, strategic engagement with stakeholders can catalyze community-led investment. Craft3 aligned its place-based approach with the six neighborhoods identified in Prosper Portland’s Neighborhood Prosperity Network, and Craft3 hired a lender focused on investment into these targeted neighborhoods.

Years later despite its community engagement, Craft3 had made only a handful of loans in the Neighborhood Prosperity Network neighborhoods and had very little cumulative investment in entrepreneurs of color. Craft3 began to examine its own lending practices. Like many lenders, it still centered itself around the traditional 5C’s of credit. This approach to underwriting is rooted in systemic racism and perpetuates disparities by disadvantaging many BIPOC-owned business owners who have much less wealth and therefore often less available collateral and lower credit scores.  

Overcoming Challenges

Questioning ingrained lending practices

As Craft3 struggled to scale its work in the city, Prosper Portland launched its Inclusive Business Resource Network and shifted its lending to be more focused on justice, equity, diversity, and inclusion. Seeing an agency like Prosper Portland change its practices and commit to equitable investment inspired Craft3 staff to strive for bold change within its own lending practices.

Prosper Portland’s loan programs that provided lower interest rates for businesses engaging in equity work were an example for Craft3 as it began the research and development phase of what became the Equitable Lending Initiative (ELI). Craft3 challenged itself to meet the community’s needs by changing its approach to loans up to $250,000. In 2021, these lessons informed flexible and more equitable underwriting criteria for Craft3 lending as well as a new Business Services program to provide coaching and other supports for underserved entrepreneurs.

Working in Partnership

Working at the intersection of capital and systemic change.

Craft3 has continued to work closely with Prosper Portland. In 2020, when COVID hit and businesses needed emergency access to capital, Prosper Portland approached Craft3 to administer $1 million in loans and more than $4 million in grants to businesses across the city. Portland leaders hoped to provide capital to small businesses from historically underserved and underrepresented communities, including BIPOC- and woman-owned businesses. Though reports later showed that these communities were disproportionately excluded from the federal Paycheck Protection Program, Prosper Portland prioritized underserved communities, taking an equitable approach, which aligned with Craft3’s vision for investing in communities.

More recently, when Craft3 received a major grant through JPMorgan Chase’s AdvancingCities initiative, Craft3 chose to align that effort with Prosper Portland’s priorities. The goal of the AdvancingCities initiative is to prevent gentrification and displacement of people and businesses from targeted neighborhoods. Craft3 chose to direct its investments into neighborhoods that included those in the Neighborhood Prosperity Network.

Also in 2020, Craft3 began offering lower rates and better terms for BIPOC-owned businesses, based on the recommendations of the internal Equitable Lending Initiative working group. This shift in Craft3’s lending — first catalyzed by observing Prosper Portland years earlier — better met the needs of small businesses and nonprofits seeking access to capital. Lower interest rates were especially meaningful to the community-based organizations affiliated with the Neighborhood Prosperity Network and Inclusive Business Resource Network (IBRN), as Craft3’s rates were sometimes perceived as excessive by the non-profit community.

Craft3’s new rates and terms for BIPOC-borrowers along with the capital provided by the AdvancingCities grant enabled Craft3 to partner on transactions with Prosper Portland that previously would not have been possible. This deeper partnership led to a number of impactful investments, including several that used new Shari’a-compliant financing developed by Craft3. Highlights of these investments include:

• African Youth and Community Organization, a non-profit that acquired its building in the Jade District after being displaced from its former location; this loan was the first in Oregon to use a Shari’a-compliant Musharakah Agreement;
• Division Midway Alliance, a non-profit and Neighborhood Prosperity Network member at risk of displacement, was able to purchase its building and stay in place using a grant from Prosper Portland and a small loan from Craft3;
• Ladybugs Academy in the Interstate Corridor Tax Increment Finance District was able to finance the transition from home-based family childcare to a center.

Conclusion

Lessons learned

• If you want to change the outcome, you need to change how the system works. Prosper Portland realized this when they changed their lending practices to be more focused on equity. Craft3, inspired by that example, also changed how it approaches underwriting. These changes led to changes in outcomes, with more investment going toward BIPOC-owned businesses and community facilities.
• ‍Community economic development doesn’t happen alone; it requires trusted relationships built over years. Combined, Craft3's small team has decades of experience working with Prosper Portland - both at Craft3 and prior employers. Both organizations know and trust each other.
• Self-examination with a demonstrated commitment to improve is critical to serving communities according to their identified needs. From community feedback and its own self-reflection, Craft3 recognized that it had to do better in serving BIPOC-owned businesses – leading to the reduction of interest rates, adoption of flexible underwriting, and creation of new loan products.

Thanks to our partners!

We appreciate your collaboration.