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Are you concerned about wealth inequality in America? If you are, you can invest in a way that will help bridge the gap between rich and poor. An investment platform known as CNote invests specifically in loans made to low-to-moderate income borrowers in lower income communities across America. The funds can be used to purchase a first home or to start a new business. Some funds are even invested in community projects, like schools, health centers and community centers.
You can help finance those ventures, providing a high interest return for yourself, and an opportunity at economic empowerment for those not adequately served by traditional banks. The rates of return on your investment generally exceed those even of high interest paying online banks. And you can begin investing with as little as $1.
What is CNote?
CNote is an investment platform that seeks to provide high yielding short-term investment returns by investing in causes and communities that you believe in. It’s something like socially responsible investing, but it operates at a more local and direct level.
The company was co-founded by Catherine Berman, who acts as CEO, and Yuliya Tarasava, who is the CNote chief operating officer. The two have decades of experience in finance, venture capital and private equity. They founded CNote as a way to bridge the growing wealth gap in America through the use of financial innovation.
CNote works to create value for all stakeholders, including CNote owners, investors, and borrowers. They do this by providing sustainable capital for community lending partners, while generating higher returns for members on capital provided in the communities that need it most.
The platform focuses on providing capital to women, minorities, and “those often forgotten by Wall Street.” The investments made through CNote focus on growing small businesses, building affordable housing, and helping underserved communities thrive.
CNote has already provided more than $25 million in funding to community lending partners.
How CNote Works
CNote should not be confused with peer-to-peer lenders. Instead, your money is invested with community lenders that have a long track record of financial stability, and work to support low-to-moderate income communities. It does this by investing in community development financial institutions (see description below), rather than through direct investment (or direct loans, as is the case with peer-to-peer lending).
Your investment will be in one of two interest-bearing funds, which we describe in more detail below. Interest rate returns are fixed for a time, but can adjust higher or lower as general interest rates rise and fall.
The notes are not completely risk-free, but are described as low risk investment products.
Social impact is a big part of the CNote investment plan. The platform’s mission is to increase financial inclusion, social justice, and inequality by increasing the amount of capital available to minority and women-led businesses. CNote provides quarterly and annual reports with impact metrics to investors to track the company’s social impact.
The key metrics included in those reports are:
- The number of jobs CNote investments help create or maintain.
- Percentage of capital deployed to women-led businesses.
- Percentage of capital deployed to minority-led businesses.
- The percentage of capital deployed to low-to-moderate income communities.
Since CNote investments produce interest income, you’ll receive IRS Form 1099-INT reporting the income.
What Are Community Development Financial Institution (CDFI) Loans?
Community Development Financial Institutions, or CDFIs for short, are institutions that work with the goal of expanding economic opportunity in low income communities. They do this by providing access to financial products and services for both residents and businesses.
CDFIs can take different forms. It can be a small business loan fund or a local bank or credit union. They can even be micro-loan funds or venture capital providers. They invest in local health centers, schools, and community centers, as well as helping local residents start businesses and purchase a first home.
There are more than 1,000 CDFIs operating across the country. They represent a collaborative effort, bringing together both private and public sector investors, for the purpose of expanding economic opportunity in low income communities.
An organization can even become certified as a CDFI, and receive funding through the U.S. Department of the Treasury, as well as from individuals, corporations and religious institutions.
CDFIs are the organizations CNote invests through. These loans have been around for more than 20 years and have provided over $100 billion in affordable capital, creating more than 1 million jobs. They have a historical default rate of less than 1%.
CNote Features and Benefits
Minimum initial investment: There is no minimum investment required for the Flagship Fund. However, the Wisdom Fund requires a minimum of $25,000, as well as accredited investor status (see fund description in the next section).
Available accounts: Regular taxable accounts, trusts, and business accounts.
CNote security: CNote investments are not FDIC insured. However, the company provides three levels of protection under its “Triple Protection Plan”. The protection levels are as follows:
- CNote’s CDFI partners have a general recourse obligation with CNote. That means they’re obligated to pay CNote back, even if their borrowers are unable to repay their loans.
- There are state and federal programs to protect money invested in CDFIs. Under those programs, a portion of the loans made by CDFIs to small businesses are covered. The CDFIs themselves are required to maintain their own loan-loss reserve fund, just to be eligible to participate in the programs. This gives you a combination of partial government protection, as well as the CDFI loan-loss reserves.
- CNote has also established a loan-loss reserve fund. This will give CNote the ability to cover some or all losses that are not covered by the protections above.
The combination of protections makes CNote investments relatively safe, if not completely safe.
Customer support: Available by both phone and email. Specific hours of availability are not provided.
CNote currently has two funds it invests in: the Flagship Fund and the Wisdom Fund. Each is an investment-bearing fund that generates a competitive return by lending to rigorously-diligent U.S.-Treasury-Department-certified CDFIs.
The Flagship Fund is available to all investors, and requires a minimum investment of just $1 to open (there is no maximum investment). The fund invests in loans made by CDFI lenders.
The current rate of return on the Flagship Fund is 2.75%.
The Wisdom Fund invests similar to the Flagship Fund, but it invests specifically in the future of women. It’s a fixed income investment vehicle designed specifically to provide funding for low income women and women of color in the United States. In addition to capital funding, participants will also receive business coaching.
CNote reports that women-owned businesses receive only a small fraction of total small business lending, despite the fact that there are some 12 million women-owned businesses nationwide. The problem is even more pronounced with minority female enterprises.
The current expected annual return on the Wisdom Fund is 4.0%, and it has a 60 month investment term. The fund will invest capital across multiple community lenders holding loan portfolios covering diverse geographies.
The Wisdom Fund requires a minimum initial investment of $25,000, and is open only to accredited investors. Those are investors who meet certain minimum income and or net-worth requirements, specifically needed for higher-risk investing.
CNote charges no fees of any kind.
The absence of fees opens the question, How does CNote make money to stay in business? They earn income by retaining any funds in excess of the rate of return they pay to their investors.
How to Sign Up with CNote
You can sign up to invest with CNote entirely online. You’ll be taken through a series of screens, that will request specific information:
- Which entity best describes you? Personal, trust, advisor or institution.
- What are you most passionate about? Minority entrepreneurs, women entrepreneurs, low income communities, or better returns (CNote promises you’ll get all four).
- Your investment status: not accredited, accredited (net worth), accredited (income).
- Your email address.
Once you provide that information, you’ll be asked how much money you want to begin investing with. The input screen will show your expected annual earnings, and give you the option to reinvest your interest.
Finally, you will need to connect your bank account to fund your CNote account.
CNote is a unique investment platform with few, if any, direct competitors. Alternatives will include completely different investments, that provide comparable yields.
One example is high dividend stocks. Though they’re not quite as safe as CNote funds as far as safety of principal, they pay comparable rates. And they also hold the possibility of capital appreciation on the underlying stock investments.
A more direct alternative would be high interest online savings banks. For example, the CIT Bank Savings Builder with an investment as low as $100. Or, an HSBC savings account – with a minimum initial deposit of just $1.
The rates at both banks are a bit lower than the return on the CNote Flagship Fund, but they offer 100% safety of principal.
Pros & Cons
Socially Conscious — You’ll be providing investment capital for small businesses, first-time homebuyers, as well as schools, health centers, and community centers in low income neighborhoods. The goal is to help those underserved by traditional financial institutions to become economically self-sufficient.
High-Yield Investments — Interest yields are at the high end of the range for both high-yield online savings banks and short-term bond funds.
No Investment Fees — There are no investment fees payable to CNote
No Minimum for Flagship Fund — The Flagship Fund has no minimum required initial investment.
Wisdom Fund — You can earn a higher rate of return with the Wisdom Fund, though the requirements for that fund are higher.
Not FDIC Insured — CNote investments are not FDIC insured.
Not Guaranteed — Investments are not guaranteed and can fluctuate in value. It is possible to lose principal with CNote investments.
Interest Rate Yields Fluctuate — Interest rate yields are not fixed and can fluctuate with the general direction of interest rates.
No IRA — No IRA option available.
High Minimum for Wisdom Fund — The Wisdom Fund requires a minimum initial investment of $25,000, as well as accredited investor status.
Should You Invest Through CNote?
CNote represents highly specialized investing. You’ll be earning an excellent return on a short-term investment, while at the same time helping to provide capital to low-to-moderate income borrowers in communities not adequately serviced by mainstream financial institutions. You’ll be earning a high return on your money, while also helping to address the growing wealth gap in America.
CNote investments are suitable for short-term. They won’t provide anywhere near the returns you can get with equity type investments, like stocks or real estate investment trusts. But since every portfolio needs to have at least some funds invested in relatively safe, interest-bearing investments, CNote represents an opportunity to earn above average returns, with very little risk. And you’ll be doing it in a way that will help improve wealth inequality in America, similar to socially responsible investing.
If you’d like more information, or if you’d like to invest, visit the CNote website.