Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. All investments carry risk.
Overview
Are you looking for an investment which:
- Supports community development and women and people of color-led businesses while
- Results in a relatively stable 2% APY
- Requires no fees
- Has no minimum investment amount.
If so, keep reading for a CNote Flagship Fund review.
Disclosure: This post contains an affiliate link. If you click through and invest, I may receive compensation, at no cost to you. This review has not been commissioned or endorsed by any advertiser.
CNote Flagship Fund Review: The Bottom Line
- Offers investors the opportunity to earn a 2% return.
- Results in a significant positive impact on community development and supporting women and people of color.
- Charges no fees.
- Requires no minimum balance.
- Investments are not FDIC insured but provide a fairly stable yield.
- Funds are typically eligible quarterly for withdrawal.
CNote’s Flagship Fund may appeal to investors who are looking to support community development, who do not need to have immediate liquidity, and who have an appetite for a fairly low level of risk*.
*Please note that all investments have a degree of risk, including the risk that you could lose all of your investment. Historically, economic downturns have not affected the performance of CNote’s partners but past performance does not necessarily predict future results.
Investment Type
When individuals invest in CNote, they are issued a promissory note or notes (“CNote Notes”). CNote aggregates investor funds to make loans to Community Development Finance Institutions (CDFIs). CDFIs then use the funds to provide loans to entrepreneurs and others. CNote’s CDFI partners have “been around for decades and have not lost a single investor dollar.” Over $40 million has been committed to the Flagship Fund.
Features
Upsides
The Flagship Fund currently offers a 2% rate of return. The current average APY for savings accounts is 0.10%. CNote’s Flagship Fund, therefore, offers a significantly higher return. However, the rate of return is subject to change and is not guaranteed.
There are no fees. Having no fees pop up in your transaction list is a relief.
100% of the money is invested with non-profit lenders that finance under-served communities and spur local economic development across America. CNote works exclusively with federally-certified Community Development Financial Institutions (CDFIs). The CDFIs use invested funds to provide loans for small businesses, help build affordable housing and bring sustainable economic growth to communities across America. 85 percent of a CDFI’s clients are low-income, 58 percent are people of color, and 48 percent are female.
CNote provides annual impact reports. A summary of the 2021 impact report for fixed income investments can be seen below.
CNote has a Triple Protection Plan to reduce the risk of loss.
- CDFI partners are obligated to pay CNote back even if their borrowers are unable to repay their loans.
- State and federal programs exist to protect money invested in CDFIs.
- CNote established a loan loss reserve fund.
Downsides
Accounts are not FDIC insured so there is risk associated with depositing money into a CNote account. CNote’s website states that their “non-profit partners [CDFIs] have been around for decades and have not lost a single investor dollar. Ever.” However, this is still an uninsured investment option so there still is a risk that investor dollars could be lost.
I contacted CNote to ask how they’re mitigating risk associated with economic downturns. See the end of this post for CNote’s reply**.
Liquidity is limited. CNote’s Flagship Fund offers quarterly liquidity on up to 10% or $20,000 of your investment (whichever is larger). Quarterly liquidity dates are January 1, April 1, July 1, and October 1. 30 days notice is required and if you miss that request, you may be stuck waiting until the end of the following quarter to be able to access your funds. Special accommodations for immediate liquidity needs are possible.
The investment structure can be confusing. Partaking in the Flagship Fund results in investors purchasing promissory notes or notes (“CNote Notes”). These notes are a form of debt used to raise money. Proceeds from the CNote Notes are used to make loans to CDFI partners. CDFIs provide loans to entrepreneurs and others.
Customer service
Upside
Thorough and proactive customer service. I’ve emailed the Customer Service Team a few times and the answers have been very comprehensive.
Helpful FAQs. The FAQs provide clear answers to a variety of questions about the basics of CNote investing, risk & return, and social impact.
Downside
Information can be difficult to find on the website. The FAQs are useful but are difficult to find on the website without a direct link. Keep the link on hand.
There are many references to the Offering Circular filed with the SEC. I understand that the Offering Circular covers all the various legal issues. However, the Circular is not easily accessible in terms of its format.
No weekend or evening phone customer service. The customer service phone line is open Monday – Friday from 8:30am – 6pm PST.
If you are inspired to invest, please use this referral link.
**CNote’s response about risk mitigation during the COVID-related economic downturn: “As you can anticipate, in the investment world we can’t promise or guarantee the performance. What we can rely on is history. A study done by the leading CDFI organization, Opportunity Finance Network, tracked CDFI performance from 1994 through 2013. In that report, you’ll see that net charge-off rates were close to traditional FDIC institutions during and after the great financial crisis. Further, CDFIs are not as leveraged as banks, which means they have more of a cushion to handle economic disruptions. We see no reason that this history of strong financial performance will break. We’re following the situation closely so that if any issues arise we can proactively address them.
We are in touch with our CDFI partners on a daily basis to hear firsthand how things are developing on the ground around the country in the communities they serve. Low-income communities often get disproportionally affected by crises so the work of CDFIs is more relevant and needed than ever in such times.”