Redefining Return on Investment: How Community Lenders Are Proving Job Quality Pays Dividends for Everyone

Community development financial institutions are revolutionizing small business lending by treating job quality as a key indicator of business success, proving that good jobs create stronger businesses and better loan performance.

Key Takeaways

• Community lenders are discovering that businesses offering good jobs have stronger financial performance and better loan repayment rates than those treating workers as pure cost centers
• The traditional business school approach of minimizing all costs, including personnel expenses, creates a destructive cycle that weakens both businesses and local economies
• Small business owners often want to treat employees well but need guidance on how to balance worker benefits with business sustainability
• Job quality assessments help businesses identify incremental steps toward better employment practices rather than demanding immediate perfection
• Modest financial incentives can catalyze significant improvements in job quality when combined with technical assistance and ongoing support
• Successful programs meet businesses where they are in their development journey, recognizing that a two-person family business has different capacity than a growing company
• The most effective job quality tools focus on three key areas: health and wealth benefits, equity ownership opportunities, and inclusive company culture
• Professional development investments often provide immediate returns through improved safety, efficiency, and employee retention
• CDFIs are uniquely positioned to influence job quality because they already have trusted relationships with small business owners who can't access conventional financing

Flipping the Script: From Cost Center to Profit Engine

Here's something that should probably be taught in every business school but isn't: treating employees as nothing more than costs to be minimized is one of the fastest ways to tank your business. Yet that's exactly what most traditional business education teaches, and it's creating a vicious cycle that's hollowing out America's middle class.

Robert Anderson from Colorado Enterprise Fund puts it bluntly: "In business school they teach that people costs are cost like rent and the idea is to negotiate minimized costs, but that is absolutely the wrong way to look at investing in people." This isn't just feel-good rhetoric – it's emerging as a core insight among community development financial institutions that are seeing real-world evidence of how job quality affects business performance.

Viola Mai from ICA Fund explains the connection from an investor's perspective: "When you are thinking about doing an investment in a project specifically a small business, you want that to succeed... that's why job quality and having good jobs, having well-paying jobs helps the project succeed in the long run."

The math is actually pretty straightforward when you think about it. High employee turnover means constant recruitment and training costs. Poor working conditions lead to mistakes, accidents, and quality problems. Low wages create stress that affects productivity and customer service. Meanwhile, businesses that invest in their workers see improved retention, higher productivity, and better customer relationships.

• Traditional business education creates destructive cycles by treating all personnel expenses as costs to minimize rather than investments to optimize
• High-quality jobs correlate with stronger business performance, better loan repayment rates, and more sustainable growth trajectories
• Employee turnover, training costs, and productivity losses from poor working conditions often exceed the savings from low wages
• Community development lenders are uniquely positioned to observe these patterns because they work with businesses over long periods
• The investor perspective reveals how job quality affects everything from operational efficiency to market reputation and customer loyalty
• Small business owners often intuitively understand these connections but need support translating good intentions into sustainable business practices

The Hidden Economics of Good Jobs

What's fascinating about this conversation is how it reveals the hidden economics that traditional cost-benefit analysis completely misses. Viola Mai describes this perfectly: "The cost of wages is not also considering the additional benefit of that household having higher wage means that household has more income they can spend into the local economy and just keep that cycle going."

This insight challenges one of the fundamental assumptions underlying most business decision-making. When we focus exclusively on direct costs appearing on accounting ledgers, we ignore massive indirect benefits that strengthen the entire economic ecosystem in which businesses operate.

Think about a plumbing contractor in Northern Colorado that Robert Anderson describes. When Top-Notch Plumbing started paying living wages and providing benefits, the owner discovered something unexpected: "He has to run the business to take advantage of good people so that he doesn't have to make all the decisions... they can make decisions to save costs to help the cost of sales on projects stay low enough so that the business makes enough money to be successful."

This creates what economists call positive externalities – benefits that extend far beyond the immediate transaction. Better-paid employees become customers for other local businesses. They're less likely to need public assistance. They have more stability to invest in education, housing, and other assets that strengthen communities. Their children have better outcomes, creating a stronger future workforce.

• Traditional accounting methods capture direct wage costs but miss indirect benefits that strengthen entire business ecosystems
• Higher wages create multiplier effects as employees spend more in local economies, generating additional demand for business services
• Reduced public assistance costs and improved community stability create value that businesses benefit from but don't typically account for
• Good jobs enable employee decision-making and problem-solving that reduces management overhead and improves operational efficiency
• Quality employment practices often correlate with better customer service, fewer errors, and stronger business reputations
• The circular nature of these benefits means initial investments in job quality often pay for themselves through improved business performance

Tools That Actually Work: Measuring What Matters

Instead of just talking about job quality in abstract terms, these organizations have developed practical tools that help businesses understand where they stand and identify realistic next steps. ICA Fund's "Good Employer Matrix" breaks job quality into three measurable categories that businesses can actually work with.

The first category is "health and wealth" – basically, what are you paying compared to minimum wage and living wage, and what benefits are you offering? This gives businesses concrete benchmarks rather than vague aspirations about being a "good employer."

The second category focuses on "equity ownership" – how is the business owner sharing profits and potentially ownership with employees? This might include profit-sharing plans or even pathways to employee ownership, which aligns with ICA Fund's venture capital approach of thinking about long-term value creation.

The third category examines company culture, particularly whether management representation reflects the communities being served. As Viola explains: "If you are serving primarily Latino community, how many of the folks making decisions in your organization are Latino?"

What makes these assessments effective is that they meet businesses where they are rather than demanding immediate perfection. Robert Anderson emphasizes this approach: "We help them understand that wherever they are in the trajectory toward quality jobs is fine where it is as long as they are making some decisions to change."

• Practical assessment tools break job quality into specific, measurable categories that businesses can understand and act upon
• Health and wealth metrics provide clear benchmarks around wages, benefits, and working conditions that businesses can track over time
• Equity ownership considerations help businesses think beyond just employment toward wealth-building opportunities for workers
• Cultural representation assessments encourage businesses to consider whether their leadership reflects the communities they serve
• Meeting businesses where they are creates sustainable change by focusing on realistic next steps rather than overwhelming demands
• Regular assessment and goal-setting creates accountability while acknowledging that different businesses have different starting points and capacity

Smart Incentives: A Little Money Goes a Long Way

One of the most interesting aspects of these programs is how they use financial incentives strategically. These aren't huge grants that fundamentally change business economics, but modest amounts – typically $2,000 to $10,000 – that help businesses overcome specific barriers to implementing job quality improvements.

Robert Anderson describes their approach: "These are modest incentives... it doesn't really help them fund whatever changes they're making. It's more just a catalyst." But the results suggest that small amounts of money at the right time can have outsized impact.

ICA Fund's experience with Bold Construction illustrates this perfectly. The company wanted to implement workplace safety training for their construction workers – a clear job quality improvement that would also reduce accident risk and insurance costs. They had the vision and commitment but lacked the upfront cash to develop the curriculum.

A $10,000 grant enabled them to create the training program much earlier than they could have otherwise. As Viola explains: "It would have taken them a year, maybe more to find that extra income to fund that program and yet they were able to do it a little bit earlier and start upskilling their employees earlier."

The timing matters enormously. Waiting a year means another year of workers facing unnecessary safety risks, another year of potential accidents and insurance claims, another year of missed opportunities to build employee skills and loyalty. The modest investment creates value far exceeding its cost.

• Small financial incentives can remove specific barriers to job quality improvements without creating dependency on ongoing funding
• Timing matters enormously – enabling businesses to implement improvements earlier often multiplies the benefits significantly
• Professional development investments typically provide immediate returns through improved safety, efficiency, and employee capabilities
• Workplace safety training in high-risk industries like construction creates measurable value through reduced accidents and insurance costs
• Upskilling investments improve both job quality for workers and operational capacity for businesses
• The catalyst approach recognizes that businesses often have good intentions but face cash flow constraints that prevent immediate implementation

Starting Small: The Power of Incremental Change

Perhaps the most important insight from these programs is understanding that sustainable change happens through incremental steps rather than dramatic transformations. This approach recognizes the reality that most small businesses operate with tight margins and limited cash flow, especially the early-stage companies that CDFIs typically serve.

Robert Anderson works primarily with "mom and pop" businesses – often just husband and wife teams hiring their first or second employee. For these businesses, implementing a full health insurance plan immediately isn't realistic, but they might start with schedule flexibility or including employees in decision-making processes.

Viola Mai emphasizes the same principle: "We are giving grace and helping people make steps that make sense at a time... sometimes these kind of flow together like an employer starts offering a healthcare plan it's easy to add on the vision the dental child care."

This incremental approach also recognizes that job quality improvements often build on each other. A business that starts by paying above minimum wage might discover that attracts better candidates, which improves productivity, which enables them to offer health insurance, which further improves retention and attracts even stronger employees.

The key is maintaining momentum while acknowledging constraints. As Robert notes: "As soon as businesses start making changes towards the quality jobs goal they continue to make more and they tend to be able to fund more because of operational excellence that they're engaging in."

• Incremental change approaches recognize the financial constraints and operational realities facing most small businesses
• Early-stage improvements often create positive cycles that enable businesses to make additional investments in job quality over time
• Different types of job quality improvements have different implementation costs and complexity levels
• Building momentum through small wins creates confidence and capacity for larger changes
• The "flow together" effect means businesses often discover that adding benefits becomes easier once they've started with basic improvements
• Operational excellence resulting from initial job quality investments often generates the resources needed for additional improvements

Beyond the Numbers: Changing Hearts and Minds

What emerges from this conversation is that successful job quality work requires more than just financial incentives and assessment tools. It demands a fundamental shift in how business owners think about the relationship between workers and business success.

The entrepreneur running the gluten-free baking company that Viola describes represents this transformation perfectly. Initially, "he was just like not into the job quality stuff at all." But months after participating in ICA Fund's programming, something clicked: "Oh my god, like this is so important because retention because I get people who can stay on and help me become thought collaborators."

This shift from seeing employees as hands to hire to seeing them as collaborative partners in business success represents the deeper change that these programs are trying to create. It's not just about paying better wages or offering health insurance – it's about recognizing that employee engagement and development can be a competitive advantage rather than a burden.

Robert Anderson frames this in terms of economic philosophy: "Small business owners... are influenced by the opinions of bigger businesses because they read and they get the idea also that they're going to pay the least they can minimum wage... but we... have to understand that when you're working with businesses, they have this opportunity to change our economy."

• Mindset shifts from seeing employees as costs to seeing them as collaborative partners often prove more important than specific benefit improvements
• Retention benefits extend beyond reduced turnover to include institutional knowledge, customer relationships, and collaborative problem-solving
• Small business owners are often influenced by larger business practices that may not be appropriate for their scale or community context
• Employee development can become a competitive advantage that enables small businesses to compete effectively against larger companies
• The transformation from operator to strategic thinker happens more easily when business owners can delegate operational decisions to trusted employees
• Economic philosophy matters because it shapes how business owners approach fundamental questions about wages, benefits, and workplace culture

Advice for the Field: Start by Listening

When asked what advice they'd give to other organizations wanting to integrate job quality into their lending or investing work, both speakers emphasized the critical importance of listening to clients rather than imposing preconceived solutions.

Viola Mai explains ICA Fund's approach: "We listen to our clients we listen to them and we respond to what they're asking for and what they want." In the Bay Area, this meant discovering that hiring challenges were a major concern, so their job quality programming focused on coaching entrepreneurs on sourcing, hiring, and retaining employees.

This client-centered approach prevents organizations from developing programs that sound good in theory but don't address real business challenges. It also builds credibility because business owners can see that the support directly relates to problems they're already trying to solve.

Robert Anderson adds the broader economic perspective: "Their economy depends on a strong middle class. And a strong middle class depends on people who work at a living wage and who can provide good leadership for their business."

The advice essentially boils down to starting with genuine curiosity about what small business owners are experiencing, then designing support that addresses those concerns while advancing job quality goals. This approach creates buy-in because business owners can see direct connections between the assistance and their business success.

The philosophical framework provides the "why" behind the work – rebuilding America's middle class requires small businesses that create good jobs. But the practical application must be grounded in real business challenges and opportunities that entrepreneurs are already navigating.

• Client-centered programming design ensures that job quality support addresses real business challenges rather than theoretical ideals
• Listening to business owners reveals geographic and industry-specific priorities that should shape program focus and messaging
• Credibility builds when businesses can see direct connections between assistance offered and problems they're already trying to solve
• The middle class rebuilding framework provides compelling rationale while practical support must address immediate business concerns
• Different markets and communities will have different priorities that should influence how job quality concepts are presented and implemented
• Genuine curiosity about business owner experiences creates foundation for trust and ongoing relationship development that enables sustained impact

The conversation reveals that integrating job quality into lending and investing isn't just about being socially responsible – it's about recognizing that businesses with good jobs perform better financially, create stronger communities, and generate better returns for lenders and investors. This alignment of social and financial goals creates sustainable models that can scale and influence broader business practices across entire regions.