CDFIs help small businesses in underserved areas. Here’s what you need to know
Breaking: On April 10. 2023, it was announced that the U.S. Department of the Treasury’s Community Development Financial Institutions Fund (CDFI Fund) has awarded over $1.73 billion in grants to 603 CDFIs nationwide. These funds were awarded through CDFI Equitable Recovery Program (ERP) and will assist CDFIs in helping low- and moderate-income communities invest in long-term prosperity, even as they recover from the COVID-19 pandemic.
ERP is a competitive grant program focused on communities that have significant unmet capital and financial services needs and have been disproportionately impacted by COVID-19. The funds will be used to increase the availability of capital and financing for small businesses, as well as promoting affordable housing and increasing accessibility to loans to aid families.
Financing a new or growing business is challenging and made even more so if you are in a community that is underserved by traditional banks. If that’s the case, consulting a Community Development Financial Institution, or CDFI, is a smart move.
Here are answers to some commonly asked questions about CDFIs.
What is a CDFI?
A Community Development Financial Institution is “a specialized lender that is mission-driven and creates economic opportunity for individuals and small businesses,” says Alice Rodriguez, Retired JPMorgan Chase Managing Director and Co-Owner of Kendall Milagro Inc., who has worked with multiple CDFIs over the course of her career. “They provide fair and responsible financing to communities that mainstream financial services firms do not reach.”
CDFIs can include banks, credit unions, venture capital funds, and loan funds.
What can a CDFI do for my small business?
CDFIs help small businesses by providing capital, loans, and technical assistance, according to Ms. Rodriguez. They specialize in providing assistance to smaller businesses and underserved communities, so they have a wider variety of products for those types of customers.
I am just starting my business and I don’t have much of a credit history. Can a CDFI help me?
Yes. Many CDFIs have products specifically designed to help you build credit so that you can get the financing you need to start a new business or expand an existing one. They may also offer assistance with business planning to help you get your business up and running.
Related: How to get a startup business loan
I’ve been in business for many years, but I want to expand. Can a CDFI help with that?
Yes. Business planning is a service offered by many CDFIs, in addition to technical assistance and access to capital. All CDFIs help the community at large – both businesses and individuals – and many of them prioritize underserved communities.
How do I find a CDFI near me?
Ms. Rodriguez recommends starting with your local Chamber of Commerce, as they typically have relationships with CDFIs. You can also use a CDFI locator, such as this one on the Opportunity Finance Network website. Locators may not list every CDFI, so if you don’t find one on a particular locator that meets your needs, keep looking.
“Many business owners get discouraged if they are turned down for financing by a traditional bank. They may need assistance with overcoming bad credit or no credit, or they may just need help knowing how to get started,” says Ms. Rodriguez. “CDFIs have the resources to offer more handholding through the process and are often able to provide specific products that traditional banks don’t offer, such as credit-builder loans.”
Whether yours is a brand-new business looking for a startup loan, or you have an expansion opportunity that’s too good to pass up, look to a local CDFI to help.