The Community Development Financial Institutions Fund (CDFI Fund) seems to be a well-kept secret though it should not be. It is a program sponsored by the U.S. Treasury with a vision of an America where all people have access to affordable credit, capital, and financial services. The mission of the CDFI Fund is to expand these services to under-served regions and individuals in the United States and to serve as a source of small business financing to under-served areas.
On a business level, local CDFI's may use their funds to further economic development, to develop businesses, jobs, and to fund commercial real estate. They provide other services on an individual level. CDFIs are private financial institutions.
Where Do CDFIs Receive Their Funding?
CDFIs receive funding from their parent organization, the U.S. Department of Treasury, but that is not all. They also receive considerable funding from non-profit organizations such as religious organizations and foundations, individuals, and state and local governments.
What is a CDFI and What is Their Role in Small Business Financing?
A CDFI is a local private financial institution that serves under-served areas of the U.S. They make loans at competitive interest rates to microbusinesses, small businesses, and non-profit organizations that may not qualify for conventional loans in the traditional marketplace.
CDFI's were established by the Department of Treasury in 1994. Financial institutions across the country can apply for status as a CDFI and, if approved, become eligible for CDFI funding.
The financial institutions have to meet certain criteria. They have to be located in an under-served or under-developed part of the country. They have to offer financial or economic counseling to business owners and they have to have a mission of improving their community and geographic area. There are nearly 1,000 CDFIs in the United States.
How Does a Small Business Qualify for CDFI Funding?
Usually, small businesses that go to a CDFI for funding have been turned down by traditional banks or other lenders when they have applied for a loan. Some have been able to get a portion of the money they need but not all of it. Other small businesses have had their credit score hurt by the Great Recession or have even had to take bankruptcy. Even under these circumstances, a CDFI will work with you.
To find a CDFI in your area, the best thing to do is to go to the CDFI Fund's search database which is located here and enter your information. You will find a list of financial institutions in your area who have received CDFI awards who might work with you. You can also go to the Opportunity Finance Network who also has a list of CDFI lenders you can search. Try all the possibilities in your geographic area.
The application process for a loan from a certified CDFI lender may seem onerous, but this is a serious loan program and many applicants will be competing against you. You may have to apply to more than one CDFI before you are successful but it will be worth it. Keep on trying until you are successful!
An Example of a CDFI in Action
There are a number of very successful CDFI's but one in particular is The Progress Fund. In 2011, The Progress Fund loaned over $5 million to 25 small businesses in its local area.
Do you remember the program, during the Great Recession, when Starbucks was collecting money for small businesses? Starbucks and the Opportunity Finance Network, mentioned above, collaborated with regard to that program and gave a grant to The Progress Fund. The purpose of the grant is to create and sustain jobs in western Pennsylvania and surrounding states as part of a national campaign to serve under-served communities. This is an example of how effective and helpful a CDFI can be to small business.