You may not have heard of the CDFIs, but as a small business owner, these organizations could prove to be a valuable resource for funding your small business. The Treasury’s CDFI Fund certifies CDFIs and provides funding to these organizations through several programs. CDFIs, in turn, provide affordable financial services—including loans— to individuals and small businesses. Learn more about this valuable resource for affordable lending and how it may help your small business in this article. 

What is a CDFI? 

CDFI stands for “Community Development Financial Institution. A CDFI is a specialized organization that provides financial services (which may include financial education, loans and other financial services) in low-income and distressed communities, and to those who otherwise may find it difficult to access affordable financial services. Their programs and services may vary. Some CDFIs make affordable housing loans, for example, while others may make small business loans. 

The CDFI Fund describes the four main types of CDFIs it certifies as follows: 

• Banks—These are for-profit corporations that make loans or investments to help rebuild economically distressed communities
• Credit Unions—These member-owned non-profit cooperatives offer affordable loans, bank accounts, and other financial services to members. Some also make small business loans. 
• Loan Funds—These may be for-profit, but typically they are non-profit organizations that offer financing (along with technical assistance) to small businesses, microenterprises, affordable housing developers, and community service organizations. 
• Venture Capital Funds—Those that fall under the CDFI umbrella, provide equity and debt-with-equity services to businesses in underserved communities.

To qualify for CDFI certification, the CDFI must make community development its primary mission. It can’t just sell financial products; instead it must offer both educational and financial services. It must have one or more defined target markets that it serves, and maintain accountability to that specific market. They cannot be government entities or under control of one (except for Tribal governments.) Their mission focus can be helpful for entrepreneurs who are having difficulty accessing capital otherwise. 

As the CDFI Fund notes: “Through unique programs and tailored resources that leverage federal dollars with private capital, the CDFI Fund supports creating jobs, building businesses, and revitalizing neighborhoods.” 

How a CDFI can help your small business

CDFIs can be a valuable source of financing and investment in community businesses including very small microenterprises, small businesses, and even nonprofit organizations. Some are also involved in financing commercial real estate and affordable housing.

When it comes to small business loans, one popular source of financing through CDFIs are “microloans”— smaller loans to disadvantaged businesses. Loans from CDFIs often come with “technical assistance,” which often involves education and counseling to help the business owner successfully deploy that capital to grow their business, and to become qualified for more traditional small business loans in the future. 

Eligibility requirements vary, but generally these organizations are trying to help those in underserved communities who likely cannot get loans from mainstream financial institutions such as banks. They may offer programs for borrowers who are low-income, underbanked, members of minority groups, immigrants, women, veterans or native Americans, for example. 

These loans often have more flexible underwriting standards. When it comes to credit scores, business revenues and other traditional small business lending qualifications they may be able to work with borrowers who don’t fit the traditional target market for small business financing. . 

CDFIs may offer relief and recovery loans and assistance. In 2020, many CDFis have helped businesses with COVID-19 relief and recovery. 

Some of these organizations offer working capital loans and/or startup financing. Others help small business owners refinance high-cost and predatory loans to reduce their costs and preserve their business. 

How do you get a loan from a CDFI? 

It may take some research to find the right CDFI partner for your small business. But if you are successful, the time you invest will be well worth it! 

Generally, larger and well-established businesses with good credit scores are not the primary target for these organizations. If, however, your business is finding it difficult to access small business loans at an affordable cost, or if your business is located in a rural or distressed community, you may want to look into loans offered by CDFIs. 

• Step One: Locate Community Development Financial Institutions in your community. You can use the resources listed in the next section to find ones in your area.

• Step Two: Visit the CDFI’s website to find out what kinds of lending and financial assistance it offers. Each CDFI has its own area of specialty. 

• Step Three: Contact the CDFI to discuss the best way to formally apply. 

If you do get a loan from a Community Development Financial Institution, the terms should be attractive and there won’t be any hidden surprises such as balloon payments. 

How many CDFIs are there in the U.S.? 

As of November 16, 2020 there are 1146 Treasury Certified CDFIs in the U.S. and 69 Certified Native CDFIs. These organizations can be found in all 50 states. To find one near you: 

• Download an updated list of certified Community Development Financial Institutions at the U.S. Department of Treasury CDFIFund.gov website here. 

• Use the Opportunity Finance Network’s CDFI locator to find one in your community. 

Are CDFIs regulated? 

Some Community Development Financial Institutions are regulated financial institutions, including community development banks and credit unions. Others may be non-regulated institutions such as venture capital funds or loan funds. 

What options are there besides CDFIs? 

Financing from a CDFI may be a stepping stone to other types of small business financing. Loans paid on time may help you build business credit and/or personal credit, depending on whether the lender reports payment information to credit bureaus. 

But if you can’t secure a small business loan from one of these organizations, what else can you do? If your business doesn’t meet traditional underwriting criteria— good personal and/or business credit scores, at least two years in business and strong revenues— you may need to consider other sources of funding. 

Two to consider:

• Crowdfunding. You may be able to raise money for a product, project, or even a non-profit organization through crowdfunding. One option to consider is Kiva, a nonprofit organization that makes 0% loans of up to $15,000 to entrepreneurs. 
• Credit cards. A business credit card may offer flexible financing; be sure you understand the costs including the interest rate and annual fee (if any). 

In addition, make sure you take advantage of free help through SBA resource partners. You can get free mentoring and entrepreneurship education through Small Business Development Centers (SBDCs), SCORE, Women’s Business Centers and more. Find your local organization here.