Getting financing as a small business can be challenging, especially if you have poor credit or don’t have much banking history. In fact, more than 1 in 4 businesses reported not being able to receive the financing they needed to get started or maintain their business. Now, of course, it’s more difficult than ever for small businesses to survive. There are resources that can help, however. Community Development Financial Institutions, or CDFIs, offer impactful support and low-interest financing for small business owners. Here’s what you need to know about CDFIs and how they could help you as a small business owner.
What is a CDFI?
CDFIs are specialized, private financial institutions 100% dedicated to serving people with less access to traditional financing, such as low income people and other disadvantaged communities. CDFIs are usually located in lower-income areas. CDFIs are not run by the U.S. government, but they are certified by the U.S. Treasury. Getting certified as a CDFI allows an institution to access specific grants, awards and programs. CDFIs are often called upon to administer government financing programs (including the PPP). To be certified, an institution must focus primarily on community development, rather than just selling financial products.
There are several different types of CDFIs. Here are the types of institutions that can get qualified as a CDFI:
For-profit banks can become certified as a CDFI and offer low-interest financing to economically disadvantaged people and businesses in need. Usually, banks are required to have community representation on their board of directors to be certified as a CDFI.
Unlike traditional banks, credit unions are nonprofit cooperatives operated by their members. Credit unions offer access to credit, savings and other financial services to low-income and minority communities.
Loan funds certified as CDFIs focus on offering financing for different community needs, including housing, business development, and nonprofit organizations. They might do different types of loans, or focus on loans for one particular need.
Venture capital funds offer start-up financing for businesses, traditionally often in technology. Venture capital has historically been very difficult for minority and low-income communities to access, but some venture funds certified as CDFIs focus specifically on these groups. Some are nonprofits and others are for-profit, but they usually have representatives from the community on their board of directors.
How Could a CDFI Support Your Small Business?
CDFIs offer a variety of services that are useful for small businesses. Many of them offer loan programs for people who might not otherwise be able to qualify for business loans, including microloans. Some also have grant programs available. CDFIs sometimes get early access to government financing and aid programs, which was the case with this round of PPP funding, so having a relationship with one could help you get funded more easily. Many of them also offer financial education and networking opportunities for small business owners.
How Can You Get Financing From a CDFI?
In total, there are over 950 certified CDFIs in the U.S. The first step to accessing financing from one is to locate a CDFI near you. You can check this list to find your nearest CDFI. Next, take a look at the institution’s website to see what loans they offer; many of them have specializations or specific eligibility requirements. Once you find a loan your are eligible for, apply online or in person. If you’re not approved for a loan, it’s still worth keeping in touch with your local CDFI for future opportunities.
What are Other Financing Options Besides CDFIs?
If you’re unable to get funded by your local CDFI, there are other opportunities you can look into. You can apply for a line of credit easily from our partner Fundbox, which specializes in small business financing, or apply for a PPP loan from our partner Funding Circle (they are approving applications faster than many other lenders). You could also apply for a loan through the EIDL program, which the U.S. Small Business Administration recently deferred payments on until 2022. Finally, you could look into private and state-level grant opportunities. You can sign up for 15 days free of Skip Plus to receive curated grant and loan opportunities.
Conclusion: CDFIs are a Great Resource for Small Businesses
CDFIs are important allies for small businesses seeking financing. If you haven’t already, you should look into connecting with a CDFI near you and get help accessing financial services and funding. If you haven’t already, make sure to download the Skip App to receive more small business news (free on the App Store or Google Play).