Lower income communities, and the businesses located in them, can get help from Community Development Financial Institutions. The banks, credit unions, and non-profit CDFI organizations provide loans, financial assistance, and advice to businesses as well as start ups in disadvantaged communities. Many minorities (Black, Asian, Latinos, etc.) as well as female run businesses use their local CDFI as a source of funding. Find where to apply, a directory, and learn more about CDFIs below.
They are often the only source of capital for small businesses as well as startup companies in lower income communities. Community Development Financial Institutions also give loans and financial support for business owners (or personal borrowers) that have limited credit histories or low credit scores.
CDFIs are a tool developed by the federal government to attempt to break this cycle. They target communities that banks typically do not want to establish much (if any) of a presence in and are very hesitant to provide investment funds to. CDFI creates opportunities for projects that have a specific focus on supporting businesses in the region, including women, veteran or minority owned, and they also focus on overall community development.
Low-income and impoverished areas face what often appears to be an impossible cycle of economic deprivation as well as barriers to getting capital. Many veterans, female run companies, and minorities also struggle to start a grow a business in a disadvantaged community. Investment and capital are needed for growth, but cannot be attracted due to existing conditions. This is where Community Development Financial Institutions can assist.
How do CDFIS Work?
“Funds” is a bit of a confusing term here, because it actually refers to the organizations through which this money is accessed. A wide range of organization types are eligible to fill this role, and those are the lenders a minority, women, or small business needs to apply at. Some examples are banks, credit unions, venture capital firms and microfinance institutions. These organizations go through a certification process run by the Department of the Treasury to become a CDFI partner. 
CDFI funds were established in 1994 by the Riegle Community Development and Regulatory Improvement Act. This money is set aside for the purpose of revitalizing low-income areas that have historically faced economic challenges. They help Black, Latino, women and businesses as well in which the need for capital with which to start and grow businesses is underserved.
There are over 1,000 of these CDFI organizations across the country, as well as in the territories of Guam and Puerto Rico. This means even immigrant as well as Hispanic business owners. The CDFI money starts with Treasury grants at the federal government level and flows to local businesses via these certified partners, who also often operate other retail financial services.
However, each CDFI doesn’t receive one fixed amount of money. The amount of money they are funded with depends on the investments they choose to make and the initiatives they participate in (for example, focusing on providing assistance to businesses that bring grocery options to “food deserts” or affordable housing to distressed areas). Certain communities that are considered to be particularly high-risk are also eligible for extra bonds and tax credits.
The fundamental mission of a CDFI lender is to strengthen communities (as well as small businesses or startups) by providing business tools and capital to them that would otherwise be unavailable due to traditional for-profit banks seeing little value in operating there. This also means that Community Development Financial Institutions are an important source of loans and funds for minorities, Black owned companies, Latinos, and others.
Who Qualifies for CDFI Loans?
CDFI loans are available both for business purposes (such as starting or growing a small business), as well as certain individual needs. A focus is on those with no other options available, such as minorities, immigrants, and women. The loans also help businesses with limited operating history or owners with credit issues in the past. Most of the money is for businesses, however individual needs covered by CDFI funding can include purchasing or making renovations to a home and job training.
It all depends on what the CDFI lenders in your local area offer. Each will, in turn, have their own application process for whatever loan type you are seeking. However, the requirements are generally more relaxed (and the approval rates are generally higher and interest rates lower) than you would see with a comparable “open market” loan. In addition, they try to give priority to Latinos, Black owned companies, veterans, LGBTQ, Asians, and others that are locked out of traditional bank lending. They also offer other funds, even find microloans for minority and women start ups and business.
What Can CDFIs do for minority or women owned Small Businesses and Entrepreneurs?
In the areas where they are available, CDFI loans are an excellent alternative to standard bank loans. They are particularly helpful to businesses with poor credit and/or an annual revenue under $1 million; around 75% of applicants in this income bracket have been approved annually in recent years. These low cost loans are also great options for minority owned businesses, whether Latino, Black, Asian, and even immigrant companies.
In addition to lower barriers to approval, CDFI loans generally offer more favorable terms than a standard bank loan of the same amount would. Interest rates are generally lower, particularly for shorter-term funds. Part of the low rate is due to these loans being restricted to very simple and straightforward terms; they usually have a fixed monthly payment amount and each payment is guaranteed to cover the full interest plus some of the principal.
CDFIs also have a substantial focus on assisting first-time borrowers who are unfamiliar with the world of business financial services and may need rudimentary technical assistance. They also offer free small business tips and advice. This is where Community Development Financial Institutions are great for women or minority entrepreneurs. Traditional banks generally do not provide customers with these sorts of services because there is no money in it for them. The CDFI provides more personal assistance to the borrower with things like developing business plans, marketing and understanding the various credit and financing options that are available.
How Do Individuals and Small Businesses Get Loans From Community Development Financial Institutions Lenders?
The federal CDFI website has a search function that lists all of the certified lenders in a particular state along with their annual funding amount, but it’s lacking a lot of important details. For one, it doesn’t separate them by specific locality. It also doesn’t indicate exactly what products they offer. But search here for CDFI lenders.
There is also a detailed list and search function are available from BofA. While this one doesn’t give you a list of loan products, it does provide a convenient link to each lender’s website so you can see what they currently offer. There are other places disadvantaged businesses can search for CDFIs near them as well, including Bank of America.
You will then need to get in touch with your local CDFI to find out what the application process is. Generally speaking, this process does take a little longer than a standard application at a bank. A bank might be expected to fund an approved loan in a week or so, but realistically you should anticipate the process taking several weeks with a CDFI.
Examples of CDFI Lender Products and Services for minorities or women
Below are some examples of the larger CDFI lenders, and the loan products and support services that they offer. Each of them gives focus to minority and women businesses, whether black, Latino, or veteran owned. Offerings may vary greatly by lender and community, but this will give you some idea of what is out there.
BBIF Florida of Miami and Orlando offers both loans and business training to minority communities. A focus is on immigrants, Latinos, Cuban and Puerto Rican borrowers. Loans come with business management consulting support that provides one-on-one coaching and access to a monthly business owner roundtable session.
Chicago Community Loan Fund of the greater Chicago metro area offers a wide variety of loan types targeted at both individuals and established businesses in developing neighborhoods, including Black owned companies or entrepreneurs. One of the central areas of focus is providing loans to various grocery industry services that help to restore healthy food access to “food desert” areas. However, there are also a variety of loan products available to all types of Chicago area businesses: pre-development, construction and rehabilitation, mortgages, equipment and working capital loans among others. These tend to be at very favorable terms relative to the market.
The Texas Mezzanine Fund of Dallas works with low- and moderate-income communities in the metro area, including many Latino small business owners. Among other products, the agency provides expansion loans for all types of businesses, foundational loans for real estate developers looking to build quality affordable housing, and those looking to build facilities for community use.
The Hope Enterprise credit union has branches throughout the southeastern states, with a particular focus on impoverished areas that are not well-served by banks. Hope Enterprises is a great option for women owned companies as well as minorities in the south. Members have access to a full spectrum of loan types (micro, bad credit, etc.) as well as special financing for developers of affordable housing.
Clearinghouse CDFI primarily serves the western and southwestern states with locations in California, Arizona, Nevada and New Mexico. A major focus is on Latino, Spanish speakers, and immigrant small businesses. This lender offers a general “community development” loan that is applicable to a variety of things, from business expansion to affordable housing.
How Does a Lending Organization Partner With CDFI?
As mentioned earlier, the first step is to become CDFI certified by the Treasury Department. Eligible financial institutions must have a primary business mission of promoting local community development, focus on serving one or more specific localities, and provide some sort of specific business development services related to these communities. This often involves being a source of advice, counseling, and a lender for the women and minority business community. Applicants also need to be a non-government entity (with the exception of Tribal governments, which are eligible).
Interested organizations start by participating in a conference call that is held once a month. There are some requirements in terms of total assets and cash-on-hand that are expanded upon in the CDFI Certification User Guide.
By Jon McNamara