Close To Home

Community lenders serve as a vital source of funding for nontraditional borrowers.

If you've tried to get a loan from a traditional institution and been turned down, there's another source of business financing to consider.

"There are about 450 Community Development Finance Institutions (CDFIs) in the country that act as bridges to link unconventional borrowers to conventional capital," says Mark Pinsky, executive director of the National Community Capital Association, a CDFI trade association.

Until recently, CDFIs concentrated primarily on helping people get mortgage loans. But the advent of entities like Chicago's Southshore Bank inspired President Clinton to create a national network of more than 100 such institutions.

Today there are a growing number of partially government-backed CDFIs, such as the Austin Community Development Corp., which focus almost exclusively on lending to entrepreneurs. "We have approximately $2.2 million in our capital fund," says Margo Weisz, executive director of the Austin CDFI. "We just got half a million from the federal CDFI fund, but our primary funders are banks."

CDFIs typically lend to businesses other lenders deem unfundable, but their default rate is only 1.5 percent, says Pinsky.

According to Weisz, "We work within the Austin city limits in low and moderate income census tracks and primarily make loans to minority- and women-owned businesses. But you don't have to be a minority [or a woman] to access the financing."

The Austin CDFI funds ventures that will provide high-quality jobs or make improvements in blighted neighborhoods in its target area. Loans start at $20,000 with three- to seven-year terms and interest rates that range from 11 to 13 percent.

Although CDFI lending may seem implausible to the larger financial community, there's nothing magical about it, says Pinsky. They're just lenders that have the flexibility to devise creative solutions and that are willing to take risks.

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This article was originally published in the March 1999 print edition of Entrepreneur with the headline: Close To Home.

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