Definition Or Explanation: Community Development
Financial Institutions (CDFIs) provide primarily loan financing to
businesses in areas that need economic development. CDFIs make
loans that are generally unbankable by traditional industry
standards.
Appropriate For: Start-up to established companies that
can demonstrate the ability to repay a loan but whose loan proposal
is unbankable because of past credit problems, the size of the loan
request, limited equity from founders or limited collateral.
Supply: Good. There are hundreds of CDFIs in urban, rural
and reservation-based communities with billions of dollars to lend.
Unfortunately, despite their numbers, CDFIs can be difficult to
track down.
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Best Use: To start a new business or to expand an
established one. Also, when the application of the proceeds can
create a second bottom line in the form of community job
creation--the introduction or preservation of a service that is
vital to a community or stabilizing a community in decline.
Cost: Relatively inexpensive. Most CDFI loans are priced
according to risk as opposed to the cost of funds. Since CDFI loans
tend to be riskier than bank loans, they cost more as well. Typical
pricing may be from 0.5 to 3 percentage points higher than
conventional loan rates.
Ease Of Acquisition: Easier than commercial lenders, but
challenging, since for loans, a company must still undergo the
scrutiny of traditional credit analysis. The difficulty of securing
CDFI financing is sometimes compounded by the relatively narrow
focus and agenda these institutions may maintain.
Range Of Funds Typically Available: $25,000 to
$500,000.
From Where's the Money? Sure-Fire Financing Solutions for
Your Small Business, by Art Beroff and Dwayne Moyers. (c)
Entrepreneur Press, 1999.