CDFI Loans an Option for Small Businesses With Shaky Credit

Written on May 12, 2010 – 12:42 am | by Ashley Johnson

More small banks, credit unions and nonprofit groups are pushing to become Community Development Financial Institutions and that could be a boon for small business, according to the Wall Street Journal.

To qualify for government designation as a CDFI, a lender must direct at least 60 percent of loans to low-income communities or individuals. In exchange, the lenders gain access to grants, SBA financing and other funding that makes it possible for them to extend business loans to borrowers deemed too risky by many larger banks.

For example, the non-profit Northeast Entrepreneur Fund often provides loans to borrowers with less-than-perfect credit histories.
“We look at character, willingness to do the work of the business and willingness to repay the loan,” Mary Mathews, president and chief executive of the organization, told the WSJ. “We’re able to do that by providing training and technical assistance which helps strengthen their request for financing.”
Entrepreneurs who receive CFDI loans face more oversight than they would with traditional bank loans. In many cases, businesses have to demonstrate how they will benefit the community and go through financial and technical training.
There are currently 859 CDFI lenders and growing. Fifty-five institutions were newly designated as CDFIs in 2009, up from 41 in 2008, said the WSJ. A complete list of CDFIs is available on the Treasury Department’s website.

Perfect Business!