All
CDFIs invest in unbankable people, but every CDFI is different.
This diversity is one of the strengths of the industry, but it can
make it difficult for a potential borrower to find the right institution
to apply to. If you are interested in a loan, there are several
things to consider.
Finding an appropriate institution
What if they say 'yes'?
What if they say 'no'?
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Finding
an appropriate institution
- Find
an institution that can do business with you. Credit unions
lend only to their members. Venture capital funds lend only
to larger businesses. Microloan funds lend only to very small
businesses. Some CDFIs lend only to community organizations.
- Find
an institution that makes the types of loans you are interested
in. Every CDFI has its own priorities. Read more about the various
lending purposes of different types of CDFIs in Loans.
- Look
at the list of national organizations of CDFIs listed in Resources
to help you find the right institution.
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What
if they say 'yes'?
- Repaying
a loan:
A loan from a CDFI must be repaid with interest, just like a
loan from a bank.
- Developing
a trusting relationship:
If a CDFI is ready to take the risk of lending to you, you need
to take the risk of being open and honest about financial or
personal difficulties that may effect your ability to make payments.
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Seeking technical assistance:
Most CDFIs offer advice and/or training——known as
technical assistance——to business borrowers who lack
basic business knowledge and experience. Technical assistance
can include training in bookkeeping, marketing, or any other
aspect of running a company.
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"You want to have experienced people
helping slightly inexperienced entrepreneurs. But it's not
just the provision of technical assistance. It's creating
a relationship with a borrower so they're very comfortable
picking up the phone and saying, "I'm failing. I'm not going
to be able to pay you," and trying to convey the honest reasons
why that's the case. That's a very unusual relationship to
have with your banker."
Patty Grossman, Cascadia Revolving Fund |
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What
if they say 'no'?
- CDFIs
don't say yes to everyone: Although they are committed to
lending to people who don't meet the criteria of regular banks,
they do evaluate the ability of an individual or a business
to repay the loan. Not only do CDFIs need to protect their investors'
money, they don't want to encourage people to pursue plans that
have little chance of success.
- Preparing
to reapply:
When a CDFI does say no, they usually tell you what you need
to do to qualify. This can include clearing up old debts or
preparing a better business plan.
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"There are lots and
lots of people that I would have loved to have helped, based
on their character. But I just knew, based on their business
ideas, their financial projections, and the state of the economy,
they would fail. It's not a favor to anybody to set someone
up to fail."
Patty Grossman, Cascadia Revolving Fund |
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